Why This Canadian Healthcare Stock Is a Hidden Value Gem

Extendicare Inc. (TSX:EXE) is a healthcare stock that deserves your attention for its value and top-shelf dividend offering.

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The S&P/TSX Capped Health Care Index was up 1.7% in early afternoon trading on May 23. Meanwhile, the broader TSX Index was trading in the red at the time of this writing. Today, I want to focus on a Canadian healthcare stock that looks undervalued at the time of this writing. Moreover, this stock offers exposure to one of the fastest-growing industries. Let’s jump in.

How has this Canadian healthcare stock performed over the past year?

Extendicare (TSX:EXE) is a Markham-based company that provides care and services for seniors in Canada. Shares of this healthcare stock were down 0.4% in early afternoon trading on May 23. Meanwhile, the stock is still up 10% in the year-to-date period. Canadian investors who want to see more can play with the interactive price chart below.

Here’s why I’m excited about Extendicare for the future

In previous articles, I’ve discussed Canada’s shifting age demographics. Indeed, the country’s senior population is in the middle of a dramatic expansion as the baby boomer generation enters the golden years. Markets N Research recently valued the elderly care market at US$1.59 trillion in 2021. The report projected that this market would grow to US$2.36 trillion in 2028. That would represent a compound annual growth rate (CAGR) of 6.8% over the forecast period starting in 2022.

This company unveiled its first-quarter fiscal 2023 earnings on May 4. It reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $31.0 million — up $10.8 million compared to the previous year. Meanwhile, average long-term-care (LTC) occupancy improved 60 basis points (bps) to 95.1%

Extendicare posted revenue growth of 6.2% year over year to $324 million. That growth was powered by LTC flow-through funding increases, higher LTC occupancy, home healthcare ADV growth, and billing rate improvements. Moreover, adjusted funds from operations (AFFO) rose to $20.8 million or $0.24 per basic share compared to $12.5 million, or $0.14 per basic, share in the first quarter of fiscal 2022.

On the business front, Extendicare saw continued recovery in its LTC homes occupancy. That segment has benefited from a funding bump from Ontario as provinces look to address the needs of the growing senior population. ParaMed revenue in its Home Health Care segment was reported at $107 million — up 8.9% from the prior year. Meanwhile, revenue in its Managed Services segment rose 33% to $2.4 million.

Two reasons I’m buying this healthcare stock before June

The first reason I’d look to snatch up this healthcare stock in late May is its value. Shares of Extendicare currently possess an attractive price-to-earnings ratio of 9.3. This stock is trading in favourable value territory compared to its industry peers.

I’m also looking to Extendicare for its monster monthly dividend. This healthcare stock last paid out a monthly distribution of $0.04 per share. That represents a tasty 6.6% yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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