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.

| More on:
telehealth stocks

Image source: Getty Images

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.

More on Investing

Dividend Stocks

Enbridge Stock: This Dividend Aristocrat Looks Like a Steal in 2023

Here are some key factors that make ENB a great Canadian dividend stock to buy on the dip in 2023.

Read more »

Stocks for Beginners

Invest in These Stocks to Make the Most of Your TFSA

If you are unable to find fundamentally strong stocks for your TFSA in 2023, here are two great stock picks…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

U.S. Debt Ceiling: Is It Safe to Invest Right Now?

The U.S. debt ceiling is in the headlines again. You can play it safe by investing long term in wonderful…

Read more »

Stocks for Beginners

2 TSX Stocks to Smooth Over the Market’s Bumps

Here are two of the safest TSX stocks you can buy in June 2023 without worrying about high stock market…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

1 Bank Stock I’d Buy Today (and 1 I’d Sell)

Bank earnings season is upon us, and I’d look to buy Bank of Nova Scotia (TSX:BNS) while avoiding another top…

Read more »

Credit card, online shopping, retail
Tech Stocks

Should You Buy Lightspeed Stock After Its Q4 Earnings?

Despite its volatility, I expect Lightspeed to outperform in the long run due to its healthy growth prospects and cheaper…

Read more »

oil and natural gas
Energy Stocks

These Canadian Energy Stocks Are Bargain Buys for 2023

Here are two of the best Canadian energy stocks you can buy on the dip in 2023 to hold for…

Read more »

A worker drinks out of a mug in an office.
Bank Stocks

Royal Bank Stock Pays a 4.37% Dividend Yield, But Another Stock Looks Even Better Today

Royal Bank of Canada (TSX:RY) may be the top dog on the TSX, but I prefer another dividend stock for…

Read more »