National HealthCare Corporation
December 2, 2014
Ricky Fang, Fan Fei, Jacob Stoiber
Agenda
1.Introduction
2.Macroeconomic Review
3.Relevant Stock Market Prospects
4.Company Review
5.Financial Analysis
6.Financial Projection
7.Application of Valuation Methodologies
8.Recommendation
Company Overview
National HealthCare Corporation (“NHC”)
• Founded in 1971
• An innovator in the delivery of quality longterm care
• Operates 73 skilled nursing centers with 9,410
beds, 37 homecare programs, 5 residential
living centers and 18 assisted living
communities
Source: NHC Website
Position
• May 14, 2014
Purchased 100 shares @ $55.25/share
Cost Basis: $5,525
• December 2, 2014
Hold 100 shares @ $59.82/share
Market Value: $5,982
Annualized return: 8.27%
Source: Yahoo Finance
Relevant Stock Market
Source: NHC 2013 10-K page 32
Macroeconomic Factors
• Aging Population
Source: U.S. Bureau of the Census
Macroeconomic Factors
• Government Funding
Source: ibis world
Industry Outlook
Nursing Homes & Long-Term Care Facilities Industry
• Government support (reimbursement for Medicare and Medicaid)
accounts for 75% of industry revenue
• Preferences starts to shift from nursing homes to at-home managed
care and community care services
• Numerous Mergers and Acquisitions in the industry to broaden the
scope of services they offer and providing supplementary services to
reduce costs.
• Expected to continue to grow with revenue expected increase at an
average annual rate of 5.7% to $167.7 billion in the five years to
2019.
Source: ibis world
Portor’s Five Force
Threat of new entrants:
Medium
Threat of Substitutes:
Medium
Bargaining Power of Buyers:
High
Bargaining Power of Suppliers:
Medium
Rivalry among existing Firms: High
• In some states license are required
• Capital expenditure is moderate
• Few Very large operators
• Increasing number of specialty hospitals and surgery centers
• Increasing use of home-care
• Skilled nursing service is hard to be replaced
• Different other nursing facilities companies available
• Numerous alternatives (home-care) available
• Very few top nursing institution and multiple competitors
• Some medical device suppliers
•Many players providing similar service compete in the industry
Business Overview
Net Patient Revenues
- Skilled Nursing Facilities (SNF), Rehabilitative Services, Assisted
Living Centers, etc.
- 93.3 % of net operating revenues
Other Revenues
- Accounting and Financial Services, Insurance Services, and Rental
Income
- 6.7% of net operating revenues
Source: NHC 2013 10K pg. 3-6
Business Overview
- Revenue Sources
- 73 Long-Term Care centers with a total of 9,410 licensed beds
- 10 states: MA, NH, TN, KY, GA, SC, MO, FL, VA, and AL
Source: NHC 2013 10K pg. 8, NHC 2013 10K pg. 23-28, NHC 2013 Q3 10Q pg. 9
SWOT Analysis
S: Integrated Business Segments, Lease Renewals
W: Decreasing Occupancy Rates
O: Age increase, Affordable Care Act
T: Reimbursement rates, competitive market for
healthcare professionals, and regulation.
Management Focus
• Expansion by opening new facilities and broadening service and
boosting revenue
• Occupnancy rate within skilled nursing facilities
• Accrued professional liability reserves, workers’ compensation
reserves and health insurance reserves
Source: NHC 2013 10-K page 34-35
Recent Financial Results
1. Renewal $ 75 million line of credit on October.27
2. Net income available to common shareholders
decreased in first nine months in 2014 compared to
2013 because of the negatively impact by a decrease in
non-operating income.
3. Announced $0.34 cents per common shares dividend
(company pay dividend every quarter) in November 6
4. Announced $25 million stock repurchase program that
will expire in August 2015
Source: Yahoo Finance NHC Press Release
Ratios
Ratios
Ratios
Technical Analysis
Source: Yahoo Finance
Financial Projection
Discount Rate
DCF Analysis
Discount Rate —With Lease
DCF Analysis—With Lease
Implied Price
Without Lease
With Lease
Comparables
Recommendation
Our Valuation: $55.77
Market Price: $59.82