Question: What are your thoughts on Estia Health? I am thinking of buying for the long term?
Answer (By Paul Rickard): I have struggled with Estia Health (ASX Code EHE) – not really understanding what the roll-up strategy is in such a highly regulated industry (that is, what are the scale economies to be had in the provision of aged care services, when almost every aspect is regulated by Government).
The market, however, likes the strategy, and investors have been rewarded. Estia looks set to continue on the acquisition front and is forecasting earnings growth of at least 20%.
According to FN Arena, the brokers like the stock with sentiment reading of +0.8 (-1.0 most negative and +1.0 most positive). It is trading on a forecast multiple of 23.0 times FY 16 earnings, and 20.2 times FY 17 earnings. The brokers’ consensus target price is $7.30
While these multiples are below many other companies in this sector, Estia is not cheap.
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