Shares of Healthcare Services Group (HCSG) were down 16.22% on July 20 to close near its 52-week low at $15.55 after the housekeeping, laundry, dining, and nutritional service provider within the healthcare market reported weaker-than-expected Q2 results.
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HCSG Q2 Miss
The company reported adjusted earnings of $0.09 per share, which lagged analysts’ expectations of $0.13 per share. The company reported earnings of $0.13 per share in the prior-year period.
Further, revenues grew 6.7% year-over-year to $424.86 million but fell short of consensus estimates of $427.22 million.
HCSG Increases Dividend Payout
Positively, however, HCSG announced the 76th consecutive increase in its quarterly cash dividend to $0.21375 per share.
HCSG’s annual dividend of $0.855 per share now reflects an impressive dividend yield of 4.67%. The dividend is payable on September 23 to shareholders of record on August 19.
HCSG CEO’s Comments
HCSG CEO, Ted Wahl, commented, “While we recognize that some of these decisions have a temporary impact on our reported results, we remain confident that these service agreement modifications will further strengthen our client partnerships and position us to exit the year with cost of services in line with our historical target of 86%.”
Wall Street’s Take on HCSG
Following the Q2 miss, RBC Capital analyst Sean Dodge decreased the price target on Healthcare Services Group to $17 from $20 and reiterated a Hold rating.
From the rest of the Street, HCSG receives a Hold consensus rating based on four Holds. The average analyst price target of $19.25 suggests upside potential of around 23.79% from current levels.
Concluding Thoughts
HCSG shares have lost 42% of their market capitalization over the past year, massively underperforming benchmark indices that are down almost 10% over the same period.
Though management has clarified that they are in the “final stages of negotiation” with their clients to account for the inflationary effect in the service agreements, the investor community was clearly disappointed, as seen in the HSCG stock price reaction following the results.
