Why Healthcare Services Group Stock Triumphed Today
Key Points
It crushed the average analyst estimate for net income in its latest quarter.
Investors were impressed even though much of that profitability came from a payroll tax credit.
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Wednesday was a fine day to hold shares of Healthcare Services Group (NASDAQ: HCSG). That's because the company delivered a third-quarter earnings report that featured very convincing beats on both the top and bottom lines. As a result, its share price got an injection of nearly 14%, a rise that contrasted well with the 0.5% drop of the S&P 500 index.
Healthy rises
Healthcare Services' earnings release was published well before market open that trading session, likely building up plenty of eagerness in investors to own the shares.
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The company earned revenue of slightly more than $464 million, representing a year-over-year improvement of almost 9%. Net income according to generally accepted accounting principles (GAAP) leaped more than three times higher, to almost $43 million ($0.59 per share) from $14 million in the year-ago quarter.
Thirty-six cents ($0.36) of that per-share amount, however, derived from an employee retention credit (ERC), a pandemic-era payroll tax credit for keeping workers on its books. Healthcare Services did not provide a non-GAAP (adjusted) net income figure in its earnings release.
Nevertheless, the numbers presented were above the average analyst estimates. Prognosticators following the company collectively believed it would post just over $460 million in revenue and only $0.21 per share for GAAP net income.
Demographic and other advantages
In the release, Healthcare Services benefited from an influx of new clients while at the same time retaining many of its existing customers. It also mentioned its relatively robust cash collection and the strength of its balance sheet. The U.S. population continues to age, which sets a good platform for niche healthcare companies like this one.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Healthcare Services Group. The Motley Fool has a disclosure policy.
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