The Reason Behind Brookdale Senior Living, Inc.'s 21% Spike Higher

By Sean Williams Markets Fool.com


Image source: MyFuture.com, Flickr.

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What happened

Shares of Brookdale Senior Living (NYSE: BKD), an owner and operator of senior living communities across the United States, surged as much as 21% during Tuesday's trading session after reports from The Wall Street Journal, via unnamed sources that were familiar with the matter, suggested that Brookdale Senior Living may be looking to sell itself.

So what

According to The Wall Street Journal, Brookdale is in talks with private-equity giant Blackstone Group (NYSE: BX), as well as other suitors, to sell parts or all of its business. Per the report, deal discussions are still in the early stages, meaning they could easily fall apart. However, the deal itself could include selling the company's property, which is something activist investors have pushed Brookdale to do in recent years.

Brookdale's management team may feel coerced into such a deal given its poor stock performance over the past two years; it's down 59%. Brookdale's acquisition of Emeritus in 2014 was expected to give the company new geographic breadth across the U.S., but it's proven difficult to integrate, which has weighed down Brookdale's bottom line. In 2016, Brookdale's full-year EPS is expected to contract by about 5%, with its 2017 full-year EPS dipping by a double-digit percentage.

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Now what

Today's news is exactly the spark Brookdale shareholders needed after a rough run. However, shareholders should also understand, based on the report, that a deal may not come to fruition. The good news here is that Brookdale obviously has some avenues of flexibility it can explore to increase shareholder value, which could help put a floor underneath Brookdale's Senior Living's stock in the near term.

However, patient investors who have time on their side and a slightly above-average risk tolerance may want to consider waiting out this rough patch in Brookdale. Despite its integration woes with Emeritus, and the likelihood that Medicare reimbursement rates could be challenging, Brookdale Senior Living could win simply by sheer numbers in the decades to come. The U.S. Census Bureau is estimating that the senior population in this country could essentially double between 2012 and 2050. That's a massive potential patient pool for Brookdale -- and the senior housing industry as a whole.

Depending on your timeframe and patience, Brookdale Senior Living may still be worth a look.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has adisclosure policy.