Benchmark reiterates Buy rating on Healthcare Services Group stock

Investing.com - Benchmark has reiterated a Buy rating and $17.00 price target on Healthcare Services Group (NASDAQ:HCSG) following news about one of its major clients. The target represents significant upside potential from the current price of $13.82, with InvestingPro analysis suggesting the stock is currently undervalued.

Genesis Healthcare (OTC:GENN), which filed for Chapter 11 bankruptcy protection on July 9, currently receives services from HCSG at 164 facilities. HCSG expects to maintain its contractual relationship with these Genesis facilities without disruption to service or payments. The company’s strong financial position, with a healthy current ratio of 2.89 and minimal debt, should help weather this challenge.

As of July 9, HCSG reported net accounts receivable balances with Genesis of $50.0 million and notes receivable of $14.4 million. The Genesis bankruptcy filing will result in HCSG taking a second-quarter non-cash charge of approximately $0.62 per share.

HCSG also anticipates a third-quarter non-cash charge of approximately $0.03 to $0.04 per share related to the Genesis situation. Despite these charges, HCSG serves approximately 2,600 facilities in total, with Genesis representing only a portion of its business.

For fiscal year 2025, HCSG continues to expect mid-single-digit revenue growth and $60-$70 million of cash flow, maintaining its previous guidance despite the Genesis bankruptcy filing. Investors can expect more clarity on these projections during the company’s upcoming earnings report on July 23.

In other recent news, Healthcare Services Group reported stronger-than-expected financial results for the first quarter of 2025, with earnings per share reaching $0.23, surpassing the forecast of $0.18. Revenue also exceeded expectations, coming in at $447.7 million compared to the projected $443.83 million. The company has reaffirmed its 2025 expectations for mid-single-digit revenue growth and cash flow from operations between $60 million and $75 million, excluding changes in payroll accrual. In a separate development, Healthcare Services Group announced that it expects to maintain its contractual relationship with Genesis HealthCare facilities despite Genesis filing for Chapter 11 bankruptcy protection. Healthcare Services Group anticipates recording a second-quarter non-cash charge of approximately $0.62 per share due to this bankruptcy filing. Additionally, UBS analyst AJ Rice upgraded Healthcare Services Group’s stock rating from Neutral to Buy, raising the price target to $15.00, reflecting a positive outlook on the company’s future performance. The company also held its annual shareholder meeting, where all nine director nominees were elected, and Grant Thornton LLP was ratified as the independent registered public accounting firm for the fiscal year ending December 31, 2025.

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