Pennant Group To Participate In The 2024 Stephens Annual Investment Conference

Investors interested in Medical - Outpatient and Home Healthcare stocks are likely familiar with Quest Diagnostics (DGX) and The Pennant Group, Inc. (PNTG). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Right now, Quest Diagnostics is sporting a Zacks Rank of #2 (Buy), while The Pennant Group, Inc. has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that DGX has an improving earnings outlook. But this is only part of the picture for value investors.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

DGX currently has a forward P/E ratio of 17.92, while PNTG has a forward P/E of 36.46. We also note that DGX has a PEG ratio of 2.76. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. PNTG currently has a PEG ratio of 2.80.

Another notable valuation metric for DGX is its P/B ratio of 2.60. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, PNTG has a P/B of 5.41.

Based on these metrics and many more, DGX holds a Value grade of B, while PNTG has a Value grade of C.

DGX has seen stronger estimate revision activity and sports more attractive valuation metrics than PNTG, so it seems like value investors will conclude that DGX is the superior option right now.

Zacks Investment Research

The Pennant Group, Inc. (PNTG) reported $180.69 million in revenue for the quarter ended September 2024, representing a year-over-year increase of 28.9%. EPS of $0.26 for the same period compares to $0.20 a year ago.

The reported revenue compares to the Zacks Consensus Estimate of $174.6 million, representing a surprise of +3.49%. The company delivered an EPS surprise of +13.04%, with the consensus EPS estimate being $0.23.

While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wall Street expectations to determine their next course of action, some key metrics always provide a better insight into a company's underlying performance.

As these metrics influence top- and bottom-line performance, comparing them to the year-ago numbers and what analysts estimated helps investors project a stock's price performance more accurately.

Here is how The Pennant Group performed in the just reported quarter in terms of the metrics most widely monitored and projected by Wall Street analysts:

• Revenue- Total home health and hospice services: $135.67 million compared to the $131.56 million average estimate based on two analysts. The reported number represents a change of +33.7% year over year.
• Revenue- Senior living services: $45.02 million versus the two-analyst average estimate of $44.31 million. The reported number represents a year-over-year change of +16.3%.
• Revenue- Home health and hospice services- Home care and other: $11.93 million versus $4.67 million estimated by two analysts on average. Compared to the year-ago quarter, this number represents a +92.9% change.
• Revenue- Home health and hospice services- Hospice: $62.76 million versus the two-analyst average estimate of $61.67 million. The reported number represents a year-over-year change of +24.6%.
• Revenue- Home health and hospice services- Home health: $60.99 million compared to the $65.28 million average estimate based on two analysts. The reported number represents a change of +35.8% year over year.

View all Key Company Metrics for The Pennant Group here>>>

Shares of The Pennant Group have returned -4.8% over the past month versus the Zacks S&P 500 composite's +0.7% change. The stock currently has a Zacks Rank #3 (Hold), indicating that it could perform in line with the broader market in the near term.

Zacks Investment Research

The Pennant Group, Inc. (PNTG) came out with quarterly earnings of $0.26 per share, beating the Zacks Consensus Estimate of $0.23 per share. This compares to earnings of $0.20 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 13.04%. A quarter ago, it was expected that this company would post earnings of $0.21 per share when it actually produced earnings of $0.24, delivering a surprise of 14.29%.

Over the last four quarters, the company has surpassed consensus EPS estimates three times.

The Pennant Group, which belongs to the Zacks Medical - Outpatient and Home Healthcare industry, posted revenues of $180.69 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 3.49%. This compares to year-ago revenues of $140.19 million. The company has topped consensus revenue estimates four times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

The Pennant Group shares have added about 128.5% since the beginning of the year versus the S&P 500's gain of 21.2%.

What's Next for The Pennant Group?

While The Pennant Group has outperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for The Pennant Group: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.25 on $179.86 million in revenues for the coming quarter and $0.92 on $677.7 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Medical - Outpatient and Home Healthcare is currently in the top 34% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Another stock from the same industry, Amedisys (AMED), has yet to report results for the quarter ended September 2024.

This home health care and hospice services provider is expected to post quarterly earnings of $1.14 per share in its upcoming report, which represents a year-over-year change of +16.3%. The consensus EPS estimate for the quarter has been revised 0.1% lower over the last 30 days to the current level.

Amedisys' revenues are expected to be $588.13 million, up 5.7% from the year-ago quarter.

Zacks Investment Research