PACS Group (PACS): A Bull Case Theory

We came across a bullish thesis on PACS Group on wallstreetbets's Substack. As of 28ᵗʰ August, PACS Group's share was trading at $11.61. PACS's trailing and forward P/E were 19.03 and 6.49 respectively according to Yahoo Finance.

PACS Group, a provider of senior care and independent facilities, has been facing challenges despite its strong fundamentals. The company, founded in Utah in 2013 and IPO'd in 2024, operates skilled nursing facilities (SNF) and assisted living facilities in the USA. It generates revenue from leasing facilities and insurance reimbursement based on the number of residents. PACS recently finalized an acquisition of Prestige Care's entire SNF portfolio, adding 56 facilities across 6 states and 2889 skilled nursing beds. The company's occupancy rate remains high at ~90%, with mature facilities displaying ~93% occupancy rate.

The stock has been under pressure due to allegations made by the Hindenburg research group, which claimed that PACS was inflating its numbers by abusing COVID-era waivers and misleading investors with incorrect CMS ratings. Although the waiver expired on May 11, 2023, PACS delayed its earnings multiple times while working with authorities. The company has estimated that its revenue was overestimated by $15M to $17M for the quarter ended March 30, 2024, and $46M to $48M for the quarter ended June 30, 2024. Despite this, the company's executive team has not been questioned about their integrity.

The management is working to regain investor confidence, with key steps including restating financial statements and addressing delinquency issues to avoid being delisted. The company has until September 2nd (previously mentioned as November 19th) to file all delinquent earnings. With fundamentals still intact, the author believes that PACS will find a way to avoid delisting, leading to a potential stock recovery to at least $25. The author remains bullish on PACS, seeing it as a potential 3x bagger.

While this is our first coverage on PACS Group, we've recently examined another bullish thesis for a stock in the same Medical Care Facilities industry that sheds light on similar long-term dynamics.  Tenet Healthcare Corporation, a company we previously discussed, and PACS, both operate in the healthcare sector, but their strategies and focuses differ. THC is positioned to benefit from its Ambulatory Care segment. In contrast, PACS focuses on senior care and independent facilities, with a recent acquisition expanding its skilled nursing facility portfolio. Despite their differences, both companies are navigating complex regulatory environments and shifting market demands. THC's emphasis on divesting less profitable hospital units, leading to a more efficient business structure is similar with PACS's efforts to regain investor confidence amid allegations and financial restatements.

PACS Group is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held PACS at the end of first quarter which was 31 in the previous quarter. While we acknowledge the risk and potential of PACS as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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