Sun Also Rises At SRZ

by The Investment U Research Team

Over the past few days Sunrise Assisted Living (NYSE: SRZ) has been skyrocketing. Since Tuesday of last week alone, the stock has risen by 120%. That’s almost 230% if you count from its bottom in March.

But what’s causing this meteoric rise?

The quick answer: Debt. Or more correctly in this case, the signal that debt won’t drag the company down.

Sunrise fueled its incredible growth through acquisitions and real estate sales. As they bought their competitors out, they would sell the land under their properties to REITs and use the proceeds to fund the next acquisition.

The problem with mountains of debt is that it requires a lot of refinancing. Like a consumer with large credit card debt who keeps balance transferring, Sunrise needs a bond market that functions. Without it, they’re sunk.

With the recent news creditors amended SRZ’s credit line, it showed the institutions that this company wouldn’t be forced to file for bankruptcy. And that’s a good thing for investors.

Sunrise Assisted Living makes piles of money from its locations.

The recent shift of the management team, from one filled with the owners and founders, to one built upon managerial and executive talent is a nice signal that the board of directors is managing this ship well. Sunrise is a market leader in the assisted care business.

And with a largely aging population of customers, read: boomers, entering the markets for senior care, this company should profit nicely and have plenty of growth potential for the next few decades. As they get a handle on their debt load, their stock should go nowhere but up.

It wouldn’t shock us to see the news of Sunrise selling off one of it’s acquired properties over the next few months to raise capital. It’ll give us two opportunities. One: SRZ will shoot up. Two: depending upon how much and what they sell, we could see a strong competitor emerge with just as much potential, like Emeritus (NYSE: ESC)

Companies mentioned in this article: SRZ and ESC.

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