PACS Group stock soars after posting first earnings in a year
Whenever a prominent short seller releases a report accusing a company of engaging in questionable business practices, the company in question will often handle it in two ways: Release a statement pushing back against the accusations or simply ignore the report.
But after Hindenburg Research released a report in November 2024 alleging that PACS Group (PACS), a Utah-based operator of skilled nursing facilities (SNF), had created a booming business by "systematically scamming taxpayer-funded healthcare programs," the company launched an independent audit into its business.
PACS withheld its earnings for four consecutive quarters while the investigation was ongoing. This led to it receiving a filing delinquency notice from the New York Stock Exchange (NYSE) for failing to file its financials in a timely manner with the Securities and Exchange Commission (SEC).
The company released its third-quarter earnings last week, its first earnings report in a year. PACS said that it no longer faces the threat of delisting from the NYSE.
The company reported revenue of 32 cents a share, well below Wall Street's estimate of 45 cents a share. But its Q3 revenue of $1.34 billion beat analyst projections of $1.11 billion.
Despite the mixed earnings, shares of PACS surged 54% on Thursday as investors were likely reacting to the company getting back on track with its financials.
The company also filed its previously missed earnings with the SEC. PACS additionally restated revenue from the three-month period ending March 31,2004 and the three-month period ending June 30, 2024 after it was found to have overstated these revenue numbers.
“Our performance validates our core strengths – our commitment to clinical and operational excellence, industry-leading talent and a strategy designed for sustainable growth," PACS CEO Jason Murray said in a statement. "I am proud to lead a team that has executed with excellence during what has been a challenging and dynamic period for the company."
One of the core accusations in Hindenburg's report was that PACS had "discovered a winning 'turnaround' formula for transforming poorly performing SNFs into cash spigots" because it had "abused" a COVID-era waiver.
Specifically, Hindenburg alleged that PACS had been "inappropriately accessing skilled care Medicare benefits for thousands of patients across its national portfolio of facilities." The firm said it interviewed 18 former employees and competitors and analyzed more than 900 cost reports during its five-month investigation.
"We estimate the scheme drove more than 100% of PACS’ operating and net income from 2020 – 2023, enabling PACS to IPO in early 2024 with the illusion of legitimate growth and profitability," Hindenburg wrote.
PACS had one of the more hyped IPOs of 2024 when it made its trading debut in April of last year. When Hindenburg released its report last November, the company's stock had soared 104% since it began publicly trading.
PACS market cap was $6.7 billion at the time of the report, but is now down to $3.9 billion.
The company said last week that the audit found that no executives had engaged in any wrongdoing, but it hasn't fully answered the fraud allegations made by Hindenburg.