Yesterday was a forgettable day for Regis Healthcare Ltd (ASX: REG) shares, which crashed 27%.
Regis Healthcare fell sharply amid a disappointing funding update and financial impact concerns.
Specifically, as reported by The Motley Fool's James Mickleboro, the company revealed it had reviewed changes announced by the Australian Government earlier this month to residential aged care funding. This includes adjustments to the Australian National Aged Care Classification (AN-ACC) model and an increase in the Hotelling Supplement.
Despite AN-ACC price increasing 4.7% from $282.44 to $295.64, management now expects just a 2.6% increase due to resident classification re-weighting.
The hotelling supplement will increase $6.55 to $22.15 per resident per day.
Consequently, Regis expects the entire hotelling supplement increase to be absorbed by higher staff costs related to the FWC case, annual wage review, and EBA changes.
Investors may be wondering whether the company has been oversold and presents an opportunity to buy in the dip.
Image source: Getty Images
Macquarie predicts material upside from here
After reviewing this news, Macquarie Group Ltd (ASX: MQG) weighed in.
In a 22 September research note, "A few more greyhairs", the broker placed an outperform rating on the stock.
Given these developments, the broker cut its price target 11% from $8.90 to $7.90.
Given that Regis Healthcare shares have opened 5% lower this morning, this suggests around 25% upside from here, including dividends and capital gains.
Regis Healthcare currently offers a dividend yield of 2.39%.
To reach this price target, Macquarie downgraded earnings per share (EPS) targets.
Earnings changes of -13%/-7%/-2% in FY26E/27E/28E reflect adjustments to operations assumptions with higher occupancy and higher hoteling supplement more than offset by lower government funding as a result of changes to AN-ACC resident classifications.
However, Macquarie remained optimistic about the long-term prospects of the business and industry, noting:
Despite softer near-term earnings due to lower than-expected AN-ACC, we continue to see the outlook for residential aged care as positive underpinned by favourable industry fundamentals (occupancy trends, taskforce funding Nov-25) with REG well-placed for additional acquisitions.
Regis Healthcare share price snapshot
Even after accounting for yesterday's share price decline, Regis Healthcare shares have beaten the S&P/ASX 200 Index (ASX: XJO) over the past year. Regis shares have gained 10%, compared to an 8% rise for the ASX 200 Index.
Regis Healthcare shares have been a standout performer over a five-year period, rising more than 560%.
