National HealthCare Corporation (NHC): A Bull Case Theory

We came across a bullish thesis on National HealthCare Corporation on Value investing subreddit by watchtower1822. In this article, we will summarize the bulls’ thesis on NHC. National HealthCare Corporation’s share was trading at $111.97 as of August 27^th. NHC’s trailing P/E was 16.71 respectively according to Yahoo Finance.

National HealthCare (NHC) operates skilled nursing and assisted living facilities, owning the majority of its properties and maintaining an exceptionally low debt profile, with long-term debt/equity around 10%. Since pandemic lows in 2022, the company has delivered strong revenue, earnings, and margin growth, and on paper the stock appears attractively priced with a PEGY well below one. However, roughly 30% of the facilities are leased from a third party, with leases expiring at the end of 2026 and anticipated rent increases of 60%.

To address this, it is assumed NHC will purchase one-third of these leased properties for $180 million, offsetting rent increases for the remaining two-thirds and effectively neutralizing the net impact on total rent expense. While this acquisition reduces free cash flow to equity in 2026, organic growth and profitability are projected to resume normal trajectories from 2027 onward.

Conservative assumptions were used in the valuation, including 10% operating profit growth (excluding $40 million annual property depreciation), a 4% increase in capex after 2025 with the 2026 property purchase included, and a weighted average cost of capital of 8.5% with a 1.5% small-cap premium. Even under these cautious parameters, the calculated fair value is $165.14 versus a current share price of $112.12, indicating significant upside potential.

The model assumes no further acquisitions post-2026 and maintains a modest terminal growth of 2.5%, although demographic trends suggest a longer growth runway for the elderly care sector. Overall, NHC offers a compelling investment case with strong earnings growth, manageable leverage, and the potential for meaningful capital appreciation once lease-related risks are resolved.

Previously we covered a bullish thesis on Tenet Healthcare Corporation (THC) by BlackSwanInvestor in December 2024, which highlighted the company’s operational efficiency, growth in its higher-margin Ambulatory Care segment, debt reduction, and attractive intrinsic valuation. The company’s stock price has appreciated approximately 44.74% since our coverage. The thesis still stands as THC continues to expand. watchtower1822 shares a similar focus but emphasizes National HealthCare Corporation’s low debt, lease-expiration risks, and strategic property acquisitions.

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Disclosure: None.