Amid Legal Risks, This Company Is Still Rated a Buy

Key Points

• PACS Group's stock has rebounded strongly after collapsing more than 80% amid a short seller's Medicare billing allegations and a federal investigation in 2024.
• Second-quarter results showed revenue up 9.1% and adjusted EPS beating estimates, prompting management to raise full-year revenue and adjusted EBITDA guidance.
• Analysts rate PACS a consensus Buy with meaningful upside, but ongoing DOJ and SEC investigations and an active securities fraud lawsuit remain unresolved risks.

When investors look for stocks riding the aging of America, they might look at hospital chains, pharmacy benefit managers, or dividend-paying healthcare REITs.

What few might expect is PACS Group NYSE: PACS, a skilled nursing operator whose stock fell more than 80% in a year after a short seller accused it of gaming Medicare, it delayed financial reports, a federal investigation began, and its chief financial officer was replaced.

Now, less than two years later, analysts rate the company a Buy. With the stock having fully rebounded, investors might want to consider whether PACS is one of the market's more improbable comebacks with room to run, or whether legal risks are still clouding its future.

A Stunning Rise Followed by a Collapse

PACS went public in April 2024 in a $450 million IPO at $21 per share, which valued it above $3 billion. Within seven months, it had more than doubled.

That’s when short seller Hindenburg Research accused the company of fueling its growth with aggressive Medicare billing. The stock would soon crater amid federal investigations, delayed earnings and an accounting restatement.

Shares eventually bottomed at $7.50 in 2025, soon after the company’s chief financial officer resigned after it was found that he had accepted gifts from business partners.

The Numbers Behind the Rally

Since then, however, the company’s performance has maintained momentum. And the case for the comeback got even stronger in August, when PACS reported this year’s second-quarter results.

The company said revenue rose 9.1% year-over-year to $1.43 billion, beating the $1.41 billion Wall Street expected. Net income jumped 49.8%, to $76.3 million, while diluted earnings per share (EPS) climbed 51.6%, to 47 cents. Adjusted EPS of 63 cents topped analysts’ consensus by 9 cents.

The numbers underneath the results were equally strong. Adjusted earnings before interest, taxes, depreciation, amortization, and rent (EBITDAR) margin expanded 150 basis points, from 10.2% to 11.7%. Same-store skilled nursing revenue grew 5.8%, and the company treated a richer mix of higher-acuity patients, it said.

Management liked what it saw enough to raise full-year guidance to between $5.75 billion and $5.85 billion in revenue and $640 million to $660 million in adjusted EBITDA, both increases from prior targets.

That built on a 2025 in which revenue grew 29.3%, to $5.3 billion, with net income reaching $191.5 million.

Growth Accelerates in a Fragmented Market

PACS's results show the impact of playing in a fragmented industry that continues to face more demand than supply.

Already one of the largest skilled nursing platforms in the country, PACS subsidiaries run 344 post-acute care facilities across 17 states, serving more than 33,400 patients daily. Further, PACS agreed in June to acquire 34 skilled nursing facilities with 3,633 beds from Eduro Healthcare across six western states.

With a healthy balance sheet, the growth can continue. The company reported more than $700 million of available liquidity, including $164.5 million of cash, at quarter's end.

Analysts See More Upside Ahead

Wall Street has taken notice. Seven analysts carry a consensus Buy rating on the stock, with one Strong Buy, five Buy and one Hold.

The company carries an average 12-month price target of $56 against a recent price of about $44, implying roughly a 25% upside. UBS, RBC, Oppenheimer, and Truist all raised their targets after the earnings, while Zacks Research lifted its recommendation from a Hold to a Strong Buy.

Legal and Regulatory Risks Remain

The most obvious reason for caution, however, is the one the earnings report can't fix. The Department of Justice has multiple ongoing investigations into PACS, examining potential False Claims Act violations tied to Medicare billing, Anti-Kickback Statute referral practices, pandemic-era waiver claims and allegedly false statements to the government.

The company also disclosed that it is under investigation by the Securities and Exchange Commission related to its accounting and financial reporting and disclosure. PACS, for its part, said it cannot estimate timing or financial impact.

In addition, a securities fraud class action covering shareholders who bought stock between April and December 2024 remains active, and another law firm announced a fresh shareholder investigation into the board in July.

Insider activity has also been active. Corporate insiders own roughly 70% of shares, which could read as a vote of confidence, yet they also sold more than $39 million in stock over the past 12 months.

A Riskier Way Into a Steady Trend

For all these reasons, PACS might be best understood as a leveraged bet on a demographic trend that at the same time is also broadly lifting other skilled nursing names, such as The Ensign Group NASDAQ: ENSG, The Pennant Group NASDAQ: PNTG, and National HealthCare NYSEAMERICAN: NHC.

There’s no doubt for the industry that the aging-population tailwind is real and durable. Whether PACS can keep compounding depends entirely on outcomes outside its earnings power.

With multiple investigations still open and no timeline for their closure, investors will find out the answer one way or the other.

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