Mike King June 2, More on: Estia Health Ltd ASX: EHE , Japara Healthcare Ltd ASX: JHC and Regis Healthcare Ltd ASX: REG have all seen their share prices tumble today after Bank of America Merrill Lynch BAML downgraded all three aged care operators. According to the Australian Financial Review AFR , BAML analysts reveal that all three companies face zero earnings growth.

Govt warning on fees sends shares in Australian aged care operators tumbling | Reuters

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More detailed analysis supported by discussions with aged operators implies that the listed aged-care companies are facing zero earnings growth from fiscal through to fiscal The AFR also noted that private equity companies Quadrant and Mercury Capital have been selling down their stakes in Estia Health.

Questions have also been asked about the aggressive acquisition strategies in the aged-care sector by a number of participants including Regis — which has led to both Regis and Estia hold negative net tangible assets. There are also questions over aggressive accounting treatment of Refundable Accommodation Deposits RADs paid by customers when entering an aged care facility.

Aged care accounting and funding are extremely complex areas many investors would struggle to understand. Combine that with the high risk of dependency on government funding for the majority of their income and aged care operators are much riskier than they might appear.

These 3 companies could be much better bets than Estia, Regis and Japara. Discover The Motley Fool's Top 3 blue chips for These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation.

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The Motley Fool Australia has no position in any of the stocks mentioned. This article contains general investment advice only under AFSL Authorised by Bruce Jackson.

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Aged care operators' share prices smashed | Motley Fool Australia

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