HCSG - Healthcare Services upgraded at RBC on dividend suspension

Healthcare Services Group ( NASDAQ: HCSG ) inched higher pre-market Friday after RBC Capital Markets upgraded the hospital maintenance company to Outperform from Sector Perform, citing its decision to suspend dividends.

The decision comes after Healthcare Services ( HCSG ) said Wednesday it has suspended the quarterly cash dividend and authorized up to 7.5M share buybacks to achieve financial flexibility and for capital reallocation purposes.

The decision to eliminate dividends marks "an important strategic turning point for the story and should serve as one of the final clearing events for the stock," RBC analyst Sean Dodge wrote, raising his price target to $17 from $14 per share.

Dodge argues that capital savings from dividend suspension, estimated at $60M free cash flow per year, along with the company's improving financials, will allow Healthcare Services ( HCSG ) to make strategic expansions into more attractive end markets.

The analyst says that HCSG's "encouraging Q4 performance" has made RBC's Street high 2023 EBITDA estimate for the company even more realistic.

Read: Seeking Alpha contributor, Gary Bourgeault argued in January that if Healthcare Services ( HCSG ) stock "corrects even further, it could be a fairly safe holding that would deliver a nice dividend at an attractive yield."

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