I just bought over $21,000 in shares of Medical Properties Trust, MPW, after a big earnings selloff. What is the market missing in MPW stock that make this a great investment? Special Offer! 🤑 Save $140 off Seeking Alpha Premium with this link https://mystockmarketbasics.com/SeekingAlphaDiscount
Despite the weakening economy and stock market, we’re seeing some great opportunities in individual stocks on earnings reports. Crashes in EV stocks and Materials are setting up for solid future returns and I took advantage of it to buy another 2000 shares of MPW, Medical Properties Trust, last week.
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Real estate has been weak on higher rates and REITs as a whole are down 16% over the last year…the second worst sector after Communication Services. Real estate is highly leveraged with debt so higher rates means a higher interest expense and lower earnings, so it’s not just MPW stock that has been weak in the sector. Beyond that, healthcare has been hammered on fears of solvency for hospitals and medical providers. This has all flowed down to the hospital real estate owners like Medical Properties Trust.
Revenue for MPW was down 7% in the fourth quarter and is only expected to grow 2% on an annualized basis for the next three years. The midpoint forecast for funds from operations, that all-important FFO number of $1.57 per share for this year was well below expectations for $1.73 per share.
Against the downside though, the biggest reason to buy shares of MPW is still intact. The company is paying out $1.16 in dividends per share each year for an 11.5% yield. Even on the lowered guidance for FFO, the company is still making 1.35-times its dividend in funds and has $235 million in balance sheet cash set aside. While that’s no guarantee the company won’t cut the dividend to preserve cash, there is no reason to do so. My estimates for FFO are closer to $1.60 per share and for further growth next year, making the dividend easily sustainable.
Short-sellers have attacked shares with 24% of MPW shorted. It’s not alone, with 13.5% of Omega Healthcare and 7% of Sabra Healthcare shorted, but it’s easily the most targeted of the group. The 6.5% bounce higher in the shares late last week could be some short-sellers taking profits and exiting the attack but any good news could result in a further short squeeze. Another large tenant in trouble, Steward, has announced an agreement to sell its Utah facilities to pay down debt including a loan from MPW. When this sale is closed, I believe it could be the boost needed in the shares to help drive the shorts out of the stock and the price higher.
Longer-term, the company has valuable medical properties. We aren’t spending less on healthcare services and it’s a major theme over the next decades. The net asset value on shares, the adjusted assets minus liabilities, is $10.2 billion or $17.03 per share. That means the stock is trading for a 38% discount to its net asset value and I like the shares to at least $15 each before they start looking pricey.
My Investing Recommendations 📈
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
