HCP Inc. (HCP), a leading healthcare real estate investment trust (REIT), reported first quarter 2012 funds from operations (FFO) of$264.8 million or 64 cents per share compared with $149.7 million or 40 cents per share in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.
We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
Recurring FFO for the reported quarter was $275.2 million or 67 cents per share compared with $181.9 million or 56 cents per share in the year-ago quarter. Recurring FFO in the reported quarter was in line with the Zacks Consensus Estimate.
HCP reported total revenue of $459.0 million during the quarter compared with $331.1 million in the year-ago period. Total revenue in the reported quarter missed the Zacks Consensus Estimate of $468.0 million.
(Read our full coverage on this earnings report: Mixed 1Q for HCP, FFO Soars)
Earnings Estimate Revisions - Overview
Fiscal earnings estimates for HCP have moved down since the earnings release, implying that the analysts are bearish about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 7 days, earnings estimates for fiscal 2012 were increased by 1 out of 16 analysts covering the stock, while 2 analysts revised it downwards. For fiscal 2013, 2 out of 16 analysts covering the stock revised their estimates downward, while none moved in the opposite direction. This indicates a clear negative directional movement for the fiscal year earnings and signifies that the analysts hold a grim outlook regarding the long-term earnings of the company.
Magnitude of Estimate Revisions
Earnings estimate for fiscal 2012 have decreased by 1 cent in the last 7 days to $2.73. For full year 2012, HCP expects FFO in the range of $2.71 to $2.77 per share. For fiscal 2013, earnings estimates have remained constant at $2.89 per share in the last 7 days. This indicates the analysts hold a cautious stance regarding the long-term earnings of the company as market fundamentals are not very encouraging.
The long-term earnings estimate picture for HCP is neutral. HCP is the leading medical REIT in the US with one of the largest and most diversified portfolios in the healthcare sector with exposure to all types of facilities. The product diversity of the company allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a competitive advantage over its peers.
Healthcare is also relatively immune to the economic problems faced by office, retail and apartment companies. Consumers will continue to spend on healthcare while cutting out on discretionary purchases. The healthcare industry is the single largest industry in the US, based on Gross Domestic Product (GDP), and offers stability to the company in a volatile market.
However, one of the biggest risks to healthcare focused REITs is government reimbursement rates, which are proposed to be reduced in the coming years. Deep cuts in Medicare have been proposed over the next five years by reducing or freezing payments to skilled nursing facilities, hospitals and other healthcare providers.
With a large portion of HCP’s revenues being determined by government payout rates, forces beyond its direct control could negatively affect revenue and operator coverage ratios.
HCP currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Health Care REIT, Inc (HCN) also holds a Zacks #3 Rank.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education
HEALTH CR REIT (HCN): Free Stock Analysis Report
HCP INC (HCP): Free Stock Analysis Report
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