tiprankstipranks
Medical Properties Trust: Few Chances of Recovery
Stock Analysis & Ideas

Medical Properties Trust: Few Chances of Recovery

Medical Properties (MPW) “continues to perform exceptionally well,” said chairman and CEO Edward K. Aldag, Jr. in the company’s first-quarter earnings report.

Yet, I’m bearish on this stock for the following reasons.

Medical Properties shares are down nearly 20% year-to-date on headwinds from the COVID-19 pandemic, and concerns about the global economic outlook raised by the war in Ukraine.

With these issues far from being resolved, they are likely to continue to weigh on the stock’s share price.

Medical Properties Trust

As a real estate investment company, Medical Properties Trust acquires and develops hospital facilities for leasing on a net rental basis.

Headquartered in Birmingham, Alabama, Medical Properties Trust is one of the largest hospital owners in the world. The portfolio includes 440 facilities and 46,000 licensed beds in 10 countries on four continents.

Q1 2022 Results

For the first quarter ended March 31, 2022, Medical Properties announced that its net funds from operations (NFFO) was $0.47 per share (up from $0.42 a year ago). Analysts’ average estimate for FFO was also $0.47 per share.

Total revenue came in at nearly $410 million, up about 13% from the first quarter of last year, but apparently not enough for analysts, who had expected about $3.51 million more.

For full-year 2022, the company expects NFFO to be between $1.78 and $1.82 per share.

These projections may not compare to analysts’ average estimate of $1.85, as the company has elected to exclude certain leases of certain assets.

Sell-side analysts on Wall Street estimate that Medical Properties’ NFFO per share will rise 9% this year (from 2021), and 5.80% in 2023 (from 2022).

However, from 2023 to 2027, NFFO is expected to decrease by 24.4% per year.

Financials

As of March 31, 2022, total cash on hand was $249 million (down 46% from the end of 2021), while total debt (net) was $10.12 billion, determining a cash-to-debt ratio of 0.03, while the industry median stands at around 0.08.

Investors should also be aware that Medical Properties’ weighted average cost of capital of 5.04% is lower than its return on invested capital of 5.23%, but only marginally.

The investment still generates higher returns than the cost of raising the necessary capital to support its financing, but the relationship needs to be significantly improved going forward. If the company doesn’t do this, paying the same dividend may be at risk, potentially impacting the stock price.

The company pays a quarterly dividend of $0.29 per share for a dividend yield of 6.2%.

The trailing 12-month leveraged FCF margin of -53.91% (versus the industry median of 36.39%) already signals that the company does not have its own cash flow to pay the dividend after paying its financial and tax obligations.

Outlook

COVID-19 has caused tremendous inconvenience to the management of several hospitals, with delays in surgeries, treatments and investigations straining the budgets of these organizations. Many hospitals are working hard to reduce long waiting lists, but the situation has left many with financial problems.

Additionally, the resurgence of coronavirus infections in China, forcing megacities Shanghai and Beijing into new lockdowns, is bringing back the specter of hospitals being forced to scale back all other hospital activities to make room for COVID-19 patients.

The sharp increase in energy costs due to problems with the regular supply of fossil fuels from Russia will also affect hospitals, which require large amounts of energy.

Expensive energy bills, the main component of rampant inflation, are pushing central banks to raise interest rates to dampen this rapid rise in the prices of goods and services.

Higher debt costs will be an additional concern for struggling hospitals, and it won’t help Medical Properties if the company has to borrow more to fund its outstanding dividend payment.

Such macroeconomic conditions increase the likelihood that the company will become more reliant on debt to fund its business.

Wall Street’s Take

On TipRanks, the company has a Moderate Buy consensus rating based on six Buys, five Holds, and zero Sell ratings.

The average Medical Properties price target is $22.73, implying 20.7% upside potential.

MPW has a P/E Ratio of 16.9, and shares have a 52-week range of $17.58 to $24.13.

Conclusion

The first quarter of 2022 was strong in terms of rental hospital growth (according to the company), but that trend isn’t reflected in the stock price, which has fallen sharply so far.

There are aspects of the balance sheet that the market may not like, especially given the possible future scenarios. There is a risk that a lower dividend will be declared to strengthen the company’s balance sheet. The chance that the stock will recover is slim.

Discover new investment ideas with data you can trust. 

Read full Disclaimer & Disclosure

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles