It seems to be a wise decision to add HCP Inc. HCP to the portfolio at the moment, given the company's continued efforts to reposition its senior housing portfolio as well as lower operator concentration. Moreover, strategic investments in the medical office and life-science real estate properties are expected to drive long-term growth.
Notably, the company delivered better-than-expected results in second-quarter 2019, with FFO as adjusted per share of 44 cents, surpassing the Zacks Consensus Estimate of 43 cents. Further, revenues of $491.6 million outpaced the consensus mark of $447 million. Results were supported by strong performance across all four segments. A stellar quarterly performance also encouraged the company to raise its 2019 FFO as adjusted guidance to $1.73-$1.77 per share from $1.70-$1.76 per share.
HCP’s price performance also seems upbeat. In fact, this Zacks Rank #2 (Buy) stock has gained around 10.9% over the past six months, outperforming 9% growth recorded by the industry. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Notably, HCP has a number of other aspects that make it a solid investment choice.
Why HCP is an Attractive Pick
Strong Portfolio to Drive Operational Efficiency and Growth: HCP has one of the most diversified, high-quality and well-balanced portfolios in the healthcare sector, with exposure to various healthcare real estate facilities. The diverse product mix of the company enables it to explore the opportunities available in various areas, based on individual market dynamics. Moreover, a significantly private-pay portfolio will help the company avoid the complicacies surrounding government reimbursement.
Favorable Demographic Trends: The investment thesis related to the silver tsunami is no secret. In fact, going by a presentation, nearly 10,000 baby boomers will turn 65 every day through 2030. As this long-awaited demographic boom is being realized, national healthcare expenditure will flare up. This is because senior citizens not only constitute the major customer base of healthcare services, but also end up spending more on healthcare services compared with the average population. This favorable demographic boom is fueling growth of healthcare REITs like Ventas, Inc. VTR, Welltower Inc. WELL, Senior Housing Properties Trust SNH and HCP. Hence, we believe HCP has a solid upside potential, being well poised to bank on this expenditure trend of senior citizens on healthcare services.
High ROE: HCP’s trailing 12-month return on equity (ROE) of 15.5% compares favorably with the industry’s 5.1%. This indicates the company’s growth potential and reflects its superior efficiency in using shareholders’ funds.
Portfolio-Repositioning Efforts: HCP remains focused on executing its portfolio-repositioning strategy that underpins opportunistic acquisitions, operator transitions and non-core dispositions. In fact, in second-quarter 2019, the company closed on $842 million of acquisitions. Also, capitalizing on the growing healthcare-driven research and development, it is expanding its medical office and life-science portfolio through strategic investments. These efforts will improve the company’s portfolio mix.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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