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Earnings Scorecard: Health Care REIT

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Health Care REIT Inc. (HCN), a real estate investment trust (:REIT), reported third quarter 2012 FFO (funds from operations) of 75 cents per share compared with 85 cents in the year-earlier quarter. The decrease in year-over-year FFO per share was primarily attributable to increased number of outstanding shares in the reported quarter.

We cover below the results of the recent earnings announcement, as well as the subsequent analysts’ estimate revisions and the Zacks ratings for the short and long-term outlook on the stock.

Third Quarter Review

Excluding one-time items, recurring FFO for the reported quarter was 91 cents per share, compared to 89 cents in the year-ago quarter. The recurring quarterly FFO beat the Zacks Consensus Estimate by 2 cents.

Total revenues during the reported quarter were $474.1 million compared to $370.7 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $465 million.

Total same-store cash NOI (net operating income) increased 3.6% during the quarter compared to the year-ago period, including 7.0% growth in the senior housing operating portfolio.

Read our full coverage on this earnings report: Health Care REIT Edges Past Estimates

Earnings Estimate Revisions – Overview

Fiscal earnings estimates have moved in both directions since the earnings release, suggesting that analysts are circumspect about the long-term performance of the company.  We take a look at the earnings estimate details.

Agreement of Estimate Revisions

In the last seven days, two out of 10 earnings estimate revisions for 2012 have moved up, while three have moved in the opposite direction. For 2013, the earnings estimate revisions are fairly even, with three of the 16 estimate revisions each moving in either direction over the same period. This indicates that although the analysts are neutral about the long-term performance of the company, the earnings estimates are slightly skewed towards the negative direction in the current fiscal.

Magnitude of Estimate Revisions             

Earnings estimates for 2012 have decreased by a penny over the last seven days to $3.51 per share. For 2013, earnings estimates have remained fairly stable at $3.91 during the same time period. This indicates that analysts are a tad bearish about the current fiscal, although on a long-term perspective, the analysts remain fairly neutral.

Moving Forward

The long-term earnings estimate picture for Health Care REIT is neutral. Headquartered in Toledo, Ohio, Health Care REIT invests across the full spectrum of senior housing and health care real estate properties. The company usually has long-term triple-net leases in senior housing and healthcare real estate properties that insulate it from market volatility and provides a steady source of revenue despite a challenging macroeconomic environment.

Healthcare is also relatively immune to the economic problems faced by office, retail and apartment companies. Consumers tend to continue to spend on healthcare while cutting out on discretionary purchases. The healthcare industry is the single largest industry in the U.S., based on Gross Domestic Product (GDP), and offers stability 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 Health Care REIT’srevenues being determined by government payout rates, forces beyond its direct control could negatively affect revenue and operator coverage ratios.

Health Care REIT currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. One of its competitors, HCP Inc. (HCP) 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

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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