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What to Expect From Medical Properties' (MPW) Q2 Earnings?

Zacks Equity Research

Medical Properties Trust, Inc.  MPW — also known as MPT — is scheduled to report second-quarter 2019 results on Aug 1, before the market opens. The company’s results will likely reflect year-over-year decline in its funds from operations (FFO) and revenues.

In the last reported quarter, this self-advised real estate investment trust (REIT), which acquires and develops net-leased healthcare facilities, posted normalized funds from operations (NFFO) per share of 31 cents, missingthe Zacks Consensus Estimate by a whisker.

Over the trailing four quarters, the company met the Zacks Consensus Estimate on one occasion, missed in another and met in the other two. It reported an average negative surprise of 0.05% during this period. The graph below depicts this surprise history:

Medical Properties Trust, Inc. Price and EPS Surprise

Medical Properties Trust, Inc. Price and EPS Surprise

Medical Properties Trust, Inc. price-eps-surprise | Medical Properties Trust, Inc. Quote

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

The acute healthcare real estate opportunity is rapidly expanding with significant domestic and international potential acquisition targets. In fact, the U.S. hospital real estate is estimated to be valued at $0.5 trillion. Moreover, operators and owners have resorted to consolidation of hospital systems in search for cost efficiencies and economies of scale.

Amid this, MPT has consistently scaled its global hospital real estate portfolio with approximately $6 billion of investments since 2016. In the second quarter too, a favorable hospital acquisition environment enabled the company to make progress with respect to its $2.5-billion investment pipeline for 2019, with the acquisition of interest in Infracore SA, and the purchase of 11 Australian hospitals operated by Healthscope Ltd.

Specifically, in May, the company became the largest shareholder in Infracore’s real estate by acquiring 46% stake in the Swiss healthcare real estate company, for cash equity investment of $236.5 million. The transaction enabled the company to foray into the Swiss healthcare market.

Additionally, in June, the company completed the previously-announced A$1.2-billion acquisition of the real estate interests of 11 Australian hospitals operated by Healthscope Ltd.Long-term inflation-protected rents from these properties will be strongly accretive to the company’s FFO per share for the quarter.

Notably, healthcare REITs are benefiting from higher healthcare spending and the demographic boom which is being fueled by the aging baby boomers. In fact, going by a presentation, nearly 10,000 baby boomers will turn 65 every day through 2030. Hence, the company’s focus to scale its portfolio while simultaneously achieve asset and geographic diversification is a strategic fit.

Nevertheless, the company’s results are tied to its tenant operators’ performances, which, in turn,are exposed to greater volatility due to reimbursement and regulatory risks. Given MPT’s high tenant concentration, its earnings are likely to be more volatile. In fact, Steward Healthcare, Prime Healthcare and Median account for significant part of MPT’s top line.

In addition, the Zacks Consensus Estimate for second-quarter revenues is pegged at $188 million. This represents a year-over-year decline of 6.9% from the year-earlier quarter’s reported tally.

Lastly, prior to the second-quarter earnings release, the company has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter under review has been revised marginally downward to 31 cents over the past month, reflecting analysts’ bearish sentiments. Also, it represents a year-over-year decline of 13.9%.

Earnings Whispers

Our proven model does not conclusively show that MPT is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: MPT’s Earnings ESP is -1.41%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

Stocks That Warrant a Look

Several other players in REIT space are lined up to report their financial results. Below are three stocks, poised to beat on earnings, per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank stocks here.

CyrusOne Inc. CONE, scheduled to release earnings on Jul 31, has an Earnings ESP of +1.37% and carries a Zacks Rank #3, at present.

Equity Commonwealth EQC, slated to report quarterly figures on Jul 31, has an Earnings ESP of +3.23% and sports a Zacks Rank of 1, currently.

Healthcare Realty Trust Incorporated HR, set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds a Zacks Rank #3.

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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