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HCP Pinned at Neutral

Zacks Equity Research

On Aug 28, 2013, we reiterated our long-term recommendation on HCP Inc. (HCP), a healthcare real estate investment trust (:REIT) at Neutral. This was based on the company’s successful strategic investments in recent quarters, rising healthcare expenditures, decent balance sheet and enhanced full-year outlook. However, lower-than-expected second-quarter results as well as rising interest rates and capital market volatility remain plausible concerns.

Why Neutral?

HCP reported lower-than-expected second-quarter 2013 results, with reported FFO per share of 72 cents missing the Zacks Consensus Estimate by 2 cents. Results reflected lower-than-expected growth in revenues and rise in expenses.

Though the lower-than-expected results are discouraging, we believe that going forward, HCP is well poised to see a strong growth trajectory given its well-balanced, diversified portfolio, opportunistic acquisitions, aging population, rising healthcare expenses, decent balance sheet, and improving credit metrics.

In second-quarter 2013, HCP completed $367 million of investment transactions. Moreover, the company has raised its outlook for the year on one-time benefits and strategic investments.

Yet, the rising interest rates and capital market volatility have adversely impacted the deal volumes in recent times. Also, the company’s dependence on a limited number of operators and tenants for a large share of its revenues is a concern and cut-throat competition remains a deterrent.

Over the last 30 days, the Zacks Consensus Estimate for 2013 remained stable at $2.98 per share. However, for 2014, it dropped 0.3% to $3.13 per share. The stock now carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

REITs that are performing better and are worth a look include CubeSmart (CUBE), Douglas Emmett Inc. (DEI) and Highwoods Properties Inc. (HIW). All these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

Read the Full Research Report on HCP

Read the Full Research Report on CUBE

Read the Full Research Report on HIW

Read the Full Research Report on DEI

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