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Key Factors to Impact Medical Properties' (MPW) Q4 Earnings

Zacks Equity Research

Medical Properties Trust, Inc.  MPW — also known as MPT — is scheduled to report fourth-quarter and 2018 results on Feb 7, 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 35 cents, beating the Zacks Consensus Estimate by a whisker.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in two occasions and met in other two — average positive beat being 2.16%. 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. Quote

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

Factors to Consider

Healthcare REITs are benefiting from higher healthcare spending and the demographic boom that is being fueled by the aging baby boomers. Also, senior citizens constitute the major customer base of healthcare services — they end up spending more on healthcare services compared to the average population.

As for MPT, the company is leveraging on this favorable trend by not only acquiring healthcare realties, but also funding hospitals and other facilities. In fact, in third-quarter 2018, MPT completed its capital-recycling strategy which positioned it for accretive growth in the near term. 

As demand for healthcare services rises, hospital operators — MPT’s primary customer base — stand to gain. Further, it offers the company a favorable environment to acquire and lease new properties.

Hence, in the fourth quarter, we anticipate the company to have witnessed higher leasing volumes. Further, as the company continues to provide funding for development of acute care hospitals, inpatient rehabilitation hospitals and other medical facilities, it will likely report higher interest and fee income.

However, higher interest rates during the quarter are predicted to negatively impact the company’s performance, particularly considering its long-term leases. This is because long-term net leases generally have fixed rental rates, while interest on the company’s debt obligations may vary with the movement of interest rates.

Hence, higher interest rates are projected to have escalated MPT’s financing cost, thereby, impacting its bottom-line performance. In addition, we anticipate the company to have curbed its acquisition activity as financing cost goes up.

In addition, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $187.9 million. This represents a year-over-year decline of 8.33%.

Also, there is lack of any solid catalyst prior to the fourth-quarter earnings release. As such, the Zacks Consensus Estimate of earnings per share for the to-be-reported quarter remained unchanged at 31 cents, over the past month. The figure indicates a decline of 16.2% year over year.

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 0.00%.

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 the earnings beat.

Stocks That Warrant a Look

While other players in the 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.

Hersha Hospitality Trust HT, slated to report fourth-quarter results on Feb 25, has an Earnings ESP of +1.21% and holds a Zacks Rank of 2.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

CyrusOne Inc. CONE, scheduled to report quarterly numbers on Feb 20, has an Earnings ESP of +3.07 and carries a Zacks Rank of 3.

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