Welltower (WELL): A Comprehensive Analysis of Its Fair Market Value
On September 20, 2023, Welltower Inc (NYSE:WELL) saw a daily gain of 2.52%, contributing to its 3-month gain of 9.33%. The company's Earnings Per Share (EPS) stands at 0.23. But, is the stock fairly valued? This analysis aims to answer this question by delving into Welltower's valuation, providing insights to help you make informed investment decisions.
Company Overview
Welltower Inc (NYSE:WELL) owns a diversified healthcare portfolio of over 2,000 in-place properties spread across the senior housing, medical office, and skilled nursing/post-acute care sectors. The portfolio includes over 100 properties in both Canada and the United Kingdom, as the company seeks additional investment opportunities in countries with mature healthcare systems that operate similarly to the United States. As of September 20, 2023, Welltower's stock price is $85.85, with a market cap of $44.50 billion. The GF Value, an estimation of fair value, stands at $81.77, suggesting that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Welltower (NYSE:WELL) is believed to be fairly valued based on this valuation method. Because Welltower is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding whether to buy shares. Welltower has a cash-to-debt ratio of 0.14, which ranks better than 71.05% of 722 companies in the REITs industry. Based on this, GuruFocus ranks Welltower's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Welltower has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $6.20 billion and Earnings Per Share (EPS) of $0.23. Its operating margin of 14.39% is worse than 86.55% of 669 companies in the REITs industry. Overall, GuruFocus ranks Welltower's profitability as fair.
Growth is a crucial factor in the valuation of a company. Welltower's 3-year average revenue growth rate is worse than 57.89% of 634 companies in the REITs industry. Welltower's 3-year average EBITDA growth rate is -6.1%, which ranks worse than 67.54% of 536 companies in the REITs industry.
ROIC vs WACC
By comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC), one can evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Welltower's ROIC is 2.42 while its WACC came in at 9.08.
Conclusion
In conclusion, Welltower (NYSE:WELL) is believed to be fairly valued. The company's financial condition and profitability are fair, but its growth ranks worse than 67.54% of 536 companies in the REITs industry. To learn more about Welltower stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
