Welltower (WELL): A Fairly Valued Stock in the REITs Industry
Welltower Inc (NYSE:WELL) saw a daily gain of 1.86%, and a 3-month gain of 3.89%, with its Earnings Per Share (EPS) (EPS) standing at 0.23. The question that arises is: Is the stock fairly valued? In this article, we will conduct a valuation analysis to answer this question and provide a comprehensive understanding of Welltower's financial performance.
Introduction to Welltower Inc
Welltower owns a diversified healthcare portfolio of over 2,000 properties spread across the senior housing, medical office, and skilled nursing/post-acute care sectors. The portfolio includes over 100 properties in Canada and the United Kingdom. The company seeks additional investment opportunities in countries with mature healthcare systems that operate similarly to the United States.
Currently, Welltower (NYSE:WELL) is trading at $83.44 per share, which is close to its GF Value of $81.68, indicating that the stock is fairly valued. Let's delve deeper into the company's financials and GF Value to understand its intrinsic value better.
Understanding the GF Value of Welltower
The GF Value of Welltower is a representation of the stock's current intrinsic value, derived from our unique method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This value is calculated based on three factors: historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
If the stock price is significantly above the GF Value Line, it indicates that the stock is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Currently, at $83.44 per share, Welltower's stock appears to be fairly valued. As Welltower is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength of Welltower
Before investing in a company, it is crucial to assess its financial strength. Investing in companies with poor financial strength poses a higher risk of permanent loss. A great way to understand the financial strength of a company is by looking at the cash-to-debt ratio and interest coverage. Welltower has a cash-to-debt ratio of 0.14, which is better than 70.68% of 723 companies in the REITs industry. The overall financial strength of Welltower is 5 out of 10, indicating that it is fair.
Profitability and Growth of Welltower
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Welltower has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6.20 billion and an Earnings Per Share (EPS) of $0.23. Its operating margin is 14.39%, which ranks worse than 86.82% of 683 companies in the REITs industry. Overall, the profitability of Welltower is ranked 7 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Welltower is -0.2%, which ranks worse than 58.16% of 631 companies in the REITs industry. The 3-year average EBITDA growth rate is -6.1%, which ranks worse than 67.42% of 531 companies in the REITs industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Welltower's return on invested capital is 2.42, and its cost of capital is 9.21.
Conclusion
In summary, the stock of Welltower (NYSE:WELL) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 67.42% of 531 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.
