), a leading healthcare real estate investment trust (REIT),
reported first quarter 2012 funds from operations (FFO) of$264.8
million or 64 cents per share compared with $149.7 million or 40
cents per share in the year-earlier quarter. Funds from operations,
a widely used metric to gauge the performance of REITs, are
obtained after adding depreciation and amortization and other
non-cash expenses to net income.
We cover below the results of the recent earnings announcement,
as well as the subsequent analyst estimate revisions and the Zacks
ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
Recurring FFO for the reported quarter was $275.2 million or 67
cents per share compared with $181.9 million or 56 cents per share
in the year-ago quarter. Recurring FFO in the reported quarter
was in line with the Zacks Consensus Estimate.
HCP reported total revenue of $459.0 million during the quarter
compared with $331.1 million in the year-ago period. Total revenue
in the reported quarter missed the Zacks Consensus Estimate of
(Read our full coverage on this earnings report:
Mixed 1Q for HCP, FFO Soars
Earnings Estimate Revisions - Overview
Fiscal earnings estimates for HCP have moved down since the
earnings release, implying that the analysts are bearish about the
long-term performance of the company. Let's dig into the earnings
Agreement of Estimate Revisions
In the last 7 days, earnings estimates for fiscal 2012 were
increased by 1 out of 16 analysts covering the stock, while 2
analysts revised it downwards. For fiscal 2013, 2 out of 16
analysts covering the stock revised their estimates downward, while
none moved in the opposite direction. This indicates a clear
negative directional movement for the fiscal year earnings and
signifies that the analysts hold a grim outlook regarding the
long-term earnings of the company.
Magnitude of Estimate Revisions
Earnings estimate for fiscal 2012 have decreased by 1 cent in
the last 7 days to $2.73. For full year 2012, HCP expects FFO in
the range of $2.71 to $2.77 per share. For fiscal 2013, earnings
estimates have remained constant at $2.89 per share in the last 7
days. This indicates the analysts hold a cautious stance regarding
the long-term earnings of the company as market fundamentals are
not very encouraging.
The long-term earnings estimate picture for HCP is neutral. HCP
is the leading medical REIT in the US with one of the largest and
most diversified portfolios in the healthcare sector with exposure
to all types of facilities. The product diversity of the company
allows it to capitalize on opportunities in different markets based
on individual market dynamics, and provides a competitive advantage
over its peers.
Healthcare is also relatively immune to the economic problems
faced by office, retail and apartment companies. Consumers will
continue to spend on healthcare while cutting out on discretionary
purchases. The healthcare industry is the single largest industry
in the US, based on Gross Domestic Product (GDP), and offers
stability to the company in a volatile market.
However, one of the biggest risks to healthcare focused REITs is
government reimbursement rates, which are proposed to be reduced in
the coming years. Deep cuts in Medicare have been proposed over the
next five years by reducing or freezing payments to skilled nursing
facilities, hospitals and other healthcare providers.
With a large portion of HCP's revenues being determined by
government payout rates, forces beyond its direct control could
negatively affect revenue and operator coverage ratios.
HCP currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on the stock. One of its competitors,
Health Care REIT, Inc (
) also holds a Zacks #3 Rank.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
HEALTH CR REIT (HCN): Free Stock Analysis
HCP INC (HCP): Free Stock Analysis Report
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