On Monday, Deutsche Bank updated its stance on CareTrust REIT (NYSE:CTRE) shares, raising the price target to $27.00 from the previous $23.00, while maintaining a Hold rating on the stock.
The adjustment reflects the company's solid performance in the first quarter of 2024 but also takes into account the potential risks associated with its deal execution going forward.
CareTrust REIT has recently lowered its 2024 adjusted funds from operations (AFFO) per share forecast to a range of $1.46 to $1.48, a slight decrease from the earlier $1.47 to $1.49 projection.
This revision follows the issuance of 28.7 million shares since the fourth quarter of 2023, which has led to concerns about the company being overly equitized. Despite this, the firm's management expressed confidence in closing the reported acquisition deals, valued at approximately $460 million, over the next 12 months.
The real estate investment trust's current capital structure is characterized by record-low leverage, with a ratio of 0.6 times. However, with an acquisition pipeline that has been effectively pre-funded and a robust liquidity position of around $1.0 billion, CareTrust is well-positioned to pursue additional deals.
The success of these transactions is crucial for earnings growth, especially given the company's premium valuation at approximately 16.3 times price to AFFO ratio, compared to an average of around 12.9 times for its peers in the skilled nursing healthcare REIT sector.
Despite a positive outlook for acquisitions, Deutsche Bank highlighted potential tenant credit risks, noting that some of CareTrust's top ten tenants are experiencing weak, and in some cases, deteriorating rent coverage.
The bank has revised its future FFO per share estimates for CareTrust to $1.47 for 2024, $1.67 for 2025, and $1.74 for 2026, down from the previous estimates of $1.54, $1.64, and $1.71, respectively. Similarly, the AFFO per share forecasts have been adjusted to $1.53 for 2024, $1.73 for 2025, and $1.80 for 2026, from the earlier $1.61, $1.71, and $1.78.
The revised price target and outlook are based on several factors, including recent equity issuances, an improving acquisition outlook, and updated interest rate forecasts.
The bank's decision to maintain a Hold rating is primarily due to valuation concerns, acknowledging that the year-to-date performance has already reflected the improved acquisition outlook.
In other recent news, CareTrust REIT has been the focus of several analyst firms following its recent financial activities. Baird has increased the price target on CareTrust REIT shares to $26.00, anticipating more accretive acquisition activity.
The firm's analyst projects that CareTrust's normalized funds available for distribution per share will rise in the coming years. RBC Capital Markets and KeyBanc have also raised their price targets for CareTrust REIT to $27.00, reflecting confidence in the company's solid balance sheet and strong acquisition pipeline.
CareTrust REIT has declared a quarterly dividend of $0.29 per share, indicating its commitment to providing returns to investors. The company has also reported closing on $205 million in new investments and has a robust pipeline worth around $260 million.
In terms of mergers and acquisitions, CareTrust REIT has expanded its portfolio with the acquisition of a skilled nursing facility portfolio in the Southeastern U.S. for approximately $80.9 million.
These recent developments underscore CareTrust REIT's strategic focus on healthcare-related real estate and its ability to leverage its strong balance sheet and cost of capital advantageously. The company's aggressive approach is supported by its flexible balance sheet, low leverage, and significant cash reserves.
Despite potential uncertainties surrounding regulatory changes, such as the Centers for Medicare & Medicaid Services' minimum staffing rule, CareTrust REIT's management is recognized for its experience and proactive approach in navigating these regulatory environments.
InvestingPro Insights
As CareTrust REIT (NYSE:CTRE) navigates through its acquisition strategy and equity issuances, the latest data from InvestingPro provides a mixed picture of the company's financial health and market position. With a market capitalization of $3.63 billion and a robust gross profit margin of 95.56% over the last twelve months as of Q1 2024, CareTrust REIT demonstrates significant profitability. Additionally, the company has experienced a healthy revenue growth of 14.97% during the same period, signaling strong operational performance.
InvestingPro Tips indicate that CareTrust REIT has a history of raising its dividend, which has increased for 8 consecutive years, reflecting a commitment to returning value to shareholders. Moreover, analysts expect the company to be profitable this year, which aligns with the positive revenue growth and solid gross profit margin figures. These factors are particularly relevant for investors considering the company's premium valuation, with a P/E ratio of 34.86, which suggests high expectations for future earnings.
For readers seeking a deeper analysis, InvestingPro offers additional tips on CareTrust REIT's financial outlook, including its earnings multiple and debt levels. To explore these insights and make informed investment decisions, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. With the platform listing 7 more InvestingPro Tips, investors can gain a comprehensive understanding of the potential risks and opportunities associated with CareTrust REIT.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.