HCP, Inc. reported second quarter 2011 FFO (funds from operations) of $317.9 million or 78 cents per share as opposed to $161.8 million or 55 cents per share in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
Excluding non-recurring items, FFO in the reported quarter was $312.2 million or 77 cents per share compared with $161.8 million or 55 cents per share in the year-ago quarter. Recurring FFO in the second quarter of 2011 edged out the Zacks Consensus Estimate by a penny.
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 and long-term outlook on the stock.
Second Quarter Review
HCP reported total revenue of $488.7 million during the quarter compared favorably with the year-ago level of $301.9 million. Total revenue in the reported quarter comfortably beat the Zacks Consensus Estimate by $74 million.
During the reported quarter, HCP entered into a strategic venture with Brookdale Senior Living, Inc., which includes the operation of 37 HCP-owned senior living communities. The transaction is expected to be completed by September 2011.
During the quarter, HCP paid Genesis debt investments and received $330.4 million. At quarter end, the company had cash and cash equivalents of $276.2 million
Read our full coverage on this earnings report: HCP Beats by a Cent.
Earnings Estimate Revisions –– Overview
Fiscal 2011 earnings estimates for HCP have moved upwards since the earnings release, which implies that the analysts are bullish about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.
Agreement of Estimate Revisions
For the upcoming quarter, 2 out of the 17 analysts covering the stock revised the estimates upward, while 1 analyst lowered the same over the last 30 days. For fiscal 2011, earnings estimates were increased by 2 out of the 7 analysts covering the stock while none moved in the opposite direction over the last 30 days.
Magnitude of Estimate Revisions
Earnings estimates for the upcoming quarter increased from 66 cents per share to 67 cents per share in the last 30 days. However, earnings estimates for fiscal 2011 increased from $2.50 to $2.55 per share. For full-year 2011, HCP expects FFO before non-recurring items in the range of $2.63 to $2.69 per share.
HCP is the leading medical REIT in the US and boasts one of the largest and the 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 hard-to-replicate competitive advantage over its peers.
HCP does not run the healthcare business at its facilities. Rather, it has established business relationships with a number of experienced healthcare management companies or operators who lease these properties on a long-term basis, generally for 10 to 15 years. This insulates the company from short-term market swings, and provides a steady source of income
However, HCP operates in a cut-throat market and competes with national and local healthcare operators on a number of factors, including quality, price, and range of services provided; reputation; location; and demographics of the population in the surrounding area; and the financial condition of its tenants and operators. Consequently, the company is under severe stress to maintain profitability.
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 has a Zacks #3 Rank.
bout Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, 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 http://www.zacks.com/education/