Earnings Scorecard: HCP

HCP, Inc (HCP - Analyst Report), a real estate investment trust (REIT), reported second quarter 2012 FFO (funds from operations) of $293.6 million or 69 cents per share compared with $317.9 million or 78 cents per share in the year-earlier quarter.

We cover below the results of the recent earnings announcement, as well as the subsequent analysts’ estimate revisions and the Zacks ratings for the short and long-term outlook on the stock.

Second Quarter Review

Recurring FFO for the reported quarter was $293.6 million or 69 cents per share, compared with $312.2 million or 77 cents per share in the year-ago quarter.Recurring FFO per share in the quarter beat the Zacks Consensus Estimate by a $0.01.

HCP reported total revenue of $464.4 million during the quarter compared with $488.1 million in the year-ago period. Total revenue in the reported quarter missed the Zacks Consensus Estimate of $469.0 million.

Read our full coverage on this earnings report: HCP reports Mixed 2Q

Earnings Estimate Revisions – Overview

Fiscal earnings estimates have moved in an upward direction since the earnings release, suggesting that analysts are positive about the long-term performance of the company. We take a look at the earnings estimate details.

Agreement of Estimate Revisions

In the last seven days, for fiscal 2012 earnings estimates were increased by three out of the 12 analysts covering the stock, while none decreased. For 2013, four out of 14 analysts covering the stock had increased estimates upward, while none moved downward over the same period. This indicates a positive bias for the fiscal year earnings.

Magnitude of Estimate Revisions

Earnings estimates for 2012 increased by a penny over the last seven days to $2.76 per share. For 2013, earnings estimates have increased from $2.89 to $2.92 during the same time period, which indicates that analysts are optimistic about the future performance of the company.

Moving Forward

The long-term earnings estimate picture for HCP is Neutral. HCP is the leading medical REIT in the U.S. with one of the largest and most diversified portfolios in the healthcare sector and 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, to provide a competitive advantage over its peers.

Healthcare is also relatively immune to the economic problems faced by office, retail and apartment companies. Consumers tend to continue to spend on healthcare while cutting out on discretionary purchases. The healthcare industry is the single largest industry in the U.S., based on Gross Domestic Product (GDP), and offers stability 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 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 #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Health Care REIT, Inc (HCN - Analyst Report) holds a Zacks #3 Rank which translates into a short-term Hold rating.

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 http://www.zacks.com/education

Note: 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.