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Welltower (WELL) Up 7.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Welltower (WELL - Free Report) . Shares have added about 7.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Welltower due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Welltower Q2 FFO Surpass Estimates, Revenues Miss

Welltower reported normalized FFO per share of 86 cents in second-quarter 2020, which surpassed the Zacks Consensus Estimate of 83 cents. However, the reported figure compared unfavorably with the year-ago quarter’s figure of $1.05.

The company’s SHO portfolio was severely impacted by the coronavirus pandemic. In fact, the segment witnessed $37 million of property-level expenses in the second quarter related to the virus outbreak. This impacted the company’s normalized FFO per share.

Moreover, the company generated revenues of $1.19 billion, which missed the Zacks Consensus Estimate of $1.23 billion. The top line also compared unfavorably with the year-earlier quarter’s reported figure of $1.32 billion.

Quarter in Detail

Welltower's pro-rata gross investments in the second quarter totaled $124 million. This included $6 million in acquisitions and $115 million in development funding.

Apart from this, the company completed property dispositions of $949 million.
It exited the quarter with $1.7 billion of cash and cash equivalents, up from $268.7 million recorded at 2091 end. In addition, as of Jun 30, 2020, it had $3 billion of available borrowing capacity under its unsecured credit facility.

Share Repurchase

In May, the company’s board of directors authorized a share repurchase program of up to $1 billion of common stock through Dec 31, 2021. During the six months ended Jun 30, 2020, the company repurchased 201,947 shares at an average price of $37.89 per share.

COVID-19 Update

During the second quarter, move-out activity surpassed move-ins at the company’s SHO portfolio, resulting in spot occupancy declines throughout the quarter. This continued in July, with spot occupancy witnessing a sequential decline of 70 bps to 79.4%. In the third quarter, occupancy is expected to decline 125-175 bps.

Moreover, Welltower collected 98% and 97% of second-quarter and July rents, respectively, from its triple-net lease operators.

In its OM segment, the company either collected or approved short-term deferrals for more than 99% of second-quarter rents. This consists of 87% cash collections and 12% of short-term deferrals. For July, cash collections improved to more than 95%, with a total of 98% of OM rent due in July either collected or approved for short-term deferral.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Welltower has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Welltower has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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