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Earnings Scorecard: Health Care REIT

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Health Care REIT (HCN - Free Report) reported third quarter 2011 FFO (funds from operations) of 85 cents per share compared with 31 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.

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.

Third Quarter Review

Total revenue during the reported quarter stood at $384.8 million compared with $168.9 million in the year-ago quarter. Total revenue comfortably surpassed the Zacks Consensus Estimate of $374 million.

During the reported quarter, Health Care REIT made gross investments of $644 million, including $569 million in acquisitions.

For full-year 2011, Health Care REIT revised its FFO guidance from the range of $3.34 – $3.40 per share to a range of $3.38 – $3.43.

Read our full coverage on this earnings report: Health Care REIT Beats by a Silver

Earnings Estimate Revisions - Overview

The company’s earnings estimates for fiscal 2011 have moved in both directions since the third quarter earnings release, implying that the analysts are cautious about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.

Agreement of Estimate Revisions

In the last 7 days, 4 out of the 16 analysts covering the stock increased their earnings estimates for the upcoming quarter and 8 out of the 15 analysts increased the same for fiscal 2011. In the last 7 days, 3 out of the 16 analysts covering the stock trimmed their earnings estimates for the upcoming quarter and 2 out of the 15 analysts decreased the same for fiscal 2011.

Magnitude of Estimate Revisions

Earnings estimates for the upcoming quarter remained unchanged at 90 cents per share over the last 7 days but increased from $3.39 per share to $3.40 per share for fiscal 2011.

Moving Forward

Health Care REIT Inc. is a real estate investment trust (REIT) that invests across the full spectrum of senior housing and health care real estate properties.

Health Care REIT usually has long-term triple-net leases in senior housing and healthcare real estate properties that insulates it from market volatility and provides a steady source of revenue despite a challenging macroeconomic environment. This offers a strong upside potential for the company.

The healthcare sector is one of the more recession-proof real estate sectors and has continually fared comparatively better than other sectors during the commercial real estate downturn.

However, Health Care REIT 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; 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.

Health Care REIT 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, HCP Inc. (HCP - Free Report) also holds a Zacks #3 Rank.

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