Medical Properties Trust (NYSE:MPW) has been dealing with significant hurdles, including rising interest rates and financially distressed tenants. These challenges have forced the company to cut its dividend twice, contributing to a decline of ~28% in its share price over the past 12 months
Is this a chance to buy in at a discounted price? According to the investor known as Hunting Alpha, it’s not.
“I still see glaring operational execution issues due to an FFO cash bleed, regular impairments, and declining revenues even in the broader portfolio of tenants,” writes the investor.
Hunting Alpha cites the example of MPW’s largest tenant, Steward Health Care, which filed for bankruptcy earlier this year. Unfortunately for investors, adds Hunting Alpha, there was more bad news spread throughout MPW’s portfolio.
“Medical Properties Trust’s largest tenants are undergoing financial stress,” writes the investor, who adds that “these issues are not limited to the larger, specific tenants.”
Hunting Alpha points out that the company is burning through cash at an alarming rate, with outflows of $1.3 billion in the last three quarters alone. This has placed MPW in a precarious position, leaving it with only $607 million in liquidity.
Even the prospect of upcoming rate cuts will not provide much help, continues the investor, as the company is too indebted to effectively take advantage of cheaper borrowing rates.
“Leverage levels are high and unlikely to benefit much from rate cuts,” writes Hunting Alpha, adding that “net debt to operating cash flow (OCF) is more than 30x on an annualized basis and 62x as of Q2 FY24.”
The investor concludes by urging investors not to be tempted by the 0.4 P/B valuation of this “value trap.”
Hunting Alpha is therefore urging investors to head towards the exits, rating MPW a Sell. (To watch Hunting Alpha’s track record, click here)
Wall Street’s outlook isn’t much brighter, though analysts aren’t quite as pessimistic as Hunting Alpha. Over the past three months, six analysts have rated MPW as a Hold, with the consensus Hold rating accompanied by a 12-month average price target of $5.20, indicating a 14% upside from current levels. (See MPW stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
