Argus Reaffirms Buy At HCP, Stock At 'Attractive' Levels

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Argus reaffirmed its Buy rating on HCP, Inc. HCP Friday along with a price target of $49.

Analyst Lucy Moore was "encouraged by HCP's continued growth in same-property net operating income and by several recent investment transactions."

The firm raised its 2015 FFO estimate to from $3.17 to $3.19 per share due to increased investments and expected reductions in G&A and interest expense. The firm also initiated a 2016 FFO estimate of $3.30 per share.

Moore noted that the the company raised its quarterly cash dividend to $0.565 per share, or $2.26 annually, at the end of January with an approximate yield of 5.4 percent. The new dividend represented a 3.7 percent increase over the previous dividend and marked "the 30th consecutive year of dividend increases," according to the analyst.

Discussing investments, Moore said, "HCP invested over $800 million during the fourth quarter, including $630 million for a debt investment in a U.K. home care portfolio, which we think will accelerate earnings growth going forward. The company's investment momentum is also continuing in early 2015, with a ground-up life science development project in San Francisco and an $849 million acquisition of senior housing communities in the U.S."

It was also noted that HCP was able to invest $2.1 billion of capital in 2014 and will need to investment additional proceeds following an agreement between the company and HCR ManorCare to "sell 50 noncore properties that are underperforming the portfolio in terms of coverage levels."

One of the major risks that was highlighted involved HCP's "substantial concentration in tenants, with HCR ManorCare accounting for 31 percent of portfolio assets and Brookdale for an additional 14 percent. In addition, the company's businesses are concentrated geographically, with California, Texas, and Florida accounting for 21 percent, 10 percent, and 9 percent of cash NOI, respectively, for the quarter," according to Moore.

Overall, Moore thought the shares remained "attractive" at levels near $42 as the $49 price target implied at 12 month total return of approximately 23 percent with the dividend included.

HCP recently traded at $41.64, up 0.97 percent.

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Posted In: Analyst ColorReiterationAnalyst RatingsArgusLucy Moore
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