Is A Hold Strategy Appropriate For Ventas (VTR) Stock Now?

After a period of strategic dispositions and portfolio restructuring, Ventas Inc. (NYSE:VTR) is moving toward core portfolio stabilization and renewed growth. However, as the company’s seniors-housing segment remains under pressure, given the elevated level of new supply, near-term earnings growth might be challenging.

The company recently announced a number of transaction activities, including the acquisition of Le Groupe Maurice for $1.8 billion, refinancing of the Colony Capital secured loan and development spend of $0.8 billion of four new developments. These transactions highlight the company’s efforts to boost its portfolio and pursue growth opportunities across developments, buyouts and financings.

The company also outlined an encouraging five-year (2019-2024) outlook to 5-7% of funds from operations (FFO) growth in its June 2019 Investor Day presentation. During the same time period, seniors housing operating portfolio’s same-store cash NOI growth is projected to be 4-6%, while the core portfolio (consisting of research and innovation, medical office building and seniors housing triple-net) same-store cash NOI growth is expected to be 2-2.5%.

Additionally, the company has a robust external growth strategy in place that will strengthen its portfolio. In fact, management’s five-year plan outlines annual acquisition spend of $2 billion, at a blended cap rate of 6.5%. However, this is lower than the $3-billion annual investments the company has completed since 2009.

While strategic transaction and an encouraging outlook indicate Ventas’ strength over the long term, near-term headwinds remain concerns. Specifically, higher supply of seniors housing assets in certain markets is a concern for Ventas. This is because elevated supply curtails landlords’ pricing power and limits growth in occupancy level.

Further, the initial drag from development spending is expected to weigh on its earnings. Additionally, the company’s loan lending activities are viewed as lower quality source of income as compared to asset ownership and also lend higher bottom-line volatility.

Lastly, Ventas 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 and demographics of the population in the surrounding area, as well as the financial condition of its tenants and operators. This impacts the company’s pricing power.

Over the past three months, shares of this Zacks Rank #3 (Hold) company have rallied 8.3%, outperforming the industry’s growth of 7.5%.

Key Picks

Investors can also consider some better-ranked stocks from the same space like Host Hotels & Resorts, Inc. (NYSE:HST) , Lamar Advertising Company (NASDAQ:LAMR) and PS Business Parks, Inc. (NYSE:PSB) , carrying a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Host Hotels & Resorts’ FFO per share estimates for 2019 moved marginally north to $1.82 over the past month.

Lamar Advertising’s FFO per share estimates for the ongoing year have been revised slightly upward to $5.83 in 30 days’ time.

PS Business Parks’ current-year FFO per share estimate moved up marginally to $6.71 in the past week.

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