Should You Retain HCP Inc. (HCP) Stock In Your Portfolio?

We updated our research report on HCP Inc. (NYSE:HCP) on May 8.

Early in May, this healthcare REIT displayed a better-than-expected performance for first-quarter 2017, delivering a surprise of 6.25%. In fact, HCP is a steady performer, having surpassed the Zacks Consensus Estimates in each of the trailing four quarters, with an average beat of 4.2%.

The company reported first-quarter 2017 funds from operations (“FFO”) as adjusted of 51 cents per share, beating the Zacks Consensus Estimate of 48 cents. Results were driven by growth in three-month same-property portfolio (SPP) cash net operating income (NOI). The figure also compared favorably with the year-ago quarter FFO as adjusted (excluding Quality Care Properties, Inc. contribution) of 48 cents per share.

During the first quarter, HCP sold $1.8 billion of non-core assets. This included the completion of the sale of 64 triple-net assets, which were leased to Brookdale for $1.125 billion and the RIDEA II transaction for $480 million net. These efforts are in sync with the company’s focus on reducing Brookdale concentration as well as leverage.

In fact, HCP remains on track with its deleveraging plan, and aims for net debt to EBITDA in the low-to-mid six-time range, as well as a financial leverage in the 43–44% band, by the end of 2017.

HCP is well poised to benefit from its diverse and high-quality portfolio, rising healthcare spending and the aging population. However, softness in the senior housing fundamentals is likely to persist in the upcoming quarters amid a rise in new supply in the market. In addition, rise in interest rate, the company’s dependence on few geographic markets, as well as cut-throat competition in the industry pose concerns. Dilutive impact on earnings from sale of assets is also unavoidable.

Amid these, shares of HCP underperformed the Zacks categorized REIT and Equity Trust – Other industry over the past three months. HCP shares fell 1.9% over this time frame compared with 1.5% growth recorded by the industry.




Finally, over the past seven days, estimates for second-quarter 2017 FFO per share remained flat at 47 cents, while the same for full-year 2017 edged down 0.5% to $1.92.

Currently, HCP has a Zacks Rank #3 (Hold).

Stocks to Consider

Investors can also consider better-ranked stocks in the REIT space like Equity LifeStyle Properties, Inc. (NYSE:ELS) , Prologis, Inc. (NYSE:PLD) and PS Business Parks, Inc. (NYSE:PSB) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Equity LifeStyle Properties currently has a long-term growth rate of 4.7%.

Prologis’ estimates for 2017 funds from operations (“FFO”) per share moved north nearly 3.8% to $2.76, over the past 30 days.

Moreover, PS Business Parks’ estimates for 2017 FFO per share climbed 1.0% to $5.93, over the past seven days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, 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.

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