Healthcare Trust of America, Inc. (NYSE:HTA) shares are down more than -9.15% this year and recently decreased -1.09% or -$0.3 to settle at $27.29. Healthcare Realty Trust Incorporated (NYSE:HR), on the other hand, is down -7.22% year to date as of 01/12/2018. It currently trades at $29.80 and has returned -3.81% during the past week.
Healthcare Trust of America, Inc. (NYSE:HTA) and Healthcare Realty Trust Incorporated (NYSE:HR) are the two most active stocks in the REIT – Healthcare Facilities industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Comparatively, HR is expected to grow at a 10.00% annual rate. All else equal, HR’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 74.03% for Healthcare Realty Trust Incorporated (HR). HTA’s ROI is 2.90% while HR has a ROI of 3.50%. The interpretation is that HR’s business generates a higher return on investment than HTA’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. HTA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.05. Comparatively, HR’s free cash flow per share was +0.07. On a percent-of-sales basis, HTA’s free cash flow was 0% while HR converted 0% of its revenues into cash flow. This means that, for a given level of sales, HTA is able to generate more free cash flow for investors.
HTA’s debt-to-equity ratio is 0.90 versus a D/E of 0.63 for HR. HTA is therefore the more solvent of the two companies, and has lower financial risk.
HTA trades at a forward P/E of 73.16, a P/B of 1.73, and a P/S of 10.02, compared to a forward P/E of 63.95, a P/B of 1.90, and a P/S of 8.83 for HR. HTA is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. HTA is currently priced at a -20.62% to its one-year price target of 34.38. Comparatively, HR is -17.45% relative to its price target of 36.10. This suggests that HTA is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.80 for HTA and 2.50 for HR, which implies that analysts are more bullish on the outlook for HR.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. HTA has a beta of 0.29 and HR’s beta is 0.27. HR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. HTA has a short ratio of 8.91 compared to a short interest of 6.34 for HR. This implies that the market is currently less bearish on the outlook for HR.
Healthcare Realty Trust Incorporated (NYSE:HR) beats Healthcare Trust of America, Inc. (NYSE:HTA) on a total of 9 of the 14 factors compared between the two stocks. HR higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, HR is the cheaper of the two stocks on an earnings and sales basis, Finally, HR has better sentiment signals based on short interest.