HCP, Inc. (NYSE:HCP) shares are down more than -8.38% this year and recently increased 0.81% or $0.22 to settle at $27.23. Healthcare Trust of America, Inc. (NYSE:HTA), on the other hand, is up 5.63% year to date as of 11/10/2017. It currently trades at $30.75 and has returned 1.22% during the past week.
HCP, Inc. (NYSE:HCP) and Healthcare Trust of America, Inc. (NYSE:HTA) are the two most active stocks in the REIT – Healthcare Facilities industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect HCP to grow earnings at a 2.50% annual rate over the next 5 years.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 21.85% for Healthcare Trust of America, Inc. (HTA). HCP’s ROI is 4.50% while HTA has a ROI of 2.90%. The interpretation is that HCP’s business generates a higher return on investment than HTA’s.
Cash is king when it comes to investing. HCP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.02. Comparatively, HTA’s free cash flow per share was +0.05. On a percent-of-sales basis, HCP’s free cash flow was 0.44% while HTA converted 0% of its revenues into cash flow. This means that, for a given level of sales, HCP is able to generate more free cash flow for investors.
HCP’s debt-to-equity ratio is 1.35 versus a D/E of 0.90 for HTA. HCP is therefore the more solvent of the two companies, and has lower financial risk.
HCP trades at a forward P/E of 36.75, a P/B of 2.31, and a P/S of 8.10, compared to a forward P/E of 80.29, a P/B of 1.94, and a P/S of 11.18 for HTA. 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. HCP is currently priced at a -6.33% to its one-year price target of 29.07. Comparatively, HTA is -9.9% relative to its price target of 34.13. 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 3.00 for HCP and 1.80 for HTA, which implies that analysts are more bullish on the outlook for HCP.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. HCP has a beta of 0.35 and HTA’s beta is 0.36. HCP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.HCP has a short ratio of 2.61 compared to a short interest of 6.85 for HTA. This implies that the market is currently less bearish on the outlook for HCP.
HCP, Inc. (NYSE:HCP) beats Healthcare Trust of America, Inc. (NYSE:HTA) on a total of 8 of the 14 factors compared between the two stocks. HCP is growing fastly, generates a higher return on investment, has a higher cash conversion rate and higher liquidity. In terms of valuation, HCP is the cheaper of the two stocks on an earnings and sales basis, Finally, HCP has better sentiment signals based on short interest.