Omega Healthcare Investors, Inc. (NYSE:OHI) shares are down more than -9.88% this year and recently increased 0.43% or $0.12 to settle at $28.17. Medical Properties Trust, Inc. (NYSE:MPW), on the other hand, is up 10.98% year to date as of 11/10/2017. It currently trades at $13.65 and has returned 0.22% during the past week.
Omega Healthcare Investors, Inc. (NYSE:OHI) and Medical Properties Trust, Inc. (NYSE:MPW) are the two most active stocks in the REIT – Healthcare Facilities industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect OHI to grow earnings at a 15.80% annual rate over the next 5 years. Comparatively, MPW is expected to grow at a 7.76% annual rate. All else equal, OHI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 94.51% for Medical Properties Trust, Inc. (MPW). OHI’s ROI is 6.20% while MPW has a ROI of 5.70%. The interpretation is that OHI’s business generates a higher return on investment than MPW’s.
Cash is king when it comes to investing. OHI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.04. Comparatively, MPW’s free cash flow per share was -0.06. On a percent-of-sales basis, OHI’s free cash flow was 0% while MPW converted -0% of its revenues into cash flow. This means that, for a given level of sales, OHI is able to generate more free cash flow for investors.
OHI’s debt-to-equity ratio is 1.29 versus a D/E of 0.84 for MPW. OHI is therefore the more solvent of the two companies, and has lower financial risk.
OHI trades at a forward P/E of 15.39, a P/B of 1.55, and a P/S of 6.03, compared to a forward P/E of 13.00, a P/B of 1.25, and a P/S of 8.87 for MPW. OHI is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. OHI is currently priced at a -5.72% to its one-year price target of 29.88. Comparatively, MPW is -0.15% relative to its price target of 13.67. This suggests that OHI 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 3.10 for OHI and 2.70 for MPW, which implies that analysts are more bullish on the outlook for OHI.
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. OHI has a beta of 0.53 and MPW’s beta is 1.00. OHI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. OHI has a short ratio of 16.64 compared to a short interest of 13.62 for MPW. This implies that the market is currently less bearish on the outlook for MPW.
Omega Healthcare Investors, Inc. (NYSE:OHI) beats Medical Properties Trust, Inc. (NYSE:MPW) on a total of 7 of the 14 factors compared between the two stocks. OHI is growing fastly, generates a higher return on investment, has higher cash flow per share and higher liquidity. OHI is more undervalued relative to its price target. Finally, HCP has better sentiment signals based on short interest.