Sabra Health Care REIT, Inc. (NASDAQ:SBRA) shares are down more than -22.40% this year and recently decreased -2.62% or -$0.51 to settle at $18.95. Senior Housing Properties Trust (NASDAQ:SNH), on the other hand, is up 2.43% year to date as of 11/10/2017. It currently trades at $19.39 and has returned 3.41% during the past week.
Sabra Health Care REIT, Inc. (NASDAQ:SBRA) and Senior Housing Properties Trust (NASDAQ:SNH) 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect SBRA to grow earnings at a 6.00% annual rate over the next 5 years. Comparatively, SNH is expected to grow at a 3.20% annual rate. All else equal, SBRA’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 61.43% for Senior Housing Properties Trust (SNH).
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SBRA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.23. Comparatively, SNH’s free cash flow per share was -0.01. On a percent-of-sales basis, SBRA’s free cash flow was -0.02% while SNH converted -0.22% of its revenues into cash flow. This means that, for a given level of sales, SBRA is able to generate more free cash flow for investors.
SBRA’s debt-to-equity ratio is 0.89 versus a D/E of 1.14 for SNH. SNH is therefore the more solvent of the two companies, and has lower financial risk.
SBRA trades at a forward P/E of 11.05, a P/B of 0.63, and a P/S of 11.07, compared to a forward P/E of 28.77, a P/B of 1.48, and a P/S of 4.30 for SNH. 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”. SBRA is currently priced at a -19.19% to its one-year price target of 23.45. Comparatively, SNH is -3.87% relative to its price target of 20.17. This suggests that SBRA 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 2.70 for SBRA and 3.20 for SNH, which implies that analysts are more bullish on the outlook for SNH.
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. SBRA has a beta of 0.95 and SNH’s beta is 0.45. SNH’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.SBRA has a short ratio of 3.05 compared to a short interest of 4.40 for SNH. This implies that the market is currently less bearish on the outlook for SBRA.
Sabra Health Care REIT, Inc. (NASDAQ:SBRA) beats Senior Housing Properties Trust (NASDAQ:SNH) on a total of 10 of the 14 factors compared between the two stocks. SBRA is growing fastly, is more profitable, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, SBRA is the cheaper of the two stocks on an earnings and book value, SBRA is more undervalued relative to its price target. Finally, SBRA has better sentiment signals based on short interest.