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Shares of Omega Healthcare Investors Inc. (OHI) have been on a long-term uptrend since year-end 2011 and are currently trading near its 52-week high. Stellar second quarter 2012 results with a 31.0% year-over-year increase in FFO (fund from operations) and an impressive dividend yield of 6.8% make this healthcare-facilities REIT (real estate investment trust) a solid pick for investors seeking both growth and income. Earnings for this Zacks #2 Rank (Buy) stock are expected to grow 12.9% in 2012 and 2.3% in 2013.
Strong Second Quarter
Omega Healthcare reported strong second quarter results on July 27, with a 15.4% year-over-year growth in total revenues to $83.8 million. The increase in revenue was primarily due to incremental rental and mortgage income from accretive investments made since July 1, 2011, worth approximately $370 million.
Second quarter 2012 FFO of 53 cents per share compared favorably with the year-ago FFO of 42 cents and exceeded the Zacks Consensus Estimate by 2 cents. The company terminated its existing $140 million Equity Shelf Program and initiated a new one, under which it could sell common shares worth $245 million over a period of time.
Based on better-than-expected second quarter results, management raised its adjusted FFO guidance for 2012 to between $2.12 and $2.15 per share from the earlier range of $2.09 – $2.12. The guidance includes the impact of approximately $150 million worth of projected new investments. However, it excludes any material impact from future acquisitions, asset sales, debt financing or repayment.
Analysts have revised their earnings estimates upward for both 2012 and 2013, driving the stock to attain a Zacks #2 Rank (Buy). Over the past 60 days, the Zacks Consensus Estimate for 2012 increased by 5 cents or 2.4% to $2.13, which is near the halfway point of the company’s guidance at an implied year-over-year growth of 12.9%. For 2013, the Zacks Consensus Estimate has increased by 4 cents or 1.9% to $2.18, representing growth of 2.3%.
Omega Healthcare paid a dividend of 42 cents per share in the second quarter of 2012, which marked a 5.0% increase over the year-ago quarter. Over the years, the company has steadily increased its dividend payout, and the current dividend payment affirms a healthy yield of 6.8%.
Omega Healthcare’s valuation metrics are at a discount on a price-to-earnings (P/E) basis. Shares are currently trading at a forward P/E of 11.57x versus the peer group average of 13.91x. However, on a price-to-sales (P/S) basis, Omega Healthcare is currently trading at 8.45x versus 5.46x for the peer group average. Its PEG ratio is 1.65, based on a 5-year FFO growth rate of 7.0%.
Since January 5, 2012, Omega Healthcare shares have fared largely better than the simple moving average for 200 days or SMA (200). The year-to-date return for the stock is noteworthy at 31.9% compared to an S&P 500 tally of 12.1%.
Healthcare is one of the more recession-proof real estate sectors and has continually fared better than others during the commercial real estate downturn. In addition, demand for assisted and independent living facilities is set to increase in the coming years as U.S. demographics are highly skewed towards an aging Baby Boomer generation. With a considerable presence in these property types, rising earnings estimates, modest growth projections, and a healthy dividend yield, Omega Healthcare offers an enticing upside potential going forward.
Based in Hunt Valley, Maryland, Omega Healthcare invests in a wide array of healthcare facilities, providing financing and capital to the long-term healthcare industry. Founded in 1992, the company primarily focuses on skilled nursing facilities in the U.S. Its property portfolio includes skilled nursing facilities, assisted living facilities, and other specialty hospitals. As of June 30, 2012, Omega Healthcare owned or held mortgages on 433 healthcare facilities with approximately 50,385 licensed beds in 33 states that are operated by 47 third-party healthcare operating companies. The company currently has a market cap of $2.7 billion.