Markets

A Side-by-side Analysis of Medical Properties Trust, Inc. (MPW) and Sabra Health Care REIT, Inc. (SBRA)

Medical Properties Trust, Inc. (NYSE:MPW) and Sabra Health Care REIT, Inc. (NASDAQ:SBRA) 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.

Growth

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 MPW to grow earnings at a 7.20% annual rate over the next 5 years. Comparatively, SBRA is expected to grow at a 6.00% annual rate. All else equal, MPW’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns



Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin as measures of profitability. Medical Properties Trust, Inc. (MPW) has an EBITDA margin of 91.14%, compared to an EBITDA margin of 90.35% for Sabra Health Care REIT, Inc. (SBRA). This suggests that MPW underlying business is more profitable.

Cash Flow 

Cash is king when it comes to investing. MPW’s free cash flow (“FCF”) per share for the trailing twelve months was +0.04. Comparatively, SBRA’s free cash flow per share was -0.13. On a percent-of-sales basis, MPW’s free cash flow was 0% while SBRA converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, MPW is able to generate more free cash flow for investors.




Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. MPW’s debt-to-equity ratio is 0.84 versus a D/E of 1.22 for SBRA. SBRA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MPW trades at a forward P/E of 12.55, a P/B of 1.21, and a P/S of 7.87, compared to a forward P/E of 13.59, a P/B of 1.43, and a P/S of 13.66 for SBRA. MPW is the cheaper of the two stocks on an earnings, book value and sales basis. 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. MPW is currently priced at a -3.65% to its one-year price target of $13.68. Comparatively, SBRA is -14.36% relative to its price target of $25.35. 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 MPW and 2.70 for SBRA, which implies that analysts are equally bullish on their outlook for the two stocks.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MPW has a beta of 0.92 and SBRA’s beta is 0.88. SBRA’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. MPW has a short ratio of 12.99 compared to a short interest of 3.99 for SBRA. This implies that the market is currently less bearish on the outlook for SBRA.

Summary

Medical Properties Trust, Inc. (NYSE:MPW) beats Sabra Health Care REIT, Inc. (NASDAQ:SBRA) on a total of 8 of the 12 factors compared between the two stocks. MPW is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, MPW is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, VNO has better sentiment signals based on short interest.

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