Omega Healthcare Investors, Inc. (NYSE:OHI) 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. 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.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Omega Healthcare Investors, Inc. (OHI) has an EBITDA margin of 78.72%, compared to an EBITDA margin of 24.27% for Healthcare Trust of America, Inc. (HTA). This suggests that OHI underlying business is more profitable. OHI’s ROI is 6.20% while HTA has a ROI of 2.90%. The interpretation is that OHI’s business generates a higher return on investment than HTA’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. OHI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, HTA’s free cash flow per share was +0.21. On a percent-of-sales basis, OHI’s free cash flow was -0% while HTA converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, HTA is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. OHI’s debt-to-equity ratio is 1.16 versus a D/E of 0.86 for HTA. OHI is therefore the more solvent of the two companies, and has lower financial risk.
OHI trades at a forward P/E of 15.91, a P/B of 1.63, and a P/S of 6.73, compared to a forward P/E of 64.75, a P/B of 1.64, and a P/S of 11.87 for HTA. OHI 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. OHI is currently priced at a -1.47% to its one-year price target of $32.06. Comparatively, HTA is -11.71% relative to its price target of $33.81. 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 2.80 for OHI and 1.90 for HTA, which implies that analysts are more bullish on the outlook for OHI.
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. OHI has a beta of 0.54 and HTA’s beta is 0.33. HTA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. OHI has a short ratio of 17.20 compared to a short interest of 9.19 for HTA. This implies that the market is currently less bearish on the outlook for HTA.
Healthcare Trust of America, Inc. (NYSE:HTA) beats Omega Healthcare Investors, Inc. (NYSE:OHI) on a total of 7 of the 12 factors compared between the two stocks. HTA is more profitable, has a higher cash conversion rate and has lower financial risk. In terms of valuation, OHI is the cheaper of the two stocks on an earnings, book value and sales basis, HTA is more undervalued relative to its price target. Finally, HTA has better sentiment signals based on short interest.