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KeyBanc Capital Markets maintained its overweight rating and $33.00 price target on CareTrust REIT (NYSE:CTRE) stock on Wednesday. The healthcare REIT, currently valued at $5.6 billion, boasts a "GREAT" financial health score according to InvestingPro analysis. The firm’s decision follows an update from PACS Group, CareTrust’s second-largest tenant representing approximately 12% of rent.
PACS Group disclosed on Monday that it plans to restate its first and second quarter 2024 financial statements due to issues related to Medicare Part B billing. The restatement stems from an ongoing independent investigation following a Hindenburg Research report published in November 2024, which led to delays in PACS filing its third quarter 2024 financials. Despite these tenant concerns, CareTrust maintains impressive gross profit margins of 94.5% and operates with a conservative debt profile.
The estimated revenue restatement amounts to approximately 2% of PACS’s first quarter 2024 revenue and 5% of its second quarter 2024 revenue. KeyBanc characterized these adjustments as "benign" and noted they should have limited impact on CareTrust’s rent coverage, potentially affecting it by up to 0.3x.
PACS indicated the independent investigation is substantially complete, though the operator expects to report one or more material weaknesses. The financial impact from the investigation and potential fines remain unknown, and PACS has not filed quarterly or annual financial statements through the first quarter of 2025.
KeyBanc continues to view CareTrust REIT as an attractive investment opportunity to gain exposure to favorable long-term care fundamentals, citing the company’s attractive cost of capital, strong balance sheet, and above-average earnings growth profile. The company offers a compelling 4.6% dividend yield and has raised its dividend for nine consecutive years. For deeper insights into CareTrust’s investment potential, including 12 additional ProTips and comprehensive valuation analysis, visit InvestingPro.
In other recent news, CareTrust REIT, Inc. has secured a $500 million unsecured term loan facility, enhancing its financial flexibility and capital foundation. The company plans to use the proceeds to pay off an existing revolver balance of approximately $475 million, finance acquisitions, and for general corporate purposes. Additionally, CareTrust has expanded its leadership team by appointing Roger Laty as Senior Vice President of Tax and Derek Bunker as Senior Vice President of Strategy and Investor Relations. The company has also completed a significant acquisition, purchasing 10 skilled nursing facilities for approximately $146 million in a joint venture, further expanding its portfolio. In terms of credit ratings, Moody’s has affirmed CareTrust’s Ba1 rating while revising its outlook to positive, citing consistent operational performance and strong liquidity. Fitch Ratings has upgraded CareTrust’s ratings to ’BBB-’ following the acquisition of UK-based Care REIT, highlighting improved diversification and low leverage. These developments reflect CareTrust’s strategic efforts to grow and diversify its healthcare real estate portfolio while maintaining financial stability.
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