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On Wednesday, CareTrust REIT (NYSE:CTRE) retained its Strong Buy rating and a $35.00 price target from Raymond (NSE:RYMD) James. The firm’s analyst highlighted the strategic benefits of CareTrust’s recent acquisition in the U.K. care home market, despite the cash lease yield being lower than typical deals for the company. The transaction, which is considered accretive, marks CareTrust’s significant entry into the U.K., mirroring the presence of larger healthcare REITs like WELL and OHI in the region.
The analyst noted that U.K. care homes, which blend features of seniors housing and skilled nursing facilities found in the U.S., present attractive supply and demand dynamics. This move by CareTrust is expected to open up a new avenue for growth, with future acquisitions in the U.K. anticipated to yield between 8-9% and offer higher EBITDAR coverage compared to U.S. acquisitions. InvestingPro analysis reveals the company has demonstrated strong execution capability, with revenue growth of 36.05% in the last twelve months and a track record of raising dividends for 9 consecutive years. This suggests a lower risk profile while still contributing positively to CareTrust’s cost of capital.
CareTrust’s recent acquisition represents a 19% expansion of its asset base, which follows a growth of over 50% in the previous year. This demonstrates the advantage of the company’s comparatively smaller asset base, allowing for more agile expansion. The analyst also expressed confidence in the management’s ability to continue this growth trajectory, with the potential to deploy an additional $500 million throughout the year. Such an investment would maintain the company’s leverage at a comfortable 2.7x, which is well below the target range of 4-5x. The company’s strong financial position is further evidenced by its current ratio of 3.51 and moderate debt levels, as reported by InvestingPro, which offers comprehensive analysis through its Pro Research Reports covering 1,400+ top stocks.
Additionally, the Care REIT deal has reduced CareTrust’s exposure to PACS Group from 19% to 16%, addressing an overhang that has been present since November. This move is seen as a positive step in diversifying CareTrust’s portfolio and reducing dependency on a single tenant. Overall, the analyst’s reiteration of the Strong Buy rating and price target reflects a positive outlook on CareTrust’s strategic expansion and financial health.
In other recent news, CareTrust REIT has announced a significant expansion into the United Kingdom (TADAWUL:4280) with an $817 million acquisition of Care REIT, adding 137 care homes to its portfolio. This strategic move is expected to increase the company’s funds available for distribution per share by approximately 3%. CareTrust REIT also launched a $750 million equity distribution program to sell common stock shares, with proceeds intended for general corporate purposes, including acquisitions and debt repayment. Furthermore, the company has doubled its unsecured revolving credit facility to $1.2 billion, supported by a consortium of banks led by KeyBanc Capital Markets. This expansion coincides with an upgrade in CareTrust’s corporate rating by S&P Global Ratings to BB+ and its issue-level rating on unsecured notes to BBB-. Analysts from BMO Capital Markets have maintained a Market Perform rating with a $31 price target, while KeyBanc Capital Markets adjusted their price target to $33, maintaining an Overweight rating. These developments reflect CareTrust’s growth strategy amid potential Medicaid cuts and ongoing investigations into its second-largest tenant. The company continues to explore substantial investment opportunities, with a pipeline estimated at $350 million, excluding a forthcoming phase of the Tennessee acquisition.
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