Baird has increased its price target for shares of CareTrust REIT (NYSE: NYSE:CTRE) to $28.00, up from the previous $26.00, while maintaining an Outperform rating on the stock. The adjustment follows a detailed evaluation of the company's financial projections and funding strategies for acquisitions.
The firm's analyst projects that CareTrust REIT's Normalized Funds Available for Distribution (FAD) per share will be $1.52 for 2024, with a slight increase to $1.70 in 2025, and further growth to $1.92 by 2026.
These figures show a slight modification from the prior estimates, which were $1.72 for 2025 and $1.89 for 2026. The updated estimates reflect a balance between higher investment volume and a projected increase in the proportion of equity used for funding acquisitions.
Additionally, Baird's financial model for CareTrust REIT suggests that the company's leverage ratio, measured as net debt to EBITDA, is expected to conclude at 2.1 times by the end of 2026. This is a reduction from the previous estimate of 2.9 times.
The analyst also highlighted a significant change in the interest rate for a $165 million loan in which CareTrust REIT was involved. CareTrust REIT has opted to call the portion of the loan held by Key, leading to a reduction in the interest rate from 10.9% to a rate tied to the Secured Overnight Financing Rate (SOFR) plus 4.25%, with a SOFR floor of 5.15%.
The decision to increase the target price to $28 is based on a higher estimated Net Asset Value (NAV) per share.
CareTrust REIT has demonstrated a strong Q2 performance with record investments. The company reported significant growth with investments totaling approximately $765 million, yielding an average of 9.5%. The market capitalization of CareTrust REIT has seen an 84% surge year-over-year, reaching an enterprise value of $4 billion for the first time.
The strength of the company's portfolio was underscored by property-level EBITDAR and EBITDARM coverage ratios of 2.17 and 2.78, respectively. Occupancy rates have returned to pre-pandemic levels for skilled nursing facilities and improved for assisted living facilities.
Amid a competitive investment environment, CareTrust REIT has raised its full-year guidance. The company now projects normalized funds from operations (FFO) per share to be between $1.46 and $1.48, and funds available for distribution (FAD) per share to be between $1.50 and $1.52.
InvestingPro Insights
Following Baird's positive outlook on CareTrust REIT (NYSE:CTRE), InvestingPro data and tips lend further credence to the company's robust financial position and potential for growth. CareTrust REIT's market cap stands at a solid $4.29 billion, and despite a high P/E ratio of 46.96, the adjusted P/E ratio for the last twelve months as of Q2 2024 is more favorable at 35.28. This suggests that investors are expecting earnings to grow, which aligns with one of the InvestingPro Tips that net income is expected to increase this year.
The company's revenue growth is also impressive, with a 21.2% increase over the last twelve months as of Q2 2024, and a quarterly surge of 33.63% in Q2 2024. This robust growth trajectory is complemented by a high gross profit margin of 95.8%, indicating efficient operations and strong pricing power. It's also worth noting that CareTrust REIT has been consistently raising its dividend, now for 8 consecutive years, which is a testament to its financial health and commitment to shareholder returns, as highlighted by another InvestingPro Tip.
Investors looking for additional insights on CareTrust REIT will find a wealth of information on InvestingPro, including 11 further tips that can help in making a more informed investment decision. For those interested in delving deeper into the company's financial metrics and analyst predictions, InvestingPro provides a comprehensive analysis at: https://www.investing.com/pro/CTRE.
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