Is Now A Good Time To Buy Welltower Stock?

When a stock sells off and loses a large portion of its share price, investors must always ask themselves whether the possible reward of buying the issues at a discount is worth the risk that sent the stock so far down. Last year saw many real estate investment trusts (REITs) lose between 40% and 50% of their values, but some of them have bounced back nicely in 2023.

Recent strong earnings and positive reviews from stock analysts are often the catalysts for beaten-down stocks to rebound off their lows.

Take a look at one REIT whose share price took a beating in 2022 but has since rebounded strongly and see whether it’s still discounted enough to consider a purchase.

Welltower Inc. WELL is a Toledo, Ohio-based healthcare REIT that owns interests in senior housing, post-acute communities and outpatient medical properties. It does this by providing capital to the operators who run the facilities. Welltower, founded in 1970 under the name Health Care Fund, was incorporated as a REIT in 1985. Welltower is a member of the S&P 500.

See also: Senior Housing Occupancy Up For 7th Straight Quarter

Welltower has interests in 678 senior housing properties across the U.S., 107 in Canada and 65 in the U.K for a total of 850. It owns 570 triple-net-lease properties and another 323 outpatient medical centers.

At the end of 2022, Welltower’s occupancy levels were 78.1% for senior housing, 76.2% for triple-net properties and 95.2% for its outpatient medical centers.

Welltower has been performing well recently. Since March 23, its stock has risen 13.5%. Year to date, its total return is 9.68%. The 52-week range is $56.50 to $98.42.

On Feb. 15, Welltower reported fourth-quarter operating results. Its forward funds from operations (FFO) of $0.83 per share trounced Wall Street estimates of $0.10 and were in-line with the fourth quarter of 2021. Revenue of $1.52 billion was slightly ahead of the consensus estimate of $1.49 billion and was 15.97% better than the revenue of $1.31 billion in the fourth quarter of 2021.

Not surprisingly, analysts have been positive on Welltower recently. On April 6, Citigroup analyst Nicholas Joseph upgraded Welltower from Neutral to Buy and raised the price target 15.7% from $70 to $81. On April 11, Evercore ISI Group analyst Steve Sakwa upgraded Welltower from In-Line to Outperform, while also announcing a $81 price target. Credit Suisse and JP Morgan have both maintained Outperform and Overweight ratings recently with price targets at $80 and $81, respectively.

Welltower pays a quarterly dividend of $0.61, and the $2.44 annual dividend yields 3.35%. Its FFO is $3.47, so the present payout ratio is 70.3%, which is a bit above the safe range but still provides comfortable coverage for paying out its dividends.

Check out: Benzinga’s Yield Investment Screener

If there’s one caveat to be made about Welltower now, its forward Price/FFO (P/FFO) is $21, which is more than double the P/FFO of rival Omega Healthcare Investors Inc. OHI and significantly higher than other healthcare REITs such as Healthpeak Properties Inc. PEAK and Healthcare Realty Trust Inc. HR.

While the 78% occupancy level of its senior housing is a bit low, the elderly population growth is on the rise and that should bode well for Welltower in the long term. While it seems a bit overvalued compared to its peers, it’s also a long way below its 52-week high and could easily make up more of that lost ground over the next 12 months.

Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.

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