Ventas Upgraded to Outperform - Analyst Blog

We have recently changed our long-term recommendation for Ventas Inc. (VTR), a leading health care real estate investment trust (REIT), from Neutral to Outperform as we anticipate it to perform well above the broader market. The stock presently has a Zacks #2 Rank, which translates into a short-term ‘Buy' rating.

In the last 30 days, fiscal 2010 earnings estimates of Ventas have been increased by 7 of the 10 analysts covering the stock, while none lowered the same. For fiscal 2011, earnings estimates were revised up by 10 of the 14 analysts covering the stock, while none revised it downward. This indicates a clear positive directional movement for the fiscal earnings.

The magnitude of the earnings estimates has also increased by 4 cents for fiscal 2010 and 8 cents for fiscal 2011 to $2.85 and $3.09, respectively, in the last 30 days. This indicates that the analysts are bullish about the long-term performance of the company.

Ventas is one of the top performing health care REITs in the U.S., with one of the largest and most diversified portfolios in the healthcare sector with exposure to all types of facilities. The product diversity of the company allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a hard-to-replicate competitive advantage over its peers.

In addition, the healthcare sector is relatively immune to the economic problems faced by office, retail and apartment companies. Consumers will continue to spend on healthcare while cutting out discretionary expenditures.

Furthermore, Ventas usually leases its healthcare facilities under "triple net" leases, under which the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent. This insulates the company from short-term market swings that may adversely affect the operations of a particular facility, and provides a steady source of income.

However, a large portion of Ventas' revenue originates from a few tenants, which exposes it to concentration risk. If one of the company's larger tenants runs into financial difficulty, earnings could be negatively affected in the future.

Meanwhile HCP Inc. (HCP), one of the competitors of Ventas, has a Neutral recommendation and has a Zacks #3 Rank translating into a short-term Hold rating.

 
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