Weak earnings and a downgrade in analyst rating are two negative events that can affect a stock’s price. When a company reports disappointing financial results, it may reflect potential problems with its business operations, lack of growth, or overall financial difficulties. It usually prompts investors to rush for exits.
If an influential analyst later downgrades this stock, it raises even more concerns about the company’s overall health. The result: More investors will dump their shares, adding downward pressure on the share price.
This was the case that day with Medicinal Properties Fund (NYSE: MPW), a real estate investment fund (Rhett) which struggled for over a year but has now lost more value after a poor earnings report and a three-tier downgrade from a well-known analyst.
The Medicinal Properties Fund is a Birmingham, Alabama-based foundation RT Healthcare which owns and operates 444 public acute care and other properties across the United States and in nine other countries, with locations in Europe and Australia. It has an estimated portfolio valued at $19.2 billion, of which 64% is general acute care hospitals. About two-thirds of its holdings are in the United States.
On August 8, Medical Properties Trust reported its operating results for the second quarter. money from operations An FFO of $0.48 missed estimates of $0.70, although it was a 4.35% increase from additional funding of $0.46 in Q2 2022. Q2 2022.
The Medical Properties Trust also reported a net loss of $42 million against net income of $190 million a year ago due to the early termination of five leases of a hospital in Utah and a direct rent write-off of $95 million. Advance guidance on FFO has tightened from $1.50 to $1.61 to $1.53 to $1.57.
The poor report sent shares of Medical Properties Trust into a increased by more than 14% in one day, from 10.10 USD to 8.68 USD. The shares continued their decline over the next two days, closing at $8.13 on August 10. But there was more pain for shareholders.
paying off:
On Aug. 11, Raymond James analyst Jonathan Hughes Reduced Medicinal Properties Fund Three levels from strong buy to underperform. Hughes noted the underperformance of other healthcare REITs and the overall average performance of REITs. But Hughes had other concerns, too.
“Improving operator fundamentals has been the only positive in recent quarters, but it has been overshadowed by the growing questions surrounding management communications, credibility, transparency of disclosure, operator health, corporate governance, leverage and dividend sustainability,” Hughes wrote.
It’s bad enough when a stock is downgraded one notch, like an overweight to an equal weight. But downgrading the rating to three levels is a huge negative, and traders reacted the way one might expect – the stock opened down another 5% and touched as low as $7.45 before bouncing back to close at $8.08.
Wall Street analysts tend to pile on after a prominent analyst downgrades a stock, so it was no surprise that later in the day Bank of America Securities analyst Joshua Denerlin downgraded Medical Properties Trust from neutral to underperform and cut its target. The price is from $9 to less. $8.
Dennerlein’s concern, like many analysts, relates to the Medical Property Trust’s continued exposure to Steward Health Care, its first tenant, as well as its financial relationship with Prospect Medical Holdings Inc. , the other major tenant.
During 2022 and the first three months of 2023, Medical Properties Trust shares experienced a sharp decline related to concerns about their relationships with their operators and allegations of a lack of transparency. During this time, the Medical Properties Trust was one of the worst-performing REITs, dropping 67% from a high of $20.89 in January 2022, to a low of $6.88 in March.
The stock rebounded nicely over the next four months, reaching an intraday high of $10.73 on July 27. But then the second quarter earnings report came along with the downgrade and all that changed.
With the downtrend spreading right now and the heavy sell ratio at 14.9, it looks like the stock could retest those March lows again. This is a healthcare fund that could find itself in intensive care for some time to come.
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