Medical Properties Trust (MPW 0.88%) might provide great material for a country song. And I'm talking about one of those truck-broke-down-wife-left-me-and-there-ain't-no-beer-left kinds of country songs.
The healthcare REIT's revenue and earnings are declining. A major tenant is behind on its rent. The stock is down nearly 60% from its 52-week high. Short-sellers are betting a lot of money that it's going to fall even more.
Yet Wall Street expects this ultra-high-yield dividend stock to soar by 51% in the next 12 months.
Surprising optimism
The average analysts' 12-month price target for Medical Properties Trust (MPT) is $11.62. With its share price hovering around $7.70, that target reflects upside potential of roughly 51%. That might seem to be a surprising degree of optimism about a company facing some serious challenges.
To be sure, there is not a broad consensus about MPT on Wall Street. Of the 14 analysts surveyed by Refinitiv in May, one recommends selling the stock, with two others rating it as underperform. Another six think MPT is a stock to hold.
However, four of those 14 analysts recommend buying MPT right now, and two others have strong buy ratings on the stock.
Here's a real shocker: The lowest of those analysts' 12-month price targets for MPT is still higher than the current price (albeit by only around 4%.) And the most bullish analyst thinks the stock can soar more than 130% to $18 per share.
What is Wall Street thinking?
Raymond James' Jonathan Hughes ranks as one of the more upbeat analysts when it comes to MPT. His take on the REIT could provide some insight into what the bulls on Wall Street are thinking.
Hughes and research associate Ravin Reddy recently wrote to clients that they believe MPT's "'margin of safety' at current valuations is attractive and has led/will lead to more interest." They noted that short interest remains at an all-time high even after MPT's shares have fallen quite a bit so far this year.
Importantly, the Raymond James analysts think that MPT's dividend is safe. With its yield topping 15% at the current share price, it is definitely turning some investors' heads.
The analysts also predict that investors could regain confidence in MPT once it completes a couple of transactions: the sale of its Healthscope hospitals in Australia, and the sale of three Connecticut hospitals to Prospect Medical Holdings. They think these deals "will effectively 'reset' the MPW portfolio" even though the full resolution of matters related to Prospect could take 12 or more months to wrap up.
Are the bullish analysts right?
My view is that Hughes and Reddy make some good points. I agree that the margin of safety for MPT looks attractive. The stock trades at a historically low multiple to its normalized funds from operations. The financial outlook for its tenants also appears to be improving.
Nearly 19% of MPT's shares outstanding and almost 26% of the stock float were sold short as of April 28. Those levels just might set the stage for a short squeeze if MPT has some especially positive news on the way.
I also concur with Raymond James' analysts that MPT's dividend isn't in jeopardy right now. They noted that if another major tenant couldn't pay its rent, the REIT's board might be forced to take a hard look at a dividend cut. That's a possibility, but there's no reason to worry at this point.
Hughes and Reddy wrote that they believe that MPT "has become a 'show me' story, with completion of the remaining Healthscope and Prospect transactions critical to regaining investor confidence." I think they hit the nail squarely on the head.
Will this beaten-down stock actually skyrocket by 51% or more over the next 12 months, though? I'm not as bullish as some on Wall Street. However, I do expect that it could move somewhat higher. And with an ultra-high dividend yield paying investors handsomely, MPT could deliver attractive total returns. Nashville might need to look elsewhere for inspiration.
