Truist Securities analyst Michael Lewis recently bumped up his price target on Medical Properties Trust (MPW 5.99%) from $4 to $4.50 per share. That implies about 10% upside potential over the next 12 months or so for the real estate investment trust (REIT) from its recent share price. The analyst maintained his hold rating on the healthcare REIT's stock, writing that "we do not have the risk tolerance to recommend the stock" given its significant volatility.
Shrinking to a healthier future?
Overall, the analyst has a muted view of the hospital-focused REIT. Lewis did bump up his 2024 funds from operation (FFO) estimate by $0.01 per share to $1.30 per share (well ahead of the analysts' consensus estimate of $1.12 per share). However, he lowered his FFO expectations for 2025 from $1.35 to $1.38 per share (still much higher than the $1.20 per share consensus).
While Lewis expects the REIT's FFO to rise over the next year, he believes that the hospital owner will eventually need to get smaller, which will lower its earnings. Driving that view is its need to sell assets to repay debt as it matures due to significantly higher interest rates. It's also dealing with a rash of tenant issues. The uncertainty of the REIT's future size is weighing on its valuation.
Time to buy this beaten-down REIT?
Lewis is right to have a cautious view of Medical Properties Trust. On the one hand, it has upside potential as it recovers from tenant and balance sheet issues. However, it also has a long road to recovery ahead with an uncertain path. It will likely need to continue selling assets (it's targeting to sell at least $2 billion this year), which will weigh on its earnings. Because of that, it might need to cut its high-yielding dividend again. This uncertain future is why investors should avoid the REIT for now unless they have a high-risk tolerance and a high conviction it can execute its turnaround plan.
