Compelling valuations for several health care facility segments under the medical real estate umbrella should turn some investors’ heads despite the recent pullback that’s taken place over the past few months.
“If you look at valuations right now, [hospital] stocks are selling under six times the 2011 EBITDA and trading at about six times the 2010 EBITDA, with two quarters of actual results in the numbers. So that’s certainly a very attractive sector at this level,” said Analyst Frank G. Morgan, a managing director at RBC Capital Markets. “Skilled nursing is down in the 5.5 times EBITDAR. Those are two areas that particularly stand out as attractive valuations.”
Morgan also points to acute-care hospitals — one of the segments investors have been most concerned about in terms of future volume growth opportunities and increasing bad debt expense — as a space with several compelling stock opportunities that have taken some hits from the Street.
“Looking at 2009 and through the first half of 2010, these stocks performed very well, coming off very depressed levels out of the end of 2008; they had a very solid performance in 2009 and were off to a fairly good start in 2010,” Morgan said.
His favorite acute-care hospital picks are Universal Health Services (UHS), Community Health Systems (CYH) and LifePoint Hospitals (LPNT).
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