Should You Buy Medical Properties Trust Stock?

Should You Buy Medical Properties Trust Stock?

The stock of Medical Properties Trust (NYSE:MPW) I just can’t stop falling. After falling 53% in 2022, it did even worse in 2023 by plunging 56%. And so far in 2024, it’s down about 18% – and without a recent recovery, its decline would be even greater.

Investors are right to be pessimistic about the company. Medical Properties Trust is not in good financial health. It cut its dividend last year, it had issues with its tenants, and rising interest rates also haven’t made real estate investment trusts (REITs) popular investments in recent years.

But with the stock’s losses decreasing lately and the REIT already seeming to have received a lot of bad news, is it finally time to take a chance on this badly beaten stock?

Why Medical Properties could be a game changer

The past few years have been difficult for Medical Properties Trust. Not only did COVID-19 hurt healthcare facilities and hospitals, but rising interest rates subsequently made borrowing costs more expensive. Additionally, rate hikes have given investors a reason to move out of stocks and into safer investment options such as bonds, which become more attractive as interest rates rise.

The REIT’s stock price hasn’t been this low since 2009. And investors just aren’t very optimistic that the health care actions can change things. But it is to its credit that management is making efforts to clean up its balance sheet. It is looking to sell assets to increase its liquidity and put itself in a better position for the future.

One of the most promising updates from the company’s recent earnings release was that the Steward issues, which have been one of Medical Properties Trust’s worst headaches thus far, could be resolved .

CEO Edward K. Aldag Jr. said in the press release: “With respect to Steward, we are encouraged by the amount of interest received to date from other hospital operators for these facilities critical, and we expect this real estate portfolio to either resume its contribution to results or become an additional source of liquidity as the year progresses.

Either way, whether through an acquisition or an improvement in its operations, the hope is that Steward’s issues and concerns won’t drag the stock down for much longer. This year, the REIT also expects to generate $2 billion in additional cash from asset sales.

There are still many risks ahead

Ultimately, a lot depends on how its asset sales play out and what price it can achieve. There is also the question of how much smaller its portfolio might look and what kind of growth prospects investors can expect from the company once all these deals are completed.

It’s possible that even though its quarterly dividend of $0.15 per share is much lower than what it paid last year ($0.29), it could still prove too high if, once it dusts fallout and transactions completed, the company does not generate enough funds from operations (FFO) to cover the dividend.

Last year, the company suffered a net loss of $556.5 million, but impairment charges and write-offs heavily impacted its profits, particularly in the fourth quarter. And with asset sales expected this year, investors should take these latest results with a grain of salt, as Medical Properties Trust’s financials will likely look drastically different in a year or two.

But that’s the big unknown: how much revenue will Medical Properties Trust generate, what level of FFO will it have, and will its rent collection issues be resolved? Until these issues are clarified, this stock will remain a very risky stock.

Is Medical Properties Trust worth a chance?

This is not a stock that is suitable for risk-averse investors. Even though its stock price has fallen sharply in recent years, things can always get worse. Investors should not assume that the bottom has already been reached.

If, however, you are comfortable with risk, Medical Properties Trust has the potential to be a contrarian play. It has a diversified mix of assets spanning multiple countries. And if interest rates fall, REITs will certainly be more attractive options for investors.

But unless you can stomach all the risks and uncertainties surrounding Medical Properties Trust stock, it’s best to avoid it. And even though the company cut its dividend last year, investors shouldn’t assume the current payout is safe.

Should you invest $1,000 in Medical Properties Trust right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

Is Trusted Medical Properties Stock a Buy? was originally published by The Motley Fool

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