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This Beaten-Down Dividend Stock Is Up 25% From Its Recent Low: Is It Still a Good Time to Buy?

Last year was brutal for Medical Properties Trust (MPW -0.15%) shareholders. The bear market took a big swipe at the stock price of the real estate investment trust (REIT), causing it to lose more than 50% of its value. The company also faced concerns about the health of its financial profile and the profiles of some of its tenants.

However, its shares have started to recover, rallying sharply off the low point they touched in October.

MPW Chart

MPW data by YCharts.

Here’s a look at whether there’s still time to buy or if investors missed their chance.

Getting back to health

A dramatic shift in market conditions led Medical Properties Trust to pivot from offense to defense last year. The healthcare REIT had been an aggressive buyer of hospital properties in previous years, driving its rapid growth. That enabled the company to steadily increase its dividend.

However, with its stock price falling and interest rates rising, Medical Properties Trust’s access to attractively priced capital evaporated. That led the REIT to shift toward capital recycling — selling some assets to fund opportunities with the potential for higher returns. It closed $1.8 billion of deals last year and had another $650 million in the pipeline to complete in 2023. Those proceeds enabled the company to reduce its debt and fund new accretive investments. As a result, the company ended 2022 on a firmer financial foundation. 

Meanwhile, the financial situations of several of its tenants improved throughout the year. Leading tenant Steward Health Care accelerated the repayment of $450 million of COVID-related advancements. It also collected about $70 million of past-due reimbursements from the Texas Medicaid program and received a one-year extension on an important loan. In addition, the healthcare system made several operational improvements, positioning it to generate positive and sustainable free cash flow.

On top of that, a couple of Medical Properties Trust’s other tenants either exited bankruptcy with their existing leases intact or new tenants assumed their leases. 

The valuation still looks compelling

Those positives started to relieve some of the downward pressure on Medical Properties’ stock price late last year. Shares recently traded at around $12.50 apiece, well above their rock-bottom 52-week low of $9.90 a share.

Many analysts following the company believe there’s more upside ahead. For example, Mizuho analyst Vikram Malhotra has a buy rating and an $18 price target on the stock, implying nearly 45% upside potential. The analyst reaffirmed that rating and target late last year following news that Steward completed its loan extension. The analyst viewed that extension as a catalyst for the stock. 

Several other analysts have a buy rating or their equivalent on the stock, and price targets well above its recent levels. For example, while Barclays analyst Steve Valiquette reduced his price target following the release of Medical Properties’ third-quarter report, his lowered target of $19 per share (from $23) is still more than 50% higher than the current price. Meanwhile, analyst Joshua Dennerlein upgraded Bank of America‘s rating on the stock to buy and raised its price target from $13 to $16. While not all analysts are bullish on the stock — in December, Credit Suisse analyst Tayo Okusanya lowered his price target from $17 to $11 while maintaining a neutral rating — many believe the shares now trade at an attractive value. 

That’s due partly to the REIT’s low valuation and high dividend yield. Analysts expect the company to produce about $1.78 per share of funds from operations (FFO) this year — about 1.5% less than last year due to the impact of asset sales. That implies that it trades at around 7 times FFO, which is well below the average ratio of roughly 11.5 sported by its healthcare REIT peers. This low valuation is why its dividend yield is currently over 9%. Given the REIT’s stable rental income and improving balance sheet, it should be able to maintain its payouts at their current levels.

The REIT still looks attractive

While shares of Medical Properties Trust have been on the upswing, the healthcare REIT still appears to have upside potential. The stock remains attractively priced and offers a high dividend yield. Because of that, Medical Properties Trust could produce strong total returns in 2023 and beyond as it continues its recovery and resumes delivering healthy growth.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Matthew DiLallo has positions in Bank of America and Medical Properties Trust and has the following options: short February 2023 $10 puts on Medical Properties Trust and short March 2023 $30 puts on Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.

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