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Key Factors to Impact Omega Healthcare's (OHI) Q4 Earnings

Zacks Equity Research

Omega Healthcare Investors, Inc. OHI is slated to report fourth-quarter and full-year 2019 results on Feb 5, after the closing bell. The company’s quarterly results will likely display year-over-year growth in funds from operations (FFO) per share and revenues.

In the last reported quarter, this real estate investment trust delivered a positive surprise of 1.33%, in terms of adjusted FFO per share. Results reflected year-over-year increase in operating revenues for this period.

The company beat estimates in three of the trailing four quarters, the average positive beat being 1.04%. This is depicted in the graph below.

Omega Healthcare Investors, Inc. Price and EPS Surprise
 

Omega Healthcare Investors, Inc. Price and EPS Surprise

Omega Healthcare Investors, Inc. price-eps-surprise | Omega Healthcare Investors, Inc. Quote

Omega Healthcare, which invests in the long-term healthcare industry, mainly in skilled nursing (SNF) and assisted living facilities, has emerged as a leading SNF-focused REIT, and achieved diversification in terms of geography and operator in the United States and the U.K. The company’s properties are operated by a diverse group of healthcare companies, primarily in a triple-net lease structure. In the to-be-reported quarter, this diversification is anticipated to have aided the company’s top-line growth. Portfolio occupancy is expected to have benefited from upbeat demographic trends.

Further, Omega aimed for accretive buyouts in 2019, after completing its strategic asset repositioning and portfolio restructurings in 2018. The company closed on the MedEquities acquisition in May 2019, for $623 million. The transaction helped in the diversification of Omega Healthcare’s assets as well as operators. In addition, in July, Omega completed a $25-million purchase leaseback for three skilled nursing facilities in North Carolina and Virginia.

During the October-December period, Omega completed the $735-million Encore portfolio acquisition. The purchase included 60 facilities, comprising 58 SNFs and two assisted living facilities representing 6,590 operating beds in Florida (37), North Carolina (8), Mississippi (6), Louisiana (4), Idaho (2), Kentucky (1), Missouri (1) and Montana (1). Such strategic expansion efforts are likely to have helped the company boost its top-line growth in the quarter. Moreover, during the same period, the company entered into an agreement to acquire a 49% interest in a U.K. senior housing joint venture for $90 million.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues of nearly $244 million suggests a rise of 11.02%, year over year.

For the fourth quarter, the company expects adjusted FFO per share of 76-79 cents. Notably, Omega’s activities during the December-end quarter were adequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for the quarterly FFO per share climbed a cent upward to 77 cents over the past month. The figure also suggests a 5.5% increase year on year.

For full-year 2019, the company expects adjusted FFO per share of $3.04-$3.07. The Zacks Consensus Estimate for the same has also moved 1% north to $3.06 over the past month, indicating 0.7% growth year on year, on revenues of $926.2 million.

However, tenant credit headwinds are likely to have kept any robust growth in check. Particularly, Daybreak has been facing challenging times and witnessing low occupancy. Its liquidity changes and operational performance, along with ongoing labor pressures and significant legacy operating costs, are concerns.

Here is what our quantitative model predicts:

Our proven model predicts a beat in terms of FFO per share for Omega this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Omega currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.78%.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these too have the right combination of elements to report a positive surprise this quarter:

Healthpeak Properties, Inc. PEAK, slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vornado Realty Trust VNO, set to report quarterly numbers on Feb 18, has an Earnings ESP of +5.62% and carries a Zacks Rank of 3, currently.

Host Hotels & Resorts, Inc. HST, scheduled to release October-December quarter results on Feb 19, has an Earnings ESP of +1.52% and currently holds a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.


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