CTRE Still Undervalued?

We haven’t discussed this one for awhile. It has had a nice pop lately to $25. Yet based on a reverse discounted cash flow model, free cash flow would have to grow only 5% per year to justify the current price. Analysts are expecting 7% per year growth, which pegs the stock at about $28.50 per share. Thoughts?
Vince

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Vince,

So CTRE is trading around 17x 2024 FAD – seemingly fully valued. The payout ratio is high-ish, so forward growth there is really capped by FFO/FAD growth. They’re signing deals with cap rates (10-11%), so that’s not bad and of course they have access to public market money. They did a relatively significant equity offering this year around $23, not so large that it’s necessarily indicative of the stock being overpriced. As a result, they have plenty of capital for the near term and a very low debt ratio. So they do have some room to grow there. Plus, if interest rates come down, the valuations on their assets will tend to go up, providing some upside there. I’d guess some of that is priced in, given that the stock stock is now at what looks like 52-week and all-time highs.

I don’t necessarily want to be a buyer here, but I’ll continue to hold my shares for now.

Jim

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Thanks, Jim! I hadn’t factored in dilution.

Vince

I would suggest look at BRX, slightly better dividend yield, and dividend payout ratio is 50% FFO. They will keep raising dividend at the least at 5% rate; in 5 years the share count went up by 1% or 3 million on 301 million base; in other words they don’t need to issue additional shares and can fund the development from the FFO.

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