Initiating Coverage: LTC Properties
LTC Properties Inc. has received a “Buy” rating due to its strong financial performance and potential for returns. Our analysis shows that the company is well-positioned within its industry, based on its revenue and net income figures. Even though its revenue of $191.82 million is below the industry median of $226.97 million, LTC Properties has demonstrated significant growth and consistency. The company has maintained 100% positive revenue growth over the last two years, outperforming the industry’s 92.4% average. Its 11% revenue growth rate is also higher than the 5% industry average, suggesting a better growth rate.
Additionally, LTC Properties has shown strong profitability, with 100% net income positivity and a 4% growth rate, compared to the industry’s average decline of -18.3%. This indicates the company’s capability to increase profitability even under difficult circumstances.
The company’s Levered Free Cash Flow (LFCF) performance further supports its financial health. Its LFCF of $104.40 million is above the index median of $78.64 million, and it has maintained 100% positive LFCF for the last two years, highlighting its consistent ability to generate positive cash flows. Although there was a slight 1% decline in LFCF over the past year, LTC Properties’ performance remains strong compared to the industry’s -8.80% decline, showing resilience.
However, some financial metrics raise concerns. The Altman Z-Score of 1.38 indicates higher financial risk than the sector average of 2.40. Also, the shareholder and buyback yields of -5.9% and -3.8%, respectively, point to weaker returns for shareholders than the industry averages. Nevertheless, the company’s debt to tangible equity ratio of 101.1% is much lower than the sector’s 307.6%, indicating a healthier balance sheet with less debt reliance.
In dividend metrics, the company’s current dividend yield is 7.2%, slightly below the industry average of 7.5%. Yet, the sustainability of dividend payments, at 94.2% of its LFCF yield, is more favorable than the index’s 107.1%, suggesting a better balance between dividend payments and cash flow. Despite no dividend growth over the past year, the company’s dividend policy remains stable, surpassing the industry’s median decline of -3.4%.
The company’s share value analysis includes calculating the Dividend Target from 45% of the past two years’ LFCF and applying a 15X multiple to these dividends. This calculation shows the attractiveness of dividends from a lower-risk perspective. The Current Valuation of $32.88, compared to the market price of $31.71, indicates potential undervaluation and an investment opportunity based on dividends and stability.
Given the stock price of $31.71 and an anticipated one-year price target of $32.88, along with a projected dividend of $2.19 based on a 90% payout ratio, the expected target total return is 11%. This return includes both stock price appreciation and dividend payout, highlighting the speculative nature of stock market investments.
