Summary
- Omega Healthcare (OHI) continues to have an extremely strong share price.
- Based on their historical trading valuations, the market is pricing in AFFO gains of 12-20%.
- The most recent NIC report indicates OHI's tenant problems are not going to be over.
- OHI insiders are still selling hand over fist.
- Looking for a helping hand in the market? Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. Get started today »
Omega Healthcare Investors (OHI) is a bubble that keeps expanding. Since my last article, OHI has seen its share price increase over 7%. This despite OHI having a secondary offering of 7.5 million shares, with an overallotment of 1.125 million that is very likely to be fully exercised.
It is clear that OHI has a lot of momentum behind it, the enthusiasm has pushed OHI near all-time high valuations. Despite these high valuations, management guidance is bleak, the growth outlook is questionable, their tenants are faced with worsening conditions and insiders have been selling left and right.
When the share price starts losing its relationship with the underlying fundamentals, either that means the fundamentals are about to improve dramatically, or the market is in the "euphoria" stage.
Valuation
Management reduced guidance in Q2, with the new midpoint at $3.05 AFFO/share. Implying essentially flat AFFO for the remainder of the year.
Despite this, OHI is trading near all-time peak valuations. Clearly, Mr. Market is pricing in some significant upside. In fact, to reach the mid-point of their trading range of 11-12x AFFO through growth, OHI would need to see $3.40-$3.72 AFFO in 2020. That is an increase of 12-22% over their $3.05 guidance for 2019.
Even if OHI has the potential for that kind of growth, that is what it would take just to justify the current share price. In other words, 12-22% AFFO growth in 2020 is already priced in.
OHI does have several new investments that will contribute to increasing revenue.
