Raymond James analyst Jonathan Hughes has swapped Ventas (VTR) as his top recommendation in healthcare REITs with his former top pick, Welltower (NYSE:WELL), in a recalibration of the sector.
As a result, Ventas (VTR) was upgraded to Strong Buy from Outperform, and Welltower was downgraded to Outperform from Strong Buy.
The analyst reiterated an Overweight rating for healthcare REITs but has slightly rejiggered his subsector rankings. Hospitals remains his top preference, followed by skilled nursing facilities, then seniors housing. Medical offices now moves up to his fourth pick (from fifth), while life sciences moves down to fifth (from fourth).
Ventas (VTR) “presents a compelling opportunity to increase exposure to seniors housing at an attractive valuation, though we acknowledge VTR’s NOI growth will likely continue to trail WELL due to less-upside in VTR’s fully stabilized Canadian seniors housing operating portfolio (>25% of SHOP NOI),” Hughes wrote in a note to clients.
For the less-enthusiastic view on Welltower (WELL), the analyst points to updated 2024 earnings estimates that are 4% below consensus, a premium valuation, and its status as the most overweight name among REIT-focused investors. “These three items alone are not concerning, but when combined, they simply leave us with less conviction, and we believe now is the time to temper enthusiasm after recent outperformance,” he said.
Year-to-date, Welltower (WELL) stock has gained 17% compared with Ventas’s (VTR) 1.9% decline and Real Estate Select Sector SPDR ETF’s (XLRE) 2.6% drop.
In late Friday morning trading, Welltower (WELL) dropped 1.2% while Ventas (VTR) edged up 0.2%.