On Jan 16, 2014, we reinstated our long-term recommendation on Health Care REIT Inc. ( HCN ) at Neutral. The decision reflects the company's strong third-quarter 2013 results, ongoing accretive strategic investments and promising healthcare industry fundamentals. However, intense competition in the industry is a headwind and continuous acquisition on the company's part is expected to raise upfront operating expenses.

Why Neutral?

Health Care REIT's diversified portfolio allows it to explore opportunities in different markets based on individual market dynamics. The company is focused on capitalizing on growth opportunities in high-barrier-to-entry affluent markets around the world. In relation to that, completion of the Sunrise Senior Living facility acquisition and the Avery Healthcare investments in the U.K. in the third quarter are expected to further enhance the company's high-quality senior housing portfolio.

Health Care REIT's third-quarter 2013 normalized funds from operations (FFO) of 97 cents per share came a cent ahead of the Zacks Consensus Estimate and 6 cents above the year-over-year figure. The improved results were primarily attributable to better-than-expected revenues and decent same-store net operating income growth.

In addition, rise in senior citizen spending for healthcare reasons bodes well for the company's growth going forward. Also, the introduction of the Affordable Act is expected to brighten growth prospects for Health Care REIT as it will widen the insured people bracket. This will further boost the demand for new outpatient facilities.

Despite these positives, the company faces stiff competition from national and local healthcare operators and its dependency on few tenants for revenue generation exposes it to concentration risks. Moreover, though acquisitions are a strategic fit, such moves involve considerable upfront costs. This remains a drag as new properties usually take time to generate revenues.

Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share dipped by a cent to $3.78. Also, the Zacks Consensus Estimate for 2014 FFO per share moved south by 3 cents to $4.01. Health Care REIT currently carries a Zacks Rank #3 (Hold).

Health Care REIT is scheduled to release its fourth-quarter 2013 earnings results on Feb 19, before the market opens. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 97 cents per share, representing year-over-year growth of 14.66%.

Other Stocks to Consider

Some better ranked stocks in the REIT-Equity Trust - Other industry include PS Business Parks Inc. ( PSB ), Ventas, Inc. ( VTR ) and Public Storage ( PSA ). All the three stocks carry a Zacks Rank #2 (Buy).

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Health Care REIT Kept at Neutral - Analyst Blog