Is Omega Healthcare Investors (OHI) Offering Value After Strong Three Year Share Price Performance?

• If you are wondering whether Omega Healthcare Investors at around US$45.14 is offering good value today, you are not alone. A closer look at its pricing can help you decide how it fits into your portfolio.
• The stock has returned 1.8% over the past week, 1.4% year to date, and 27.9% over the last year. The 3 year and 5 year returns stand at 105.6% and 90.0%.
• These returns sit against a backdrop of ongoing attention on healthcare real estate and senior care facilities, with investors closely watching how the sector responds to long term demand for care and regulatory developments. For Omega Healthcare Investors, sentiment around the resilience of healthcare focused real estate has been an important part of how the market views its share price.
• On our valuation framework, Omega Healthcare Investors scores 5 out of 6 on the undervaluation checks, giving it a 5/6 valuation score. Next we will look at what traditional valuation approaches say about that number, before finishing with a different way of thinking about valuation that can add an extra layer to your analysis.

Find out why Omega Healthcare Investors's 27.9% return over the last year is lagging behind its peers.

Approach 1: Omega Healthcare Investors Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth today by projecting its future adjusted funds from operations and then discounting those cash flows back to a present value.

For Omega Healthcare Investors, the model uses last twelve months free cash flow of about $778.1 million and projects it forward using a 2 stage Free Cash Flow to Equity approach based on adjusted funds from operations. Analyst estimates are used where available, then Simply Wall St extrapolates further out, with projected free cash flow reaching $1,245.2 million by 2030.

Adding up all these discounted cash flows gives an estimated intrinsic value of about $86.45 per share. Against the current share price of around $45.14, this implies a 47.8% discount, which indicates the shares are trading well below the model’s estimate of fair value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Omega Healthcare Investors is undervalued by 47.8%. Track this in your watchlist or portfolio, or discover 884 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Omega Healthcare Investors.

Approach 2: Omega Healthcare Investors Price vs Earnings

For profitable companies, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings, which makes it a straightforward cross check on the DCF work you saw above.

What counts as a “normal” P/E depends on how the market views a company’s growth prospects and risk. Higher expected growth or lower perceived risk can support a higher multiple, while slower expected growth or higher risk usually points to a lower one.

Omega Healthcare Investors currently trades on a P/E of about 25.6x, compared with the Health Care REITs industry average of roughly 27.0x and a peer average of about 58.6x. Simply Wall St also calculates a proprietary “Fair Ratio” for the company of 32.4x, which is the P/E it might trade on given factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics.

This Fair Ratio can be more informative than a simple industry or peer comparison because it is tailored to Omega Healthcare Investors rather than treating all companies in the sector as identical. Set against the current P/E of 25.6x, the Fair Ratio of 32.4x indicates that the shares are priced below that modelled level.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1444 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Omega Healthcare Investors Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St's Community page you can use Narratives, where you set out your story for Omega Healthcare Investors, link that story to your own revenue, earnings and margin forecasts, see a fair value that updates automatically when new news or earnings arrive, and then compare that fair value to the current price to decide what action makes sense for you, whether that is closer to a more cautious view around US$37 or a more optimistic view nearer US$46.56.

Do you think there's more to the story for Omega Healthcare Investors? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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