Freedom Broker initiates with 'buy' on UHT, a REIT in promising healthcare segment

Freedom Broker has initiated on Universal Health Realty Income Trust (UHT), a small-cap REIT, with a «buy» at a target price 18% above current quotes. The company offers stable income given its focus on the steady healthcare segment, Freedom Broker explained. 

Freedom Broker has advised buying UHT shares and assigned a target price of $47 per share. This implies 18.3% upside versus the closing price of $39.71 per share on Friday, May 30.

Before the opening bell today, June 2, UHT has added 0.7% to reach the $40 per share mark. During regular sessions, the stock has not seen that level in almost two months. Year to date, it is now up about 7%.

According to MarketWatch and MarketScreener, UHT has just one rating and one target price, which are in line with Freedom Broker's.

UHT is a REIT specializingin healthcare and human service related facilities. The segment is known forits stability and low sensitivity to changes in the economy. The company hasleases expiring in 2026 and 2040, which ensures steady and predictable revenue. 

Demographic trends also work in the company's favor: The U.S. population is aging, leading to higher demand for healthcare services. In addition, UHT has a reliable partner: health care provider Universal Health Services. It manages UHT through a subsidiary, provides consulting, and leases facilities from it.

Finally, UHT has been paying out dividends since 1986. The 2024 dividend came to $2.92 per share. This is part of a steady increase in returns for investors, who can expect a dividend yield of about 6-8%.

At the same time, investors should be mindful of the risks, Freedom Broker cautions. 

High interest rates could be detrimental to UHT's business, as half its debt is floating rate. As of the end of the first quarter, the company had credit lines totaling $349.5 million, it said in its first-quarter reporting. It flagged rising credit costs as one of the reasons why its net income fell nearly 9.5% year over year to $4.8 million. 

Meanwhile, any headwinds at Universal Health Services may delay or reduce payments to UHT. Finally, although Universal Health Services manages UHT through a subsidiary, it in effect appoints UHT's officers and has significant control over decision-making, which brings into play possible conflicts of interest.