NorthWest Stock Is Rising, But Is it Still a Buy?

NorthWest (TSX:NWH.UN) stock saw shares jump 10% after improving its balance sheet, but what’s next for the stock?

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It looked like it would never happen, and yet it did. NorthWest Healthcare Properties REIT (TSX:NWH.UN) saw shares jump by 10% last week after the company announced its fourth-quarter and year-end results.

But after the 10% jump, there are, of course, concerns over investors taking returns and getting out. So, is the former dividend darling a buy after results? Or should investors get out while they can? Let’s take a dive into earnings to see what investors may want to consider.

Operations improving

NorthWest stock saw strong operating performance, demonstrating the ability to generate revenue and income from its core businesses once more. Revenue growth rose 4.1% year over year for the fourth quarter and 12.3% compared to 2022 levels. Same-property net operating income (NOI) also grew, up 4% in the fourth quarter, and that’s important. After a year of bad news, the company is seeing improvements without the need for acquisitions.

What’s more, it maintained a high occupancy rate and rent collection rate. Its global portfolio occupancy rate held at 97%, with rent collection at 99%. There are, therefore, minimal vacancies, and that’s likely to remain the case. That’s because its average lease expires at 13.3 years, with tenants locked in for stable future income.

Balance sheet becoming stronger

What’s more, investors were pleased to see that after a year of trouble, the balance sheet is becoming stronger. NorthWest stock sold non-core assets to reduce debt and refinanced debts at a lower interest rate while extending maturities.

This helped benefit the debt-to-equity ratio, with lower debt allowing for less equity needed to pay off all the company’s debts. It also reduced interest expenses with both lower interest rates and lower debt payments. This will free up cash for further financial flexibility.

The outlook

Yet what investors were likely the most excited about is that this financial flexibility frees up the company for a strong and positive outlook. NorthWest stock believes the future is filled with growth for numerous reasons, so let’s get into those as well.

The demand for healthcare services continues to expand with an aging global population. This will likely lead to more healthcare facilities, which would benefit the company. Furthermore, it’s shifting to more outpatient care, with these facilities providing an attractive investment for NorthWest stock.

There is also the improvement of economic conditions over the next year to consider. There has been a decrease in healthcare spending and construction of new facilities during these downturns. But now, this could start to shift to the positive once more.

Bottom line

Overall, the results were strong, showing that the company made the right decisions over the last year and are now seeing growth once more. For now, it seems it will remain focused on the growth of the sector rather than growth through acquisitions.

That’s a strong choice, as the company was an acquisition powerhouse in the past. So, focusing on creating a solid portfolio with what it already has is likely the best option — especially if it hopes to stay away from another dividend cut.

So, is NorthWest stock a buy? After a strong balance sheet and more growth in the sector for the future, I believe so — especially with an 8.55% dividend yield to consider.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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