CareTrust's 2025 Results Confirm Growth but Heighten Valuation and Execution Risks

What happened

CareTrust REIT announced its fourth quarter and full year 2025 operating results, capping a year of aggressive capital deployment and portfolio expansion driven by record acquisitions. Based on prior trends, these results likely showcase continued double-digit normalized FFO per share growth, sustained rent collections near 100%, and disciplined investments at yields around 9-10%. However, this growth has been heavily funded by equity issuance, including a $736 million Q3 2025 raise, diluting per-share metrics and pushing the stock to premium valuations at over 20x FFO. Critical vulnerabilities remain, such as high tenant concentration with Ensign accounting for 28% of rent, exposure to Medicaid policy shifts, and the unproven integration of the UK care home platform. Thus, while operational strength is evident, the investment case still requires proof that future growth can outpace risks without a more attractive entry point.

Implication

The 2025 results reinforce CareTrust's operational momentum but do not justify its stretched valuation, trading at 20-21x FFO with embedded assumptions of sustained high deployment and benign policy. Execution risks are mounting, particularly from the integration of the UK platform and potential Medicaid cuts, which could compress tenant margins and threaten rent coverage. Equity-funded growth has diluted per-share metrics, and any slowdown in deployment or policy headwinds could trigger sharp multiple compression given the stock's crowded position. Investors must monitor the deployment of recent equity raises and UK performance over the next 6-12 months for signs of accretive growth or stress. Until then, adhering to the DeepValue report's 'WAIT' rating and attractive entry at $33 provides a better risk-adjusted approach than buying at current levels.

Thesis delta

The announcement of 2025 results does not shift the core investment thesis; it validates strong operational execution but also underscores that valuation and execution risks remain elevated without new mitigating factors. Investors should continue to wait for either a pullback towards $33 or clearer evidence that 2026-2027 growth will sustainably outpace expectations, as the current price embeds optimistic assumptions.