Medical Properties (MPW) stock: Steward bankruptcy risks remain

Medical Properties Trust (NYSE: MPW) stock price has crawled back in the past few days as investors bought the dip. This dip-buying happened after Steward Healthcare raised a  $150 million bridge loan that gave it breathing room. MPW’s stock was trading at $4.26 on Wednesday, higher than the YTD low of $2.91.

Steward Health bankruptcy risks

Steward Health is the main reason why the MPW share price has crashed by more than 78% from its all-time high. The hospital chain, which accounts for more than 20% of Medical Properties Trust rent, is struggling and is facing substantial bankruptcy risks. Steward also accounts for about 19% of MPT’s total assets.

Steward’s situation is so dire that some of its hospital facilities have had a bat infestation. Some suppliers have even stopped providing their products, including artificial knees and garbage collection services.

According to a report by the WSJ, some Steward Healthcare facilities are also struggling to get elevator repair services. As a result, the company has hired restructuring experts as it assesses the way forward.

One solution has been to raise $150 million as it seeks to boost its balance sheet and pay its liabilities. Medical Properties Trust, facing a deep cash crunch, has also slashed its dividends and sold some of its hospitals.

MPT’s challenge is that Steward accounts for a big share of its clients. The other issue is that the relationship goes beyond that of a landlord and a tenant. Over the years, Medical Properties Trust has provided substantial financing to Steward. Of the $150 million that Steward has raised, $50 million came from MPT.

The strategy has been relatively simple. Steward would raise money from MPT, buy a hospital, and then become a tenant.

Therefore, I believe that Steward faces substantial bankruptcy risks even after raising a bridge loan. Keep in mind that Steward’s problems have been going on for many years. In all this period, it has managed to stay afloat because of debt financing, with some of these funds coming from MPT. It has also struggled to turn a profit for years.

Is MPW stock a good buy?

Medical Properties Trust share price has rebounded gradually in the past few weeks. Still, I believe that these gains could be short-lived for two reasons. First, as mentioned above, the company’s biggest client could go out of business in the coming years. 

Second, there is a risk that the company could slash its dividend as it did in 2023 when it cut it by half. Its most recent results showed that Medical Properties Trust will likely pay about $90 million per quarter this year, which can be covered by the current cash on hand.

Therefore, taken together, I believe that MPW is a high-risk and high-reward investment. I suspect that the company will be highly volatile this year as the crisis at Steward escalates. 

MPW chart by TradingView

Technically, the stock has formed a descending channel on the weekly chart. It has now moved to the middle of this channel. Also, it remains below the 50-week and 25-week moving averages, meaning. This is a sign that the stock could continue falling as sellers target the key support at $2.90.