On Jan 2, Zacks Investment Research upgraded Federal Realty Investment Trust (FRT) to a Zacks Rank #2 (Buy). The upgrade is based on the company’s solid retail portfolio and improving market fundamentals. Moreover, we believe that any near-term weakness in the price should be viewed as a good buying opportunity.
Why the Upgrade?
Federal Realty’s shopping centers are located in densely populated prosperous communities in top U.S. markets. Along with this it has a diversified tenant base, including grocery stores and low-end discount retailers, which position it well to ride on the growth trajectory.
Moreover, Federal Realty’s successful expansion strategy has long-term value potential and promises steady income growth. The company has already begun construction on a new $80 million shopping and dining destination for the South Bay beach communities – The Point – that is slated to open in 2015. Its leasing is in progress.
Going forward, we believe that a recovering economy would drive demand for the retail sector going forward, and therefore, the owners of such retail properties are expected to experience rising demand for their properties.
Also, Federal Realty posted third-quarter 2013 core FFO (funds from operations) per share of $1.16, beating the Zacks Consensus Estimate by a whisker and the year-ago quarter figure by 4 cents. The decent results came on the back of improved performance in the same-store portfolio.
The company also raised its 2013 FFO per share outlook and now expects it in the range of $4.60 – $4.61 (excluding the impact of early extinguishment of debt), up from $4.56 – $4.60 forecasted earlier.
These bullish factors triggered an uptrend in the Zacks Consensus Estimates, as analysts became more constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate, following the earnings release, which rose 0.2% to $4.60 for 2013 and 0.4% to $4.89 per share for 2014, over the past 60 days.
Additionally, the long-term earnings growth forecast for Federal Realty is 6.70%. Hence, these factors made way for the upgrade in the rank.
Other Stocks to Consider
Apart from Federal Realty, the other stocks worth considering in retail REIT industry include Cedar Realty Trust, Inc. (CDR), Realty Income Corp. (O) and Retail Properties of America, Inc. (RPAI). All these stocks carry a Zacks Rank #2.
Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.
Read the Full Research Report on RPAI
Read the Full Research Report on O
Read the Full Research Report on CDR
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