On Apr 5, 2013, we reiterated our long-term recommendation on Kimco Realty Corp. (KIM) at Neutral. This reflects the company’s strong fundamentals and strategic portfolio repositioning efforts that offer an enticing upside potential going forward.
Kimco is a leading publicly traded owner and operator of premium neighborhood and community shopping centers, with properties in high-income, high-growth areas of the U.S. The company has achieved significant diversification through the geographic distribution of its properties and a large tenant base. This diversification helps limit its operating and leasing risks and provides a strong upside potential for the top-line growth of the company.
Kimco boasts a tenants base comprising various industry leading giants such as The Home Depot, Inc. (HD), TJX Companies (TJX), Wal-Mart (WMT), Sears Holdings (SHLD) and Bed Bath & Beyond Inc. (BBBY).
Notably, Kimco generally signs long-term leases with the high credit tenants, which limits the downside risk and provides a steady source of income. Moreover, the company is well on track on improving its core business operations.
As part of this effort, it is shedding off its non-retail assets and investments as well as non-strategic retail assets and aggressively using this capital for developing its core business. Such moves augur well and are expected to add to the company’s profitability going forward.
On Feb 5, Kimco reported an adjusted FFO (funds from operations) per share of 33 cents, beating the Zacks Consensus Estimate by 2 cents and the year-ago quarter figure by 3 cents. For full year 2012, the company’s adjusted FFO per share came in at $1.26, a cent ahead of the Zacks Consensus Estimate of $1.25 and 6 cents above the prior-year figure of $1.20 per share. The results were aided by better-than expected growth in revenue.
However, owing to its international presence, Kimco often faces unfavorable foreign currency movements, which impacts the top-line growth of the company. Additionally, stiff competition from other players in the market undermines its growth potential to some extent.
Following the release of the fourth-quarter and full-year 2012 results, the Zacks Consensus Estimate for full year 2013 moved down 0.7% to $1.31 per share in the last 60 days. Also, the Zacks Consensus Estimate for full-year 2014 dipped 0.7% to $1.37 per share in the last 60 days. With the Zacks Consensus Estimates moving down for both full year 2013 and 2014, Kimco now has a Zacks Rank #3 (Hold).
Other Stocks to Consider
REITs that are currently performing better than Kimco include Mack-Cali Realty Corp. (CLI), which carries a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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