Bear of the Day: Piedmont Office Realty Trust (PDM)
There is a storm brewing in the commercial real estate industry, and it is looking especially bad in the office building sector.
Commercial real estate loans are facing an increase in new delinquencies, primarily driven by offices, which account for 80% of these defaults. Major cities are witnessing a continuous struggle with occupancy rates, languishing at approximately 50% of capacity.
Piedmont Office Realty Trust PDM, an office REIT focused on class A buildings in major US markets has been on a steady decline since the onset of the Covid-19 outbreak. Marked by falling building occupancy, declining earnings, and analyst downgrades, PDM stock now has a Zacks Rank #5 (Strong Sell) rating and should thus be avoided.
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Steep Earnings Downgrades
Analysts have unanimously revised earnings estimates lower across timeframes for Piedmont Office Realty Trust. Current quarter earnings estimates have been lowered by -4.4% to $0.44 per share and are projected to fall -12% YoY.
FY23 earnings estimates have been downgraded by -3.3% and are expected to fall -11% YoY. Additionally, sales growth is expected to stagnate across forecast timeframes. It seems analysts are still expecting the commercial real estate market to continue its ride lower.
Image Source: Zacks Investment Research
Valuation
The only semi-bright spot for Piedmont Office Realty Trust is its historically cheap valuation and high dividend yield. PDM is trading at a one-year forward earnings multiple of 4.2x, which is below the industry average of 15.4x, and below its five-year median of 9.1x. Additionally, it currently has a hefty 11.4% dividend yield.
However, because of the uncertainty surrounding the commercial real estate market, the future of office work, and the mountain of debt within the industry, a cheap valuation alone is not enough to justify buying the stock.
Image Source: Zacks Investment Research
Bottom Line
It should be noted that PDM does indeed have a premium portfolio of assets across important US markets and a fairly stable balance sheet, so should be able to ride out this trying time in the industry. The problem is that there is so much uncertainty surrounding the sector that it is still too risky to try and start fishing for the bottom. Investors would be better off focusing on stocks that are leading the market and have high Zacks Ranks.
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Piedmont Office Realty Trust, Inc. (PDM) : Free Stock Analysis Report
