Easterly Government Properties Inc (NYSE:DEA) is a US$1.10B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Easterly Government Properties is a laggard or leader relative to its real estate sector peers. See our latest analysis for Easterly Government Properties
What’s the catalyst for Easterly Government Properties’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. In the previous year, the industry saw growth in the teens, beating the US market growth of 13.58%. Easterly Government Properties lags the pack with its negative growth rate of -19.77% over the past year, which indicates the company will be growing at a slower pace than its REIT peers. As the company trails the rest of the industry in terms of growth, Easterly Government Properties may also be a cheaper stock relative to its peers.
Is Easterly Government Properties and the sector relatively cheap?
REIT companies are typically trading at a PE of 20.52x, in-line with the US stock market PE of 18.34x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 7.64% compared to the market’s 11.18%, potentially indicative of past headwinds. On the stock-level, Easterly Government Properties is trading at a higher PE ratio of 195x, making it more expensive than the average REIT stock. In terms of returns, Easterly Government Properties generated 0.71% in the past year, which is 6.93% below the REIT sector.
Easterly Government Properties has been a REIT industry laggard in the past year. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. If Easterly Government Properties has been on your watchlist for a while, now may be the best time to enter into the stock. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector. However, before you make a decision on the stock, I suggest you look at Easterly Government Properties’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has DEA’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Easterly Government Properties? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.