On Jul 11, 2013, we reiterated our long-term recommendation on Taubman Centers Inc. (TCO) at Neutral. The decision is based on its solid fundamentals, decent performance in the past quarters and its concerted efforts toward increasing shareholders’ wealth. However, we are concerned about the rise in online shopping through the Internet, mobile phones and tablets that could lower the demand for retail space going forward.
Why the Neutral Stance?
Taubman has a solid portfolio of best-in-class retail malls that generate robust mall tenant sales. Strategic acquisitions of favorably situated assets are expected to be accretive to its top line going forward. Also, the company has a healthy balance sheet with adequate liquidity. It has hiked its dividend 16 times since it went public, leading to a 4.2% compounded annual growth rate.
Yet, excess retail space in a number of markets and increase in consumer purchases through catalogs and the Internet could hurt demand for Taubman properties and reduce its overall income.
The Zacks Consensus Estimate for 2013 FFO (funds from operations) per share fell marginally to $3.65, while for 2014, it remain unchanged at $3.88, over the last 60 days.
The Zacks Consensus Estimate for FFO (funds from operations) per share for the upcoming quarter is pegged at 79 cents per share. The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Taubman is +0.00% for the second quarter. This, along with its Zacks Rank #3 (Hold), reduces the chances of a positive earnings surprise.
Other Stocks to Consider
Some better performing REITs include American Assets Trust, Inc. (AAT), The Macerich Company (MAC) and Simon Property Group Inc. (SPG). All these stocks carry a Zacks Rank #2 (Buy).
Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.
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