Is Now The Time To Bet On The Real Estate Sector And Easterly Government Properties Inc (DEA)?
Easterly Government Properties Inc (NYSE:DEA) is a USD$1.08B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an optimistic near-term growth of 16.67% over the next couple of years. However, this rate came in below the growth rate of the US stock market as a whole. Today, I’ll take you through the real estate sector outlook, as well as evaluate whether DEA is lagging or leading in the industry. View our latest analysis for Easterly Government Properties
What’s the catalyst for DEA’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 past year, the industry delivered growth of 0.39%, though still underperforming the wider US stock market. DEA leads the pack with its impressive earnings growth of 21.19% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with DEA poised to deliver a 153.20% growth over the next couple of years.
Is DEA and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 33x, above the broader US stock market PE of 22x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 7.62% compared to the market’s 10.06%, which may be indicative of past headwinds. On the stock-level, DEA is trading at a higher PE ratio of 212x, making it more expensive than the average REIT stock. In terms of returns, DEA generated 0.66% in the past year, which is 7% below the REIT sector.
What this means for you:
Are you a shareholder? DEA’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in DEA’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto DEA as part of your portfolio. However, if you’re relatively concentrated in REIT, the DEA’s high PE may signal the right time to sell.
Are you a potential investor? If DEA has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other REIT companies. However, that being said, its industry-beating growth prospects may be the reason for high relative valuation. I suggest you look at DEA’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.
For a deeper dive into Easterly Government Properties’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
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.
