Price Targets On REITs Hiked Despite Analyst Cautiousness

Fourth-quarter earnings have been piling in for real estate investment trusts (REITs) over the past two weeks, and the majority of them seem to be exceeding their fourth-quarter 2021 earnings as well as analysts’ estimates in both funds from operations (FFO) and revenue.

Despite this, some analysts seem to be somewhat cautious in raising their ratings of certain REITs and only seem willing to raise price targets while maintaining their previous stance. Over the past two weeks, there has been only one upgrade, one initiation of coverage and four downgrades. But there have been 73 Maintains or Reiterates of previous analyst ratings.

Of these Maintain ratings, 48 of the 73 (65.7%) have been given price target increases. Just 23 of them (31.5%) have had price target reductions.

There are some instances where a REIT already has the highest rating given by the analyst’s firm, such as Equinix Inc. EQIX, a specialized REIT that Raymond James analyst Frank Louthan maintained a Strong Buy stance on while raising his price target from $800 to $825. From its most recent price of $702.35, this represents a potential increase of 17.46%.

At Raymond James, Strong Buy is the firm’s highest rating for a stock that is expected to appreciate and produce a total return of at least 15% while also outperforming the S&P 500 over the following six months. Other firms use different language in their rating systems and have different criteria for each rating.

Take a look at several well-known REITs that have had price targets raised over the past two weeks — even though their ratings remained the same:

Realty Income Corp. O: On Feb. 23, RBC Capital analyst Brad Heffern raised his price target for triple-net retail REIT Realty Income from $68 to $70. At its most recent price of $66, that represents a potential increase of 6.06%.

Essex Property Trust Inc. ESS: On Feb. 23, the residential REIT had its price target lifted by analyst Haendel St. Juste of Mizuho from $235 to $246, while still maintaining a Neutral rating. From its most recent price of $232.52, that represents a potential increase of 5.8%.

Simon Property Group Inc. SPG: On Feb. 21, Ki Bin Kim of Truist Securities raised the price target on the retail REIT from $125 to $130, yet maintained a Hold rating on Simon Property Group. From its most recent price of $121.92, that represents a potential increase of 6.63%.

Annaly Capital Management Inc. NLY: On Feb. 17, RBC Capital analyst Kenneth Lee raised his price target on this popular mortgage REIT (mREIT) from $20 to $24, while maintaining an Outperform rating on the stock. From its most recent price of $21.09, that represents a potential increase of 13.77%.

Federal Realty Investment Trust FRT: On Feb. 9, analyst Tayo Okusanya of Credit Suisse raised his price target for the retail REIT from $110 to $120. From its most recent price of $106.75, that represents a potential increase of 12.41%.

Investors should not solely rely on analysts’ ratings, price increases or comments, as the best analysts are only correct about 50% of the time. Investors still need to perform their own research before making any stock purchase.

Still, the analysts’ ratings and target prices have the ability to move stocks higher or lower, so they do make a difference in the total returns of a stock over time.    

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