Barclays Upgrades Apartment Investment & Management; Sees 25% Upside

• Shares of Apartment Investment and Management Co. AIV have decline 10.5 percent over the past one month and 5 percent year to date.
• Ross L. Smotrich of Barclays has upgraded the rating on Apartment Investment and Management from Equal Weight to Overweight, while raising the price target from $40 to $43.
• While the stock is currently trading at a significant discount to its peers, Smotrich believes that there are catalysts that could help the stock achieve 25.3 percent total return potential.

Following the 42 percent surge in the share price in 2014, driven by robust organic growth, Apartment Investment and Management has underperformed its multifamily peers in 2015. While Smotrich believes that the company was unlikely to meaningfully beat fundamental expectations, the repositioning of its portfolio would drive growth equal to that of its peers.

“CapEx relative to NOI is declining as AIV recycles capital into higher-quality assets. As a result, we expect CAD to increase faster than FFO,” Smotrich said, while adding, “AIV deserves a multiple and spread to NAV that is in-line with peers.”

Smotrich believes that the stock offers a “compelling mismatch” between growth potential and valuation in the multifamily domain.

Among the catalysts that are likely to drive the stock up is the investor day scheduled for early October. This event could help educate investors about the company’s asset quality, while highlighting Apartment Investment and Management’s robust redevelopment platform.

According to the Barclays report, “Other catalysts include i) the improved balance sheet, ii) the LA portfolio driving solid organic performance and iii) an acceleration in multifamily fundamentals in Washington DC.”