Citi’s Michael Bilerman believes Life Storage Inc LSI is attractively valued, having moved from recent lows and with the potential of total returns of over 15 percent from the current levels.
Bilerman upgraded the rating on the company from Neutral to Buy, while raising the price target from $100 to $105.
Selloff Overdone
Following Life Storage releasing its Q2 results and revising its 2016 guidance, the stock has underperformed peers by 390 bps, having declined 690 bps year-to-date. The stock has declined 14 percent, as compared to the 9 percent decline among its peer group.
“While we viewed 2Q results and reduced guidance as disappointing, we believe the stock has been hit too hard for what remains a solid core business,” Bilerman mentioned.
The analyst expects the pace of same-store NOI growth to continue to slow down but pointed out that the lowered expectations were already reflected in the current valuation levels, with Life Storage trading at a 20 percent discount to peers.
Execution On Track
In addition, Bilerman expects the company to raise its dividend at least in the high single digits in Q1:17.
“We believe the facilities acquired in 1Q16 are performing in line with initial underwriting, with 9 properties in LA expected to be accretive to 2017 earnings. Likewise, the Life Storage portfolio should provide significant growth opportunities over the next 12-18 months,” the analyst noted.
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