Invitation Homes Buy Rating Built On Foundation Of Long-Term Tailwinds, Best-In-Class Position

Deutsche Bank has started coverage of Invitation Homes Inc INVH with a Buy rating and $25 price target on expectations of strong returns from single-family rental market.

Invitation Homes, which is controlled by Blackstone Group LP BX, generates more than 70 percent of its revenues from the Western United States and Florida. The Dallas-based company holds a portfolio of nearly 50,000 rental homes in 13 markets, according its website.

“Overall, we think the single-family rental market will generate strong returns over the next decade+ as the peak of the millennial pool moves into home renting age,” analyst Vin Chao wrote in a note.

Chao believes Invitation Homes is best positioned to capture above-trend rent growth in the near and medium term given their “high-quality, granularly constructed, and fully-scaled portfolio and geographic concentration in some of the fastest growing MSA’s in the country.”

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Further, the analyst noted single-family rental stocks should get downside protection from the fact that home prices have historically been very stable and have not typically fallen even when rates are rising.

Justification Of Bullishness

Chao’s bullish thesis on the stock is based on the following five points:

1. “Above-average demand supported by multi-year positive demographic tailwinds.”
2. “Limited competitive supply.”
3. “Best-in-class portfolio supporting higher long run rent growth.”
4. “Scale advantages to drive margin expansion.”
5. “Efficiency gains and service opportunities as INVH taps into its embedded resident base and in-place operating infrastructure.”

Meanwhile, the $25 target price implies a potential return of 17 percent, including the 1.7 percent dividend yield.

“While our target price is based on NAV, unlike most commercial real estate, where the value of the asset is highly dependent on the achievable rental stream, the value of a typical single-family home has little to do with the rent that be earned from it,” Chao continued.

At last check, shares of Invitation Homes rose 1.39 percent to $21.90.