DC Market Still Choppy, Should You Buy AvalonBay (AVB)? - Analyst Blog

AvalonBay Communities Inc. (AVB), the residential real estate investment trust (REIT), has been focusing on making investments in the high barrier-to-entry regions of the U.S. Moreover, its development deliveries are expected to aid top-line growth in the quarters ahead. Notably, a majority of its development pipeline includes properties on the West Coast that is witnessing improved fundamentals and healthier growth. This ensures steady rental revenue generation in the future.

In October, AvalonBay reported encouraging third-quarter 2014 results. The company reported third-quarter 2014 funds from operations (FFO) of $2.14 per share that came 6.5% ahead of the Zacks Consensus Estimate and jumped 81.4% from the prior-year quarter figure. The impressive results were driven by improved performance of its newly developed and acquired communities.

Going forward, increasing consumer confidence backed by job growth, rising wage and healthier balance sheet keep us optimistic about the company's growth prospects. Apart from this, demographic growth continues to be strong in the young adult age cohort, which has a higher propensity to rent and provides a significant source of pent up demand.

Nevertheless, though these positives bode well for the company's future, yet, completion of a number of projects in the Metro DC area and modest job growth keeps the fundamentals of this market challenged.

Over the last 30 days, the Zacks Consensus Estimate for 2014 and 2015 FFO per share upped by 15 cents and a penny to $7.28 and $7.41, respectively. The company currently has a Zacks Rank #3 (Hold).

To gain a deeper insight into AvalonBay, you can refer to our updated research report issued on Nov 12, 2014.

Stocks That Warrant a Look

Investors interested in the residential REIT industry may also consider stocks like Post Properties Inc. (PPS), Equity Residential (EQR) and UDR, Inc. (UDR). All these stocks hold a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.