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SunTrust Upgrades Equity Residential, Downgrades Apartment Investment, Camden

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SunTrust Upgrades Equity Residential, Downgrades Apartment Investment, Camden

SunTrust has upgraded Equity Residential (NYSE: EQR) to Buy from Neutral, while downgraded Apartment Investment and Management Co (NYSE: AIV) and Camden Property Trust (NYSE: CPT) to Neutral from Buy.

On EQR, Analyst Michael Lewis said concerns about New York/SanFranciso and an urban focus have pushed the stock price well below fair value.

"[W]hile it may seem counter-intuitive to upgrade the stock a day after management decreased FY2016 same-store revenue guidance by 50 bps, we think the stock's recent underperformance and yesterday's 4.1% decline (+0.1% RMZ) have more than priced in moderating growth and have created an attractive entry point," Lewis wrote in a note.

The analyst, who maintained his price target of $75, raised his 2016 FFO per share estimate to $3.05 from $3.03. Excluding items, Lewis' normalized FFO per share estimate fell to $3.14 from $3.15, still near the high end of management's $3.05-$3.15 per share guidance range.

"Absent a large market disruption, we think the company may be able to achieve 4-handle SSNOI growth for the next couple of years, supported by good expense controls and steady demand," Lewis continued.

On AIV, Lewis noted that the stock's 11 percent gain in the past three months is the best in his apartment coverage universe. The analyst also raised his price target to $44 from $42.

"The stock still trades at a 12% discount to our NAV estimate, but this is roughly in line with how it has historically traded and we are not inclined to forecast multiple expansion from here," Lewis highlighted.

The analyst raised his 2016 FFO per share estimate to $2.34 from $2.33, which is at the high end of management's $2.24-$2.34 a share guidance range.

Though the analyst continues to like the company's Southern California exposure, he still projects below-average five-year FFO growth and roughly average FAD growth.

On CPT, Lewis noted that the stock has the second-highest return in his apartment coverage universe YTD and over the past three months.

"Essentially, we believe a deep Houston-fueled NAV discount has largely burned off and we now see a slightly below-average growth profile trading at a roughly average relative valuation," the analyst elaborated.

As such, Lewis cut his 2016 FFO per share estimate to $4.55 from $4.82, which is at the midpoint of management's $4.45-$4.65 a share guidance range. The analyst also slashed his price target to $84 from $87.

"We still like the company's low financial leverage and development capability, but think CPT's overall growth prospects are now fairly valued after a good run in the stock," Lewis added.

At the time of writing, shares of Equity Residential were up 0.08 percent to $66.42, while Apartment Investment slipped 0.79 percent to $41.55 and Camden fell 0.58 percent to $83.61.

 

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Posted-In: Michael LewisAnalyst Color News Upgrades Downgrades Price Target Analyst Ratings

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