UPDATE: Morgan Stanley Initiates Coverage on American Homes 4 Rent with Equal-Weight Rating, $18 PT on Compelling Growth Story, Fair Valuation

In a report published Monday, Morgan Stanley analyst Haendel E. St. Juste initiated coverage on

with an Equal-Weight rating and $18.00 price target. In the report, Morgan Stanley noted, “We believe in the single family rental (SFR) investment thesis and view AMH as a high quality operator that deserves a valuation premium. However, this premium is already appropriately reflected in the stock price, and peers like ARPI offer more favorable risk-reward. AMH is buying homes >25% below prior peaks and replacement cost. We expect 6% average annual HPA over the next five years in our base case. Net yields are in the mid-6%'s (pre cap-ex). To be clear, though, this is not a yield story in the near-term as cash flow will struggle to keep up with the pace of vacant home acquisitions. AMH is internally managed (we prefer internal over external) and enjoys a scale advantage over peers. Portfolio quality should also attract high quality tenants.” American Homes 4 Rent closed on Friday at $16.02.