AvalonBay Viewed Favorably Amid Big Opportunity In A Market With High Barriers To Entry

AvalonBay Communities IncAVBreal estate investment trust that focuses on multifamily communities primarily in New England, with a Buy rating and $220 price target.

One of the most favorable aspects to AvalonBay's business is the company's strong opportunities within the high-end apartment market which has high barriers to entry, Argus' Jacob Kilstein stated in a research report. In fact, most of the company's buildings are located in leading metropolitan areas with rising employment rates, high wages and the "appeal of the city amenities."

Meanwhile, many young professionals are pushing marriage and children plans until their 30s, which implies less demand for single-family homes, Kilstein added. As such, this trend increases demand for properties from companies like AvalonBay.

The analyst also highlighted AvalonBay's management team and access to low-cost capital as being encouraging factors (check out Kilstein's track record).

The Math

AvalonBay's stock is trading at 22.7x the analyst's core FFO estimate which stands at the low end of its five-year average of 19.3 to 30.1 but above the apartment and office REIT peer average of 21.6x. This represents a compelling opportunity for investors as the stock should trade a premium given its above-average growth profile.

Also, AvalonBay's stock offers investors a 2.9-percent dividend yield, which may be attractive to some income-oriented investors.

Finally, the analyst believes higher interest rates concerns and potential oversupply of properties in certain regions may be valid concerns but are already priced into the stock.

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