When you get a 1-2 punch of inflation and recessionary fears as we’ve had in 2022, investors begin to lose faith in the ability of shopping centers and regional malls to thrive under adverse conditions. As a result, the prices of retail stocks have been hit hard in recent months. Analysts have been forced to lower their target prices, yet their upside targets from current levels remain high. Here are three retail REITs that analysts have recently cited as having the highest potential upside:
RPT Realty RPT is a NYC-based REIT that owns, operates and manages 57 open air shopping centers across 16 states, mostly in the Northeastern U.S. RPT Realty has a 93.3% overall occupancy rate in its portfolio of stores. This rate has been fairly stable over the last two years.
The 52-week range for RPT is $7.51 to $14.99, but the stock has fallen 42% since last November. The stock is currently sitting right near its 52-week low.
2nd quarter 2022 revenue declined, but earnings per share (EPS) was up from the previous quarter. RPT Realty pays a $0.52 annual dividend, yielding just above 6%.
Raymond James analyst R.J. Milligan recently maintained an Outperform rating on RPT, while lowering the price target to $13 from $15. At a recent price of $7.55, this creates a huge upside potential of 72%.
Federal Realty Investment FRT is another retail REIT, based in North Bethesda, MD. Federal Realty Investment was established in 1962 and is a member of the S&P 500. The REIT owns and operates 105 retail stores in grocery-anchored shopping centers and mixed-use retail centers.
Federal Realty prides itself on having the longest record of annual dividend rate increases among U.S. REITs. The 52-week price range is $86.50 to $140.51. Just like RPT Realty, it is currently sitting near its 52-week low and seems to be in a serious downtrend.
However, Milligan continues to see value in the stock. He also maintained a Strong Buy on Federal Realty, even while lowering the price target from $140 to $130. Therefore, from its recent price of $88, the analyst’s view would be that Federal Realty now has an upside potential of 47.7%. That’s a lot of ground to make up, but with its long-standing history, an annual dividend of $4.32 and yield of 4.7%, this REIT could be a long-term winner. However, investors may want to see some price stability first.
Simon Property Group Inc SPG is one of the largest and most well-known retail REITs. Simon owns and manages shopping centers and premier outlet malls in 37 states and Puerto Rico. It also owns properties in Asia, Canada and Europe. The Indianapolis-based REIT is a member of the S&P 100.
Simon Property Group stock dropped significantly in the 2020 COVID-19 market crash, declining from $128 in January to less than $37 by the end of March. Investors who stayed the course were rewarded when SPG rebounded to $161 by November 2021. However, since then, the stock has again languished due to inflation and recessionary concerns. The stock is hitting new lows for the year.
Regardless, Richard Hill of Morgan Stanley recently maintained his Overweight position on Simon, while slightly lowering the target price from $133 to $131. This represents about a 51% potential upside from Simon’s recent price of $86.75. Given the REIT’s history of rebounding, and an annual dividend of $7.00 that yields 7.5%, Simon Property Group could be a substantial bargain at this level.
Please bear in mind that analysts’ opinions are not always correct, and the best analysts are only right about half the time. Investors should therefore perform their own due diligence when making decisions about what stocks to buy, and simply use the price targets as a guide.
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