On Wednesday, Stifel made a notable adjustment to its stance on Camden Property Trust (NYSE:CPT), downgrading the stock from Buy to Hold. This change comes with a slight increase in the price target, now set at $121, up from the previous $120. The firm's analyst pointed to concerns over the company's growth prospects compared to its peers.
Camden Property Trust's estimated compound annual growth rate (CAGR) for funds from operations (FFO) from 2024 to 2026 is projected at 3.2%, falling short of the average 3.9% among its peers. Stifel's own estimates are even more conservative, with a CAGR prediction of just 2.0% for the same period, which is half of the average for apartment real estate investment trusts (REITs).
As of the market close on the day before the downgrade, Camden Property Trust's shares were trading at 17.6 times the forward 12-month FFO. This valuation represents a 4.8% discount compared to the average of its peers, which is slightly lower than the historical average discount of 5.5% for the company's shares.
Management at Camden Property Trust discussed the foundational aspects of their business during the third-quarter earnings call. They anticipate that rental rates will reach their lowest point later this year and into the first half of 2025.
The company's potential for earnings is projected to remain relatively unchanged, while bad debt, currently at 90 basis points, could decrease to approximately 50 basis points by the end of 2025. Property taxes, which were unchanged this year, are expected to present a challenge in 2025.
The supply and demand dynamics for apartments are predicted to be similar in 2024, with high supply growth being partially offset by above-average job growth.
The overall supply of apartments has reached a record high, but job growth has absorbed a significant portion of this increase. With new construction starts declining, rent improvements are anticipated for the years 2026 to 2027.
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