On Monday (NASDAQ:MNDY), Evercore ISI, a well-regarded investment firm, announced an upgrade of American Homes 4 Rent (NYSE:NYSE:AMH) from "In Line" to "Outperform." Alongside the upgrade, the firm also increased its price target for the company's stock from $41.00 to $42.00. This adjustment suggests a potential return of approximately 16%, including dividends.
The upgrade was prompted by expectations that high mortgage rates will continue to fuel demand for single-family rentals, potentially increasing American Homes 4 Rent's pricing power in 2025 and beyond. The analyst cited that if economic policies keep mortgage rates elevated, the trend toward renting rather than owning homes is likely to persist, benefiting companies like American Homes 4 Rent.
American Homes 4 Rent has demonstrated a strong track record, particularly in 2023, where it outperformed its apartment peers in terms of net operating income (NOI) growth. This trend is anticipated to continue in 2024 and 2025, with single-family rental (SFR) companies expected to surpass apartment real estate investment trusts (REITs) in performance.
The analyst also highlighted that American Homes 4 Rent is currently trading at an implied capitalization rate of 5.8%. This rate is 60 basis points above its long-term average, indicating a potentially undervalued stock compared to apartment REITs, which trade at implied cap rates ranging from 4.9% to 5.6%, with an average of 5.2%.
In conclusion, Evercore ISI's upgrade reflects a positive outlook on American Homes 4 Rent's position in the market, especially in comparison to its peers in the apartment sector. The firm's analysis suggests a strong potential for growth and a compelling investment opportunity in the single-family rental space.
In other recent news, American Homes 4 Rent has reported encouraging financial results for the third quarter, including a 4.4% year-over-year revenue growth and a 5.4% increase in core net operating income. The company's development program is set to deliver 2,300 homes this year, and has already acquired 1,700 homes for $480 million, with a projected 6% net operating income.
Despite challenges such as hurricane impacts, AMH reported net income of $73.8 million, or $0.20 per diluted share. The company has revised its 2024 guidance to include a core funds from operations of $1.77 per share.
In terms of occupancy, rates remain high at 95.2%, with rent growth projected at 3-4% for 2025.
Keefe, Bruyette & Woods adjusted the price target for American Homes 4 Rent to $38 from the previous $39, while maintaining a Market Perform rating on the stock.
This followed the company's third-quarter results, which surpassed expectations due to improved property revenue and reduced property operating expenses. These recent developments indicate a robust performance by AMH, driven by strategic acquisitions and development programs.
The company remains optimistic about capturing market demand and maintaining strong performance into 2025.
InvestingPro Insights
Adding to Evercore ISI's positive outlook on American Homes 4 Rent (NYSE:AMH), recent data from InvestingPro provides further context to the company's financial position and market performance.
AMH's market capitalization stands at $13.66 billion, reflecting its significant presence in the single-family rental market. The company's revenue growth of 6.57% over the last twelve months aligns with the analyst's expectations of continued strong performance in the sector. This growth is supported by a healthy gross profit margin of 55.3%, indicating efficient operations in managing its rental properties.
InvestingPro Tips highlight that AMH has raised its dividend for 4 consecutive years, a positive sign for income-focused investors. The current dividend yield of 2.81% adds to the potential total return mentioned in the Evercore ISI upgrade. Additionally, AMH's liquid assets exceeding short-term obligations suggest financial stability, which is crucial in the capital-intensive real estate sector.
It's worth noting that AMH is trading at a high earnings multiple, with a P/E ratio of 38.57. This valuation could be justified by the market's expectations of continued growth in the single-family rental market, as outlined in the analyst's upgrade.
For investors seeking a deeper understanding of AMH's potential, InvestingPro offers 5 additional tips, providing a more comprehensive analysis of the company's prospects in the evolving real estate landscape.
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