On Monday, Compass Point maintained its Buy rating on NewLake Capital Partners Inc. (OTC: NLCP) and increased its price target to $23.50, up from the previous $18.25. The adjustment comes after NewLake reported a significant year-over-year increase in Adjusted Funds From Operations (AFFO) for the first quarter of 2024, as well as a smaller gain from the preceding quarter.
NewLake's performance stands out in the net lease real estate investment trust (NNN REIT) sector, which has generally shown a lack of momentum. The cannabis industry, where NewLake operates, has been facing challenges such as state-level regulatory issues, limited access to capital, and competition with the black market.
Despite these industry-wide difficulties, NewLake has managed to navigate the environment effectively, experiencing fewer issues with tenants compared to its peers. The company has taken a proactive approach to work with its tenants to address problems, avoiding the alienation that can occur in such situations.
As a result of these efforts, NewLake's shares have started to narrow the valuation gap with comparable companies, showing a stable earnings trajectory. There is also potential for upside if the company can utilize its largely undrawn credit facility later in 2024 or 2025. This potential deployment is not currently included in the earnings model.
InvestingPro Insights
As NewLake Capital Partners Inc. (NLCP) garners a positive outlook from Compass Point, real-time data from InvestingPro enriches the narrative behind this rising star in the NNN REIT sector. A market capitalization of $422.89 million underscores the company's substantial presence, while a forward-looking P/E ratio of 16.83 signals a reasonable valuation against earnings. The PEG ratio of 1.11 suggests that investors are acknowledging growth potential, aligning with the 5.33% revenue growth observed over the last twelve months as of Q1 2024.
Two notable InvestingPro Tips for NewLake are that the company has been aggressively buying back shares, highlighting management's confidence in the company's future, and it holds more cash than debt on its balance sheet, indicating financial stability. These factors, combined with a substantial dividend yield of 8.1% and a three-year streak of dividend growth, paint a picture of a company committed to returning value to shareholders. Moreover, the strong price total return of 81.02% over the past year suggests that the market is responding favorably to the company's strategies.
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