On Wednesday, Truist Securities revised its price target for NexPoint Residential Trust (NYSE:NXRT), a real estate investment trust (REIT) with a focus on the Sunbelt region, reducing it from $35.00 to $34.00. The firm retained its Hold rating on the stock.
The adjustment comes with a mixed outlook on the company's financial performance. Truist Securities slightly raised its Net Funds From Operations (NFFO) estimate for 2024 but lowered the projection for 2025.
The analyst from Truist Securities highlighted that while NexPoint operates in the same region as its Sunbelt-focused peers Camden Property Trust (NYSE:NYSE:CPT) and Mid-America Apartment Communities (NYSE:NYSE:MAA), which both have a Buy rating, NexPoint is perceived differently.
NexPoint's ability to convert Net Operating Income (NOI) into cash flow is less efficient compared to its peers, primarily due to its high financial leverage and general and administrative (G&A) expense as a percentage of revenue. This inefficiency is expected to impact the company's earnings negatively in the future.
The analyst anticipates a decline in NexPoint's earnings over the coming years. This forecast is partly based on the maturity of $1.2 billion worth of interest rate swaps, which are set to expire through the third quarter of 2026. The maturing of these swaps could potentially increase the company's interest expenses, thereby affecting its profitability.
Truist Securities' revised price target reflects these concerns and suggests a cautious outlook for investors considering NexPoint Residential Trust's stock. The firm's analysis indicates that while the company shares a market with more favorably viewed peers, its unique financial challenges differentiate its investment profile.
InvestingPro Insights
In light of Truist Securities' recent price target revision for NexPoint Residential Trust (NYSE:NXRT), it's worth considering additional metrics and insights that could inform investors' decisions. According to real-time data from InvestingPro, NexPoint Residential Trust has a market capitalization of $938.84 million and a Price/Earnings (P/E) ratio of 12.51, which indicates that the stock may be trading at a low earnings multiple compared to its historical average. Moreover, the company has demonstrated a commitment to rewarding shareholders with a dividend yield of 5.1%, having raised its dividend for 9 consecutive years.
InvestingPro Tips highlight that NexPoint Residential Trust has also shown a strong return over the last three months, with a price total return of 26.09%. This performance, coupled with a high shareholder yield, suggests that the company has been able to generate significant value for its investors in the short term. Additionally, the company's liquid assets exceed its short-term obligations, which could provide some financial flexibility and stability.
For investors looking for a deeper dive into NexPoint's financials and future outlook, there are additional InvestingPro Tips available, providing more nuanced insights into the company's valuation and performance. To explore these further and to enhance your investment strategy, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. With a total of 10 additional InvestingPro Tips listed for NXRT, investors have ample information to gauge the company's prospects.
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