On Wednesday, Scotiabank adjusted its stance on UDR, Inc. (NYSE:UDR), a real estate investment trust, shifting from a bullish 'Sector Outperform' to a neutral 'Sector Perform' rating. The firm also set a price target for UDR at $39.00. The downgrade reflects the analyst's view of limited upside potential for the stock, citing concerns over rental pricing and growth forecasts.
UDR's occupancy rates have been strong, with low tenant turnover, which typically bodes well for the upcoming Spring leasing season. However, the company's first-quarter new lease pricing was not as robust as its Coastal peers, such as AvalonBay Communities (NYSE:AVB), Equity Residential (NYSE:EQR), and Essex Property Trust (NYSE:ESS), due to its higher exposure to the Sunbelt region.
The firm noted that the slight increase in UDR's full-year 2024 funds from operations per share (FFOPS) guidance by $0.02 did not stem from improved same-store net operating income (SSNOI) growth. Instead, it was attributed to fewer asset sales and developer capital loan maturities. Scotiabank expressed concern that this represents a lower-quality guidance raise.
In comparison to its peers, UDR's SSNOI growth forecast for fiscal year 2024 is lagging. The company's guidance midpoint is at 0.0% growth, whereas its peers are projecting around 1.8%. This discrepancy has contributed to the firm's decision to downgrade the stock, as it suggests weaker relative rental pricing and a less favorable growth outlook for UDR.
InvestingPro Insights
As Scotiabank revises its outlook on UDR, Inc., investors may consider additional metrics to gauge the company's financial health and future prospects. UDR's market capitalization stands at a robust $13.57 billion, reflecting its significant presence in the real estate investment trust market. The company's P/E ratio, based on the last twelve months as of Q4 2023, is at a high 86.99, which may suggest that the stock is currently valued at a premium compared to earnings. However, the PEG ratio of 0.07 points to potential undervaluation when factoring in expected earnings growth, which could interest growth-oriented investors.
The company's revenue growth in the last twelve months was 6.22%, indicating a stable increase in income. Despite this, the quarterly revenue growth saw a decline of -4.63% in Q4 2023, which could be a point of concern for short-term investors. The gross profit margin remains strong at 66.84%, suggesting that UDR is effectively managing its cost of sales. Additionally, UDR has shown an impressive dividend growth of 11.84% and sports a dividend yield of 4.46%, which may attract income-focused investors.
InvestingPro Tips highlight that UDR's return on assets is 4.23%, which can be a sign of efficient asset utilization, and the company's stock is trading at 86.57% of its 52-week high, providing a window for potential value buying. For those seeking more comprehensive analysis, InvestingPro offers additional tips on UDR, and with the use of coupon code PRONEWS24, readers can receive an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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