Realty Income: Why I'm Buying This Dip

seekingalpha04-17

Realty Income's stock has underperformed the market in 2024, but pullbacks provide buying opportunities for long-term investors.Recent developments show the company is moving towards its strategic ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2428716358?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1030077518/image_1030077518.jpg","is_english":true,"pubTime":"2024-04-17 10:45","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2428716358","market":"fut","top_or_hot":-1,"title":"Realty Income: Why I'm Buying This Dip","media":"seekingalpha","content":"<div>\n<p>Realty Income's stock has underperformed the market in 2024, but pullbacks provide buying opportunities for long-term investors.Recent developments show the company is moving towards its strategic ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684143-realty-income-why-im-buying-this-dip-o-stock\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Realty Income: Why I'm Buying This Dip</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nRealty Income: Why I'm Buying This Dip\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-17 10:45 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4684143-realty-income-why-im-buying-this-dip-o-stock><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Realty Income's stock has underperformed the market in 2024, but pullbacks provide buying opportunities for long-term investors.Recent developments show the company is moving towards its strategic ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684143-realty-income-why-im-buying-this-dip-o-stock\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4588","symbol_name":"碎股","start_time":0,"source_url":"https://seekingalpha.com/article/4684143-realty-income-why-im-buying-this-dip-o-stock","article_id":"2428716358","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1030077518/image_1030077518.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2428716358","pubTimestamp":1713321959,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Realty Income's stock has underperformed the market in 2024, but pullbacks provide buying opportunities for long-term investors.Recent developments show the company is moving towards its strategic pri","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4588":"碎股","BK4080":"零售业房地产投资信托","O":"Realty Income Corp","BK4231":"零售房地产信托","BK4585":"ETF&股票定投概念"},"translate_title":"房地产收入：为什么我买这个下降","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"O":1,"US10Y.BOND":0.9,"US12M.BOND":0.9,"US2Y.BOND":0.9,"US30Y.BOND":0.9,"US3Y.BOND":0.9,"US5Y.BOND":0.9,"US6M.BOND":0.9,"US7Y.BOND":0.9,"US912797HH31.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6,"US912796CX52.BOND":0.6},"content_text":"Realty Income's stock has underperformed the market in 2024, but pullbacks provide buying opportunities for long-term investors.Recent developments show the company is moving towards its strategic priorities, indicating bullish potential.The stock is undervalued with a forward dividend yield of almost 6% and a compelling valuation.   hyejin kangInvestment thesis My initial bullish thesis about Realty Income (NYSE:O) did not age well as the stock delivered a -7.6% total return since December 2023, notably lagging behind the broader market. Despite a decent latest earnings report, the share price dipped due to ongoing uncertainty surrounding the Fed's monetary policy, which is weighing on the real estate sector. However, long-term investors should not be discouraged, as pullbacks in high-quality names provide better buying opportunities. Recent developments indicate that the business continues moving toward its strategic priorities, which is a bullish indicator. The forward dividend yield is almost 6% and the valuation is compelling. All in all, I reiterate my \"Strong Buy\" rating for O. Recent developments The latest quarterly earnings were released on February 20. Although Realty Income surpassed revenue consensus estimates, it fell short on the bottom line perspective. Despite achieving a remarkable 17.8% YoY revenue growth, the adjusted FFO per share decreased from $1.05 to $0.98. However, it's important not to be misled by this quarterly dip in FFO, as the full fiscal 2023 adjusted FFO per share actually expanded slightly from $4.04 to $4.07. Additionally, it's worth noting that EBITDA grew by around 22% in 2023 compared to 2022, aligning closely with the growth in revenue.   Seeking Alpha\"Despite the challenging environment of high interest rates and persistent inflation, the company has demonstrated solid financial performance recently. In 2023, O's strong financial performance allowed it to maintain a healthy balance sheet with low leverage and robust liquidity. It's essential for investors to understand the company's financial position, as Realty Income is highly valued for its consistent monthly dividend payouts. O has increased dividends in 26 consecutive years and the forward dividend yield is currently at almost 6%.   Seeking AlphaWith a solid recent financial performance and robust financial position, I am looking optimistically at Realty Income's prospects this year. In the latest earnings presentation, the management shared their 2024 guidance, which suggests that investors should expect solid performance this year. O's latest earnings presentationFor a REIT, the occupancy rate of its properties is crucial because it is the major revenue driver and underscores the management's ability to find and maintain relationships with tenants. The anticipated 98% occupancy rate for FY 2024, as projected by management, aligns well with O's historical performance in this regard. With revenue expected to be supported by strong occupancy rates and a projected $2 billion acquisition volume, I am confident that a 13.7% YoY revenue growth projected by consensus is realistic. Seeking AlphaNow let us look at what to expect from expenses, the second part of the profitability equation. Cash G&A expenses are expected to represent 3% of total revenue, which is a notable improvement compared to FY 2023, when O delivered a 3.8% G&A to revenue proportion. It is a good sign that underscores the management's commitment to financial discipline, which is beneficial for shareholders. As the company's assets base is expanding, I also expect growth in amortization expenses. However, it is a non-cash item and will not affect free cash flows. The only issue I see from the expenses side is the cost of debt. To expand its property base, the company raises debt finance, and the current environment of high interest rates adversely affects profitability. For example, O's interest expense increased by more than 50%, which outpaced revenue growth. However, interest rates are cyclical, and we are currently highly likely at the peak of the Fed's monetary policy tightening as there were no hikes for several last FOMC meetings. The good point is that the management mitigates interest rate risks by a very prudent approach to debt, which we can see from the actual metrics against debt covenants. As the company is expected to invest $2 billion more in acquisitions in 2024, interest expenses might grow again. However, I have a high conviction that this growth will be under strict management's control. Moreover, according to the latest earnings call, we know that the management expects an increase of $45 million in annualized non-cash interest expense from the amortization of below market debt on the Spirit debt. This will decrease FFO by $0.05 per share. O's latest 10-K reportSince revenue is expected to grow in 2024 and expenses look controllable by the management, the bottom line is poised to follow. The management expects AFFO per share to be within the $4.13 to $4.21 range, which is around 5% higher than demonstrated in FY 2023. The strength in FFO positions O well to successfully balance between sustaining its exemplary dividend growth and fortifying its financial position for future growth. Valuation update O dropped by around 16% over the last twelve months and had a weak start in 2024 with -10% YTD return. The stock looks slightly undervalued from the valuation ratios perspective and the Seeking Alpha Quant valuation grade is \"B-\". Seeking AlphaComparing O's valuation ratios to the sector median is likely not enough due to the company's stellar profitability and growth. Proceeding with the dividend discount model [DDM] update is sound, because O is a well-known dividend machine. I take an FY 2025 dividend consensus forecast for the base because I need to derive a twelve-months target price. Since more than one rate cut from the Fed are expected in 2024, I implement a softer 8% required rate of return. I use a 3.59% dividend growth rate which aligns with the last five years' CAGR.   Author's calculationsAccording to my DDM simulation, the fair share price is $73.7. The stock currently trades around 43% lower than my target price estimate, meaning that the valuation is compelling. If we look at O's historical share price chart, we see that this level is realistic as the stock traded at above $70 in Summer 2022. Seeking Alpha Risks update The sentiment around O is apparently weak which I see from a low \"D+\" Seeking Alpha Quant momentum grade. Sentiment usually prevails over fundamentals in short-term perspective and when the sentiment is weak it is difficult to assess the potential further dip. I think that experienced and long-term minded investors got used to it, but I have to warn newcomers that share price turnaround is unlikely to happen before we see first rate cuts from the Fed. Seeking AlphaAnd the level of uncertainty regarding first rate cuts by the Fed is extremely high. The end of 2023 seemed optimistic as during the December press conference the Fed announced that three rate cuts in 2024 are expected. However, Jerome Powell's recent rhetoric became more hawkish, in my opinion. He said that there is no rush to cut interest rates. Moreover, March CPI data came out hotter than expected, which adds another layer of uncertainty. As I mentioned in recent developments, I am confident in O's ability to deal with high-interest rates. However, higher interest rates for longer will mean that the market's sentiment around REITs will also likely remain soft. Bottom line  To conclude, O is still a \"Strong Buy\". The dividend yield is compelling and safe as the company continues demonstrating stellar profitability and growth. I have a high conviction that the pullback of recent months provides even better buying opportunities for long-term investors as my valuation analysis suggests the stock is now more than 40% undervalued.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428716358"}