Case Study: Realty Income (O) stock according to high performing analysts
Key Points
Performance
Realty Income shares fell by 1.08% this week. This pushed their year-to-date gains down to 1.85%. This compares poorly to the S&P 500 and the Vanguard Real Estate ETF (VNQ), which are both up by 3.82% thus far in 2023.
Event & Impact
Realty Income posted fourth quarter results this week, beating Wall Street estimates on the top and bottom lines. During Q4, O’s revenue totaled $888.7 million, beating Wall Street’s consensus estimate by $48.13 million. Realty Income’s Q4 funds-from-operations came in at $1.00, beating Wall Street’s consensus estimate by $0.01/share.
Noteworthy News:
Realty Income continues to invest heavily in its property portfolio, putting $9.0 billion to work acquiring new buildings during 2022. Fears of higher interest rates are hurting the sentiment surrounding the stock, but Realty Income continues to reward shareholders with a growing dividend. This company is one of only 3 REIT dividend aristocrats (companies that have raised their dividends for at least 25 consecutive years).
Nobias Insights
83% of recent articles published by credible authors focused on Realty Income shares offer a “bullish” bias. 7 out of 9 credible Wall Street analysts who cover VNQ believe shares are likely to rise in value. The average price target applied to by these credible analysts is $73.22, which implies upside potential of approximately 11.1% relative to the stock’s current share price of $64.98.
Bullish Take Samuel Smith, a Nobias 4-star rated author, said, “Realty Income is undervalued at present and offers investors good total return potential. That said, we believe the stock also remains highly appealing for income investors looking for a secure payout with steady dividend growth.”
Bearish Take Brent Nyitray, a Nobias 5-star rated author, said, “Realty Income stock saw a 25% drop in price between mid-August and mid-October over concerns about whether the REIT could manage the accelerated interest rate increases going on at the time”.
O Feb 2023
Realty Income (O), one of the largest Real Estate Investment Trusts in the world posted its Q4/full-year earnings this week, beating Wall Street estimates. However, despite the higher than expected results, Realty Income shares fell during the week by 1.08%.
On a year-to-date basis, Realty Income shares are up by 1.85%, meaning that they’re underperforming the broader market. For comparison’s sake, the S&P 500 is up by 3.82% thus far during 2023, as is the Vanguard Real Estate ETF (VNQ). The credible authors and Wall Street analysts that the Nobias algorithm tracks show strong bullish sentiment towards O shares after this relative weakness, signaling a potential buying opportunity.
Bullish Nobias Credible Analysts Opinions:
Samuel Smith, a Nobias 4-star rated author, recently published a report on Realty Income on the Sure Dividend website. Realty Income in a REIT and Smith highlighted the Real Estate Investment Trust asset class, stating, “The REIT’s business model is quite simple and has delivered spectacular long-term results. Realty Income acquires well-located commercial properties, remains disciplined in acquisition underwriting, executes long-term net lease agreements, and actively manages the portfolio to maximize value.” He also wrote, “REITs are required to distribute at least 90% of their earnings to shareholders, which leads to steady dividend growth for the asset class, provided earnings grow over time.”
With specific regard to Realty Income’s dividend, Smith said, “Realty Income has a very impressive dividend history, particularly for a REIT. Realty Income is a Dividend Aristocrat. It is also a monthly dividend stock, meaning it pays shareholders 12 dividends each year instead of the more typical quarterly payment schedule.”
“The current dividend yield of 4.4% is well above the S&P 500 average, and the company has done an excellent job growing the dividend payout over time. Realty Income has paid over 625 consecutive monthly dividends without interruption and has raised the dividend over 116 times,” Smith wrote.
Looking at the company’s business model, Smith said, “Realty Income was founded in 1969.” He continued, “The trust employs a highly scalable business model that has enabled it to grow into a massive landlord of more than 11,700 properties. Realty Income is a large cap stock with a market cap of $42.1 billion.”
In conclusion, Smith stated, “Realty Income is undervalued at present and offers investors good total return potential. That said, we believe the stock also remains highly appealing for income investors looking for a secure payout with steady dividend growth.”
Bearish Nobias Credible Analysts Opinions:
Brent Nyitray, a Nobias 5-star rated author, touched upon Realty Income’s recent weakness in an article published at the Motley Fool, writing, “Realty Income stock saw a 25% drop in price between mid-August and mid-October over concerns about whether the REIT could manage the accelerated interest rate increases going on at the time”. “But,” he continued, “it has weathered that headwind and the stock has somewhat recovered (although it's still down about 2% over the past year).”
Gen Alpha, a Nobias 5-star rated author, recently highlighted Realty Income as a top income-oriented pick in an article titled, “2 Monthly Dividends With Up To 11% Yield”. The author wrote, “Realty Income (O) is the largest net lease REITs by asset size and is one of just 64 companies with the elite S&P 500 Dividend Aristocrats index.”
Gen Alpha stated, "It so prizes its reputation giving investors reliable income that it bills itself as the "Monthly Dividend Company". “Since IPO in 1994, Realty Income has given investors a 14.6% compound annual total return, far surpassing the long-term ~10% CAGR of the S&P 500 Index (SPY),” the author continued.
Gen Alpha put a spotlight on the stock’s strong balance sheet, saying, “Realty Income differentiates itself from the pack due to its low cost of capital, as it's just one of a handful of REITs with an A- or better credit rating, thereby resulting in lower cost of debt.”
Lastly, they noted, “Realty Income pays a respectable 4.5% dividend yield that's protected by a 75% FFO payout ratio. It's also reasonably priced at $66.85 with a forward P/FFO of 16.7, sitting below its normal P/FFO of 19.3, setting up investors for potentially strong total returns through dividends and capital appreciation.”
In their article, Gen Alpha discussed Realty Income’s recent diversification move, buying the Encore Boston Harbor Resort and Casino in 2022. They said, “This is sizeable $1.7 billion acquisition is triple-net leased by Wynn Resorts (WYNN) and comes with a respectable 5.9% cash cap rate and has annual lease escalators.” And, as it turns out, Realty Income isn’t done diversifying its assets away from the physical retail industry.
Shawn Johnson, a Nobias 4-star rated author, recently penned an article which touches upon Realty Income’s move into the agricultural industry via a $1 billion investment into vertical farming properties.
Johnson wrote, “Commercial real estate investment trust Realty Income will partner with SoftBank-backed vertical farming startup Plenty Unlimited Inc to invest up to $1 billion to make the startup lease farming space, the companies said on Tuesday.” He continued, “Vertical farms with stacked layers in a controlled indoor environment have been promoted as a sustainable way to grow fruits and vegetables closer to the point of consumption using less water.”
Johnson quoted Arama Kukutai, Plenty’s [the primary tenant of these agricultural investments] chief executive, who said, “Perhaps the biggest challenge facing indoor vertical farming … is the significant expense of building new farms to increase production. Access to this new stream of capital from realty income will accelerate the expansion of bountiful farms and the impact we can make.”
“Capital intensive vertical farms, which have been largely unprofitable, are trying to cut costs and find more capital efficient solutions to grow,” said Johnson. Partnering with a well capitalized real estate investing firm like Realty Income may prove to be a solution to this problem.
Realty Income reported its fourth quarter earnings this week, beating analyst expectations on both the top and bottom lines. Realty Income’s revenue came in at $888.7 million during the quarter, up 29.7% on a year-over-year basis, beating analyst estimates by $48.13 million.
The company’s funds-from-operations (REITs do not use earnings-per-share, but instead, funds-from-operations as their primary bottom-line metric) were $1.00/share during the quarter, beating estimates by $0.01/share. On a normalized basis, FFO/share was $1.05, representing 18% year-over-year growth. And, Realty Income’s adjusted funds-from-operations was $1.00, representing 6.4% year-over-year growth.
Realty Income highlighted its strong investment year, stating that it had “Invested $9.0 billion in 1,301 properties and properties under development or expansion, including $2.5 billion in Europe” during the full-year in 2022.
The company’s CEO, Sumit Roy, said, “I am proud of our team’s outstanding accomplishments in 2022, culminating in AFFO per share growth of 9.2% and a record year for property-level acquisitions of approximately $9 billion. Our investment philosophy is centered around acquiring prime real estate assets in partnership with operators who are leaders in their respective industries. Illustrating this philosophy was the acquisition of our first gaming asset, the Wynn Encore Boston Harbor, which contributed to a record quarter for property-level acquisitions during the fourth quarter of approximately $3.9 billion. In addition, since the start of the fourth quarter, we have acquired properties in several distinct verticals for future potential growth, including investments in properties related to the consumer-centric medical industry, a debut transaction in Italy, and the formation of a real estate development partnership with a leading vertical farming operator.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Regarding its property portfolio, the company wrote, “As of December 31, 2022, we owned or held interests in 12,237 properties, which were leased to 1,240 clients doing business in 84 industries.” Our diversified portfolio of commercial properties under long-term, net lease agreements is actively managed, with a weighted average remaining lease term of approximately 9.5 years. Our portfolio of commercial real estate has historically provided dependable rental revenue, supporting the payment of monthly dividends. “As of December 31, 2022, portfolio occupancy was 99.0% with 126 properties available for lease or sale, as compared to 98.9% as of September 30, 2022, and 98.5% as of December 31, 2021.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, the majority of credible authors and analysts agree with the upbeat sentiment that Roy expressed during O’s Q4 earnings report. 83% of recent articles published by credible authors which focused on Realty Income expressed a “Bullish” sentiment. 7 out of the 9 credible Wall Street analysts that the Nobias algorithm follows believe that Realty Income shares are likely to increase in value. The average price target being applied to O shares by these credible individuals is $73.22, which represents 11.1% upside potential relative to the stock’s current share price of $64.98.
Disclosure: Nicholas Ward is long Realty Income. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.