On Wednesday, Evercore ISI adjusted its price target for Lineage Inc (NASDAQ:LINE), bringing it down to $78 from the previous $88, while keeping an In Line rating for the stock. This revision followed the release of Lineage's third-quarter adjusted funds from operations (AFFO), which surpassed both Evercore ISI's estimate of $0.68 and the consensus of $0.80 by reporting $0.90. Despite the positive AFFO, the analyst pointed out that the third-quarter results still contained considerable noise and volatility due to the company's recent initial public offering in late July.
The company's core earnings before interest, taxes, depreciation, and amortization (EBITDA) for the quarter was reported at $333 million, marginally above Evercore ISI's estimate by $4 million. Lineage Inc also provided guidance for its fourth-quarter AFFO per share to be between $0.70 and $0.74, with a midpoint of $0.72, which is closely aligned with Evercore ISI's revised estimate of $0.71, a slight decrease from the former estimate of $0.73. The consensus estimate currently stands at $0.77 but is expected to adjust downwards.
Despite acknowledging a challenging demand environment and a subdued seasonal occupancy uptick in the fourth quarter, Lineage Inc remains optimistic about achieving mid-single digit same-store net operating income (SS NOI) growth, primarily through stringent expense control, as revenue growth faces hurdles with clients continuing to rationalize space. Evercore ISI does not anticipate an occupancy increase next year, projecting a recovery more likely in 2026.
After incorporating the third-quarter results into its model, Evercore ISI raised its 2024 AFFO estimate from $2.97 to $3.17, while reducing the 2025 AFFO forecast from $3.60 to $3.54. The firm expects occupancy to decrease by 100 basis points next year, a more conservative view compared to the previous estimate of a 50 basis point decline, and has also lowered its rate growth assumption from 2.5% to 2.0%. Citing these revised estimates and adopting a more conservative valuation framework, Evercore ISI reduced the targeted AFFO multiple from 21 times to 18 times in light of the demand challenges. The firm believes a cautious outlook is appropriate until Lineage Inc provides a formal outlook for 2025, noting that their AFFO estimate for 2025 is 3.4% below the consensus.
In other recent news, Lineage Inc. has made significant amendments to its financial agreements, incorporating additional subsidiaries as obligors. This move is part of the company's ongoing financial management strategies. Concurrently, the company declared a prorated quarterly cash dividend of $0.38 per share for the third quarter of 2024, following its recent transition to a publicly traded entity post-IPO.
Several analyst firms have also shared their perspectives on Lineage Inc. Morgan Stanley (NYSE:MS) reiterated its Overweight rating on the company, while KeyBanc Capital Markets initiated coverage with an Overweight rating. Scotiabank (TSX:BNS) began its coverage with a Sector Outperform rating, projecting an 11% compound annual growth rate in adjusted funds from operations from 2023 to 2026. Truist Securities and UBS initiated coverage with a Buy rating and a Neutral rating, respectively.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Lineage Inc's financial position and market performance. The company's market capitalization stands at $18.4 billion, reflecting its significant presence in the Industrial REITs sector. However, Lineage's current P/E ratio of -55.1 and adjusted P/E ratio of -121.9 for the last twelve months as of Q2 2024 suggest ongoing profitability challenges, aligning with Evercore ISI's cautious outlook.
InvestingPro Tips highlight that Lineage is trading near its 52-week low, with a price that is 75.46% of its 52-week high. This pricing trend correlates with the analyst's decision to lower the price target. Additionally, the company's dividend yield of 2.08% may attract income-focused investors despite the current headwinds.
It's worth noting that InvestingPro offers 5 additional tips for Lineage Inc, providing a more comprehensive analysis for investors seeking deeper insights into the company's prospects.
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