On Thursday, BMO Capital Markets adjusted its stance on Hudson Pacific Properties (NYSE:HPP) stock, downgrading the real estate investment trust (REIT) from Outperform to Market Perform. The firm also revised its price target for the company's shares, lowering it to $6.00 from the previous $8.00.
The downgrade comes after Hudson (NYSE:HUD) Pacific Properties provided third-quarter 2024 Core Funds From Operations (FFOps) guidance that fell significantly short of expectations.
According to BMO Capital, the guidance was 55% and 58% below the firm's estimate and the consensus, respectively. This shortfall in earnings guidance has contributed to the decision to alter the investment rating and price target.
The analyst from BMO Capital noted that despite the company's shares underperforming by 18.0% over the last twelve months, they are expected to remain under pressure.
This is attributed to a combination of factors including muted Hollywood production, increasing office vacancies, and disappointing earnings from Hudson Pacific Properties.
Furthermore, while there has been some improvement in leasing, Hudson Pacific's occupancy rates have continued to decline, which is likely to further impact the company's profit margins.
The analyst mentioned that they had previously upgraded the stock last September due to its discounted valuation, the potential for asset sales, and the expected recovery of studio business following the end of a strike in Hollywood. However, the anticipated recovery has not materialized as expected.
In other recent news, Hudson Pacific Properties has been experiencing significant changes in its financial landscape. The company's earnings outlook has been marked by concerns, leading to Morgan Stanley (NYSE:MS) downgrading Hudson Pacific's stock from Equalweight to Underweight.
The firm also adjusted the price target for the REIT to $4.25, down from $6.00, citing potential issues with the company's earnings and valuation benchmarks.
Morgan Stanley has projected a decrease in consensus estimates for earnings and cash flow, alongside a reduction in the forecasted funds from operations (FFO) for 2024, 2025, and 2026.
This is primarily attributed to an expected decrease in net operating income from Hudson Pacific's studio properties and a reduced contribution from the Washington 1000 project.
In contrast, financial firm Piper Sandler maintained an Overweight rating on Hudson Pacific, despite reducing its price target to $7 from $9. This was influenced by uncertainties in Hollywood and the recent acquisition of a joint venture at 1455 Market Street, which contributed positively to the company's earnings.
On the earnings front, Hudson Pacific reported a decrease in revenue and occupancy in its First Quarter 2024 Earnings Conference Call. However, studio revenue saw a 36% increase quarter-over-quarter, driven by Quixote.
The company is also exploring strategic options for its media business, including potential spin-offs or roll-ups, signaling an active response to the current market environment.
InvestingPro Insights
In light of BMO Capital Markets' downgrade of Hudson Pacific Properties, current InvestingPro data and tips provide additional context for investors. The company is trading at a low Price / Book multiple of 0.28, suggesting that the stock may be undervalued relative to its assets. This aligns with the analyst's previous upgrade due to discounted valuation. However, it's important to note that the stock has experienced significant pressure, with a one-week price total return of -7.57% and a six-month price total return of -28.89%. These figures underscore the recent underperformance highlighted by BMO Capital.
Despite these challenges, Hudson Pacific Properties has maintained dividend payments for 15 consecutive years, currently offering a dividend yield of 3.72%. This could be of interest to income-focused investors, especially when considering that the company's liquid assets exceed its short-term obligations, indicating a degree of financial stability. Nevertheless, analysts do not anticipate the company will be profitable this year, which may be a concern for those looking at earnings as a key indicator of financial health.
For those considering a deeper analysis, InvestingPro offers additional tips on Hudson Pacific Properties, providing a more comprehensive understanding of the company's financial standing and future prospects. Visit InvestingPro for more insights and to discover how many more tips are available for HPP.
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