B.Riley Financial has increased its price target for CTO Realty Group (NYSE: CTO), a real estate investment trust (REIT), from $19.50 to $22.50 while reiterating a Buy rating on the stock.
The firm highlighted CTO Realty Growth's strong investment activity in the third quarter of 2024, which is anticipated to drive durable near-term growth despite a more uncertain macro environment.
CTO Realty's recent investments were noted for their high capitalization rate (cap rate), particularly the acquisition of a portfolio of shopping centers with large name brand anchor tenants, at an estimated 8.8% cap rate.
This rate is notably high given the context of falling interest rates, suggesting that it may be one of the last deals to secure such peak yields.
The firm also pointed out that CTO Realty is well-positioned for secular net operating income (NOI) growth, as many of the REIT's assets have potential for value increase.
Additionally, the expectation of lower interest rates is believed to mitigate the impact of intermediate-term refinancing dilution on the company's bottom line.
Despite the potential for headwinds in the shopping center sector due to a challenging operating environment for retailers, B.Riley expressed strong confidence in its growth estimates for CTO, projecting a 4.5% and 5.4% increase in funds from operations (FFO) per share for the years 2024 and 2025 respectively.
The firm also noted that CTO Realty's shares were trading at significant discounts compared to its peers in the shopping center REIT sector, attributing this partly to CTO's smaller market capitalization and higher leverage, as well as recent trading volatility.
Meanwhie, CTO Realty Growth has revised its investment outlook for 2024 to between $200 million and $250 million. The company has also increased its core FFO guidance by 12% and AFFO by 11%.
InvestingPro Insights
CTO Realty Group's recent performance data, as provided by InvestingPro, offers additional context to B.Riley Financial's optimistic outlook. The company's market capitalization stands at a modest $440.67 million, yet it boasts a significant dividend yield of 7.97%, a testament to its commitment to returning value to shareholders—a streak that has continued for 49 consecutive years. This aligns with B.Riley's note on the company's attractive investment activity and reinforces the potential for durable growth.
InvestingPro Tips highlight that CTO Realty Group is trading at a low P/E ratio relative to near-term earnings growth, suggesting that the stock could be undervalued given its growth prospects. Additionally, the company's liquid assets surpass short-term obligations, indicating a strong financial position to weather potential market uncertainties. For investors seeking more detailed analysis, InvestingPro offers 9 additional tips on CTO Realty Group, which can be further explored for a comprehensive investment strategy.
With a price near its 52-week high at 90.12% and a recent price target increase, the REIT's stock appears to be gaining momentum. Analysts have set a fair value estimate at $20.50, closely aligned with the InvestingPro fair value of $20.58, suggesting that current price levels may offer a suitable entry point for long-term investors considering the robust dividend yield and the company's profitability over the last twelve months.
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