On Wednesday, STAG Industrial, Inc. (NYSE:STAG) received an updated stock price target from Evercore ISI, increasing it to $43.00 from the previous $42.00 while maintaining an Outperform rating.
The firm noted STAG's strong internal growth, with same-store cash net operating income (NOI) growing 6.1% in the second quarter, although this represented a slight deceleration from the 7.1% growth observed in the first quarter.
Year-to-date, same-store NOI growth for STAG Industrial was reported at 6.5%. Despite the slight slowdown, the company raised its NOI guidance for the year by 25 basis points, setting a new midpoint at 5.25%.
Average occupancy in the second quarter stood at 97.8%, a marginal increase from 97.7% in the first quarter but a 30 basis point drop from the previous year, reflecting a normalization of demand within the industrial sector.
The company has decided to maintain its 2024 funds from operations (FFO) guidance range of $2.36 to $2.40 and continues to project acquisition volumes between $350 million and $650 million. This comes after STAG acquired ten buildings for $226 million with a cash capitalization rate of 6.7% in the second quarter. Questions regarding the company's ability to find additional large opportunities in the second half of the year are expected to be addressed in the earnings call.
Evercore ISI's forecasts for STAG's 2024 and 2025 FFO remain unchanged at $2.40 and $2.49, respectively. The adjustment to the price target was partly due to a reduction in the risk-free rate used in the firm's discounted cash flow model, lowered from 4.35% to 4.15%.
Moreover, STAG's retention rate is anticipated to increase to 75%, up from the earlier midpoint of 72.5%, while disposition volumes are expected to be around $125 million, slightly higher by $25 million at the midpoint. The company's debt to EBITDA ratio is projected to stay within the range of 5.0x to 5.5x, with general and administrative costs unchanged at $50 million at the midpoint.
In other recent news, STAG Industrial has been making significant strides. The company reported a robust Q1, with a 7.3% increase in Core Funds from Operations per share compared to the previous year and a strong liquidity status of $1.1 billion. These developments reflect a period of strategic growth and operational success for STAG Industrial, despite a recent rise in interest rates.
In addition to its financial performance, STAG Industrial has also expanded its Board of Directors, appointing Vicki Lundy Wilbon, an experienced real estate professional. This move aligns with the company's strategy to enhance its governance and oversight as it continues to expand its portfolio of industrial properties.
Financial services firms Baird and RBC Capital Markets have also revised their price targets for STAG Industrial. Baird lowered its target from $40 to $38, maintaining a Neutral rating, while RBC Capital Markets reduced its target to $39, keeping a Sector Perform rating. These adjustments reflect the influence of the current economic climate, including rising interest rates.
These are among the recent developments for STAG Industrial, a company that continues to demonstrate resilience and adaptability in the face of macroeconomic challenges. The company's performance in the first quarter and its strategic board expansion underscore its commitment to maximizing shareholder value through careful management of its portfolio and investment opportunities.
InvestingPro Insights
STAG Industrial's recent performance and strategic financial decisions have been acknowledged by Evercore ISI with an upgraded price target. To further understand the company's market position, InvestingPro offers additional insights. STAG Industrial is currently trading at a high P/E ratio of 40.91, which indicates a premium valuation relative to its earnings.
This is further emphasized by an adjusted P/E ratio of 49.61 for the last twelve months as of Q1 2024. Despite these high multiples, the company has a robust track record of dividend growth, having raised its dividend for 14 consecutive years, which showcases its commitment to returning value to shareholders.
Investors should note that the stock is approaching its 52-week high, with a price that is 99.58% of this peak, reflecting strong recent performance. This is supported by a significant 19.45% price total return over the last three months. Moreover, while the company's revenue growth for the last twelve months as of Q1 2024 stood at 7.46%, the gross profit margin was notably high at 80.22%, indicating efficient cost management and profitability.
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