On Friday, UBS initiated coverage on National Retail Properties (NYSE:NNN) stock with a Neutral rating and a price target set at $41.00.
The firm cites the high interest rate environment as a limiting factor for the company's external growth opportunities, which could make accretive acquisitions a challenge for the real estate investment trust.
The analyst from UBS noted that National Retail Properties' cost of capital, with an implied capitalization rate of 6.8%, is expected to hinder the company's ability to make beneficial acquisitions.
This outlook is in line with the company's own 2024 acquisition guidance, which anticipates a 45% reduction in acquisitions compared to the previous year.
The growth of National Retail Properties is also affected by its recent debt issuance at a 5.5% interest rate, which was used to pay off maturing debt that had a lower interest rate of 3.9%.
UBS projects adjusted funds from operations (AFFO) growth for the company to be modest, at 2.4% for 2024 and 2.9% for 2025, positioning National Retail Properties near the lower end of the Triple Net lease sector.
Despite these challenges, UBS believes that the market has already accounted for these factors in the company's valuation. National Retail Properties is currently trading at a 7% discount to the Triple Net sector, which is slightly better than the historical average discount of 10%.
InvestingPro Insights
As investors weigh the neutral stance from UBS on National Retail Properties, real-time data from InvestingPro offers a more nuanced view of the company's financial health. With a market capitalization of $7.51 billion and a P/E ratio standing at 18.72, the company appears to be valued fairly in the market. However, the adjusted P/E ratio for the last twelve months as of Q1 2024 suggests a slightly higher valuation at 20.97, indicating expectations of future earnings growth.
InvestingPro Tips highlight that National Retail Properties has a commendable track record of raising its dividend for an impressive 34 consecutive years, showcasing its commitment to returning value to shareholders. Additionally, its dividend yield as of mid-April 2024 is attractive at 5.52%, which may appeal to income-focused investors. On the flip side, the company is trading at a high P/E ratio relative to near-term earnings growth, which could signal caution for growth-oriented investors. Moreover, the current financials indicate that short-term obligations exceed liquid assets, potentially raising concerns about the company's liquidity in the near term.
For those looking to delve deeper into National Retail Properties' financials and future prospects, InvestingPro offers additional insights and metrics. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access further analysis and tips, including several more InvestingPro Tips that are not covered in this article.
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