On Friday, Piper Sandler adjusted its price target for Alexander & Baldwin (NYSE:ALEX), a real estate investment trust, to $23.00, increasing from the previous target of $22.00. The firm maintained an Overweight rating on the stock.
The analyst at Piper Sandler highlighted Alexander & Baldwin's strategic moves as the company continues its efforts to divest from legacy land holdings. The focus is now on strengthening its core commercial real estate (CRE) operations, which is expected to show improved financial performance heading into 2025.
The CRE segment's steady improvement is underscored by the raised guidance for 2024, which now forecasts approximately $1.10 for core operational funds from operations (FFO), up from the earlier estimate of around $1.06, with land sales providing additional incremental benefits.
According to the analyst, the ongoing process of exiting the legacy land holdings introduces a degree of uncertainty regarding the timing of the company's complete transition. However, the core operations of Alexander & Baldwin are considered to be a more reliable metric for evaluating the company's performance.
The enhancement of CRE earnings, complemented by land sales that serve as a funding source for further acquisitions, is expected to be a positive development for investors.
The firm also noted that while the office sector remains a weak point for Alexander & Baldwin, reflected in the decline in occupancy, it represents only a small portion of the company's net operating income (NOI), at 3.5%. In contrast, the company's investment strategy is geared towards expanding its industrial and retail portfolio, leveraging the unique logistical challenges of the Hawaiian market.
Piper Sandler's reiteration of the Overweight rating indicates confidence in Alexander & Baldwin's strategic direction and potential for growth in the coming years.
In other recent news, Alexander & Baldwin has been actively expanding its commercial real estate portfolio. The Hawaii-based company recently acquired an 81,500-square-foot food distribution facility in Pearl City, O'ahu for $29.7 million. The property is fully leased to Hansen Distribution Group, a subsidiary of C&S Wholesale Grocers, and is expected to immediately contribute to the company's Funds From Operations (FFO).
Furthermore, the company has initiated a new equity offering program, with plans to sell up to $200 million worth of common stock in collaboration with several financial institutions. This arrangement includes forward sale agreements that enable the sale of the company's common stock at market prices.
On the financial front, Alexander & Baldwin reported a 1.1% increase in total net operating income for the second quarter, bolstered by a significant land sale in July that added $10.5 million to the company's revenues. Consequently, the company's CFO, Clayton Chun, has revised the 2024 adjusted funds from operations guidance to $0.99 - $1.08 per share.
In terms of personnel changes, the company's Chief Investment Officer, Jeffrey W. Pauker, has announced his resignation effective October 25, 2024. The company has not yet announced a successor. These are the recent developments at Alexander & Baldwin.
InvestingPro Insights
To complement Piper Sandler's analysis, recent data from InvestingPro offers additional context on Alexander & Baldwin's financial position. The company's market capitalization stands at $1.33 billion, with a P/E ratio of 33.06, reflecting investor expectations for future growth.
InvestingPro Tips highlight that Alexander & Baldwin has raised its dividend for three consecutive years, which aligns with the company's focus on strengthening its core commercial real estate operations. This consistent dividend growth may appeal to income-focused investors looking for stability in the REIT sector.
Moreover, the company's profitability over the last twelve months, as noted by another InvestingPro Tip, supports Piper Sandler's positive outlook on the company's core operations. The current dividend yield of 4.86% could be attractive to investors seeking income in the current market environment.
The PEG ratio of 0.14 suggests that the stock may be undervalued relative to its earnings growth potential, which could be of interest to value investors considering the company's strategic shift towards its CRE segment.
For readers interested in a more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide deeper insights into Alexander & Baldwin's financial health and market position.
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