On Tuesday, Evercore ISI adjusted its price target for Sun Communities (NYSE: NYSE:SUI), bringing it down to $128.00 from the previous $145.00, while still maintaining an Outperform rating on the stock. The revision followed Sun Communities' first-quarter results, which revealed a core Funds From Operations (FFO) of $1.19 per share, surpassing both Evercore ISI's estimate of $1.16 and the consensus estimate of $1.17.
The slight outperformance compared to Evercore ISI's forecast was attributed to higher Net Operating Income (NOI) from core operations and reduced interest expenses. It was noted that the United Kingdom's real property NOI exceeded forecasts, while home sales NOI in both the U.S. and the UK fell below expectations due to softer pricing and weaker margins.
Despite the earnings beat, Sun Communities opted to maintain its midpoint FFO guidance for the year 2024 at approximately $7.14, but narrowed the range to $7.06 to $7.22. The report highlighted that the strength in Sun Communities' core business, which includes Manufactured Housing (MH) and Marinas in both the U.S. and the UK, is largely compensating for the increased volatility and weakness in Transient RV income and home sales, which are being affected by factors such as COVID normalization, inflation, and rising mortgage rates.
After reviewing the conference call and making several adjustments to assumptions, Evercore ISI lowered its 2024 FFO estimate for Sun Communities from $7.14 to $7.06, and its 2025 estimate from $7.53 to $7.30. This adjustment is largely due to lower NOI expectations from the transient and home sales segments, which have recently been challenging areas for the company.
In addition to these revisions, Evercore ISI has made changes to its underlying valuation assumptions, including an increase in the risk-free rate used in its Discounted Cash Flow (DCF) framework to 4.35% from 4.0%, and a rise in the capitalization rate by 20 basis points to reflect an unlevered Internal Rate of Return (IRR) closer to 7.25%.
The firm also reduced the targeted Adjusted Funds From Operations (AFFO) multiple by two turns to 17 times due to the increased volatility and uncertain outlook for the transient RV and home sales NOI streams.
These comprehensive changes have led to the new price target of $128 for Sun Communities, reflecting the updated outlook and valuation metrics.
InvestingPro Insights
Following Evercore ISI's revised price target for Sun Communities, real-time data from InvestingPro provides additional context for potential investors. The company's market capitalization stands at approximately $14.21 billion, with a forward P/E ratio for the last twelve months as of Q1 2024 at 48.03.
This valuation comes amidst a revenue growth of 5.34% during the same period, indicating some positive momentum in the company's financial performance. The dividend yield as of the most recent data is 3.13%, which is particularly noteworthy as Sun Communities has raised its dividend for 7 consecutive years, showing a commitment to returning value to shareholders.
InvestingPro Tips further enrich the analysis with insights into the company's performance and expectations. Sun Communities is recognized as a prominent player in the Residential REITs industry and has maintained dividend payments for an impressive 32 consecutive years.
While the company was not profitable over the last twelve months, analysts predict it will return to profitability this year. These factors, combined with the company's liquid assets exceeding short-term obligations, provide a multifaceted view of its financial health and outlook.
For investors looking for a deeper dive into Sun Communities' potential, InvestingPro offers additional tips beyond those mentioned here. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 8 InvestingPro Tips for Sun Communities. These tips could be invaluable for making informed investment decisions in the context of the company's current performance and industry standing.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.