On October 26, AvalonBay’s stock closed at $182. Currently, the company has a consensus “buy” rating with an average consensus price target of $189.75. At the current price, the stock is still trading at a discount of 4.1% to analyst expectations.
Among the 25 analysts following the stock, 14 have assigned a “buy” rating. AvalonBay received one sell rating and ten “hold” ratings. Presently, AvalonBay has a consensus “buy” rating. However, it must be noted that the analyst consensus rating on AvalonBay’s stock was given before the release of 3Q15 earnings. Analysts could change their rating on the stock in view of the latest data.
A number of brokerage houses came out with a research report on AvalonBay. In a research report on October 19, Deutsche Bank lifted its price target on AvalonBay (AVB) from $196 to $198. Barclays also raised its price target on the stock on October 20 from $184 to $199 per share and maintained an equal-weight rating for the company. SunTrust raised its target price objective on AvalonBay from $198 to $200 and gave the company a “buy” rating on October 16.
On a price-to-FFO (funds from operations) multiple basis, most of the major apartment REITs trade in the range of 16x to 25.5x. Currently, shares of AvalonBay are trading at a price-to-FFO multiple of 23x while the average price-to-FFO multiple for apartment REITs is 19.9x.
AvalonBay trades at a higher-than-average price-to-FFO multiple for the industry due to a number of reasons. AVB has high quality assets spread across the country. An improving economy and a firming jobs market is likely to boost the demand for rental apartment units. AvalonBay is expected to be the major beneficiary of this trend. However, a rising level of new apartment supply in its core market and declining occupancy levels are major concerns for the company. Thus, the current valuation of AvalonBay appears to be reasonable.
Other major apartment REITs like Equity Residential (EQR), Essex Property Trust (ESS), and UDR (UDR) are trading at a price-to-FFO multiple of 23.6x, 25.5x, and 21.6x, respectively. The iShares Cohen & Steers REIT ETF (ICF) invests 5.7% of its portfolio in AvalonBay.