Simon’s Valuation Is Unlikely to Expand Further



Analysts’ recommendations

On January 29, 2016, Simon Property Group’s (SPG) stock closed at $186.30. Currently, the company has a consensus “buy” rating with an average consensus price target of $221.65. At the current price, the stock is still trading at a discount of 15.9% to analysts’ expectations.

Among the 25 analysts following SPG stock, 20 have assigned a “buy” rating. The company received no “sell” ratings from any analysts while five brokerages have assigned a “hold” rating. Presently, Simon has a consensus “buy” rating. However, it must be noted that the analyst consensus rating on the stock was made before the release of 4Q15 earnings. It remains to be seen whether the analysts change their price target on the stock in view of the latest data.

A number of brokerage houses came out with a research report on Simon Property Group. In a research report released in November, Barclays recommended an “overweight” rating on the stock and lifted its target price from $233 to $245.

In a research note dated January 5, 2016, Deutsche Bank recommended a “buy” rating on the stock and lifted its target price to $222 from $220. In November 2015, Cowen and Company reiterated its “outperform” rating on the stock with a target price of $254.

Article continues below advertisement


On price-to-FFO multiple basis, most of the major retail REITs trade in the range of 16.9x–23.7x. Currently, shares of the Simon Property Group are trading at a price-to-FFO multiple of 19.7x while the average price-to-FFO multiple for apartment REITs is 14.8x.

The higher-than-industry-average price-to-FFO multiple for Simon Property can be attributed to the company’s high-quality diversified portfolio of assets spread across the country. In addition, the recent transaction activities and the huge redevelopment pipeline are expected to aid the company’s top-line growth. However, a decline in earnings and the weak global scenario could make it difficult for the stock to move higher.

Major apartment REITs General Growth Properties (GGP), Macerich (MAC), and Taubman Centers (TCO) are trading at a price-to-FFO multiple of 20.1x, 21.2x, and 23.7x, respectively. The iShares US Real Estate ETF (IYR) invests 7.3% of its portfolio in Simon Property Group (SPG).


More From Market Realist