Tricon Residential Stock: Play the U.S. Housing Shortage and Soaring Rentals

Currently, the U.S. housing market is very tight with a shortage of homes, which leads to higher home prices and spiraling rentals. According to the New York Post, a whopping 61 percent of renters across the biggest metropolitan areas in the U.S. are priced out of buying their own homes. Amid this background, some big companies are out to gain a lot, particularly the ones that have bought a lot of residential real estate for rentals. Tricon Residential is one of those companies. What is Tricon Residential's stock forecast?

Tricon Residential is a Canadian real estate company that invests in single-family rental and multi-family rental homes. It has become one of the largest owners of single-family homes in the U.S. Single-family rental was a top-performing REIT sector in 2021. The company owns about 30,000 single-family rental homes across the U.S.

When the 2008 Great Financial Crisis brought the housing market to a standstill, the investment in housing went down. Even though the economy recovered, the housing sector didn’t and not enough houses were built. This has been causing a housing shortage, which led to spiking rent and home prices. According to the government, we're about 4 million homes short in the U.S. alone and that number has been growing, especially since the COVID-19 pandemic.

According to Zillow forecasts, demographic trends will push home prices higher for the rest of the decade. This is especially true for the Sun Belt (a region comprising of 15 southern states in the U.S. from Virginia and Florida in the southeast to Nevada in the southwest). While Zillow expects the housing market to remain hot overall, it sees Tampa, Jacksonville, Raleigh, San Antonio, and Charlotte as the top-five hottest markets in 2022.

One of the major beneficiaries of this trend could be Tricon Residential, which owns about 30,000 single-family rental homes across the U.S., largely in the Sun Belt. The company’s results for the fourth quarter of 2021 confirmed the market’s thesis that it's growing even bigger in these markets. Tricon acquired more than 2,000 family rentals during the fourth quarter in the top 10 hot housing markets (as rated by Zillow).

Tricon’s fourth-quarter results also underlined its focus on growth as it aims to hit a property count of 50,000 by 2024. These tailwinds have been encouraging investors and the company’s stock hit a new 52-week high of $16.49 on March 17.

Tricon Residential is tracked by eight analysts, all of whom have a “buy” rating for the stock. The consensus target price of $17.7 implies a potential upside of nearly 40 percent for the stock.

While the stock has run up a lot lately as its fundamentals and outlook became clearer to investors, it could still be a good bet for long-term investors. The demographics that are playing on housing shortage and high rentals are expected to stay for years to come and Tricon seems set to capitalize on this trend. The company’s profit growth history only strengthens the case to own the stock.