Tuesday, Deutsche Bank (ETR:DBKGn) initiated coverage on Tanger Factory (NYSE:SKT) Outlet Centers (NYSE: SKT), assigning a Hold rating and setting a price target of $37.00. The stock, currently trading near its 52-week high of $37.57, has delivered an impressive 34.6% return over the past year. The analyst at the firm noted that Tanger's focus on the outlet mall sector remains relevant as value retail continues to attract consumers.
The company's ability to mark-to-market, which provides a competitive edge with a current occupancy cost of 9.5% against signings near 11%, was highlighted as a strong point for earnings potential.
Additionally, Tanger's management is recognized for its growth prospects, particularly in expanding their product offerings to include open-air centers, which complement their existing outlet mall portfolio. The company's occupancy rate, which has rebounded to 97.5%, reaching pre-pandemic levels, is seen as a potential hurdle for future growth due to the high base from which it must grow.
According to InvestingPro data, the company has demonstrated strong execution with 13.4% revenue growth in the last twelve months and has maintained dividend payments for 32 consecutive years.
Despite the positive aspects of Tanger's business, the analyst expressed concern over the company's valuation. With a price to funds from operations (P/FFO) multiple of 16.6 times, which exceeds the five-year average of 10.4 times, Tanger is perceived as being fully valued in the market.
This aligns with InvestingPro's Fair Value analysis, which indicates the stock is currently overvalued. The stock's P/E ratio stands at 40.3x, significantly above industry averages. This assessment of the company's premium valuation is a factor in the Hold rating, as the analyst suggests the stock is priced appropriately based on current financial metrics and market conditions.
The report indicates that while Tanger Factory Outlet Centers has solid fundamentals, the current market valuation reflects these strengths, leading to a neutral stance on the stock's investment potential at this time. For deeper insights into Tanger's valuation and 12 additional exclusive ProTips, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Tanger Factory Outlet Centers has been making significant strides in its financial performance and strategic initiatives. BofA Securities recently upgraded Tanger's stock from Neutral to Buy, citing the company's strong leasing performance and future funds from operations (FFO) estimates for 2025 and 2026. The firm's analyst also noted Tanger's successful leasing activities and solid balance sheet within the real estate investment trust (REIT) sector as contributing factors to the upgrade.
In addition to the upgrade, Tanger has reported a substantial increase in its core FFO during the third quarter, marking an 8% rise year-over-year. The company raised its full-year core FFO guidance to $2.09-$2.13 per share, reflecting an anticipated growth of 7% to 9%. Occupancy rates reached 97.4% with a significant 543 leases executed and a blended rent increase of 14%.
Tanger's strong balance sheet, low leverage, and a net debt to adjusted EBITDA ratio of 5 times were also highlighted by analysts. Furthermore, the company announced a 5.8% increase in the quarterly dividend. These recent developments underscore Tanger's continued growth and strategic positioning in the market.
Lastly, Tanger has been focusing on attracting a younger, more affluent demographic through diversified tenant mix and enhanced digital marketing efforts. This strategy has been fruitful, leading to a notable rise in occupancy rates and leasing activities. Despite minor occupancy declines in certain locations due to strategic tenant replacement, Tanger's overall performance signals a positive trajectory.
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