On Tuesday, Truist Securities adjusted its outlook on Vornado Realty Trust (NYSE:VNO), a real estate investment trust specializing in office buildings and street retail in Manhattan. The firm increased the price target on the company's shares to $40.00, up from the previous $31.00, while maintaining a Hold rating on the stock. Currently trading at $42.61 with a market capitalization of $8.82 billion, Vornado has shown remarkable momentum, according to InvestingPro data.
The revision of the price target comes as the analyst at Truist Securities recognizes a change in sentiment towards the New York office market. The analyst noted optimism around leasing prospects, particularly for PENN 2, one of Vornado's significant development projects. This optimism has led to a reassessment of the stock's value, reflected in its impressive 76.5% price return over the past six months.
Despite the increase in the price target, the analyst believes that Vornado Realty Trust is currently fairly valued. The company has seen the largest normalized funds from operations per share (FFOps) decline among its peers since 2019, before the pandemic struck.
However, its stock performance has been in line with the market, which has resulted in Vornado trading at its highest FFO multiple in over eight years. Notably, the company has maintained dividend payments for 34 consecutive years, currently offering a 2.81% yield.
Truist Securities predicts robust growth for Vornado in the near term. Nonetheless, even with this anticipated growth, the firm's projections show that Vornado's funds from operations (FFO) and funds available for distribution (FAD) multiples for the year 2027 are the highest within the office real estate investment trust (REIT) sector that Truist covers.
This high valuation multiple reflects the market's expectations for the company's future earnings and cash flow potential. InvestingPro analysis suggests the stock is currently overvalued, with additional insights available in the comprehensive Pro Research Report covering this and 1,400+ other US equities.
In other recent news, Vornado Realty Trust experienced a mixed third quarter, marked by a decrease in funds from operations (FFO) per share to $0.52, down from $0.66 in the previous year. This decline is attributed to lower net operating income due to tenant move-outs and increased interest expenses. Despite a dip in occupancy rates, the company reported leasing 2.5 million square feet year-to-date and maintains a strong liquidity position of $2.6 billion.
Vornado has also secured a significant lease with NYU for 770 Broadway, which is expected to contribute towards paying off a $700 million loan. The company remains optimistic about future leasing activities, particularly in Manhattan, and the recovery of the Class A office market. The PENN DISTRICT developments have been identified as major growth drivers, with high rental rates achieved at PENN 1.
Furthermore, Vornado is planning to pivot to acquisitions and external growth in 2025, targeting distressed debt and asset purchases. The company expects significant earnings growth in 2026 as leases from the PENN District come online. However, the overall market has faced challenges due to tenant move-outs and increased interest expenses, and earnings growth for 2025 is expected to be flat as the company navigates through a transitional period.
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