On Thursday, RBC Capital revised its price target for American Homes 4 Rent (NYSE:AMH), reducing it to $41 from the previous $42, while maintaining an Outperform rating on the stock. The adjustment follows the company's recent earnings call, where a notable decrease in occupancy and new lease spreads since the peak leasing season through October was disclosed, impacting investor sentiment towards the stock.
According to RBC Capital, despite the decline in these metrics, American Homes 4 Rent's renewal spreads have remained stable, a contrast to what has been observed with some other companies in the industry. The firm noted that for investor confidence to return, there needs to be evidence of stabilization in both occupancy and lease spreads.
The company, on a more positive note, has completed a significant acquisition, which RBC Capital believes has the potential for attractive yield upside. This development is seen as a positive move for American Homes 4 Rent, despite the slight downward adjustment in the firm's estimates, which are now 1% lower.
The analyst from RBC Capital highlighted that while the initial impression of American Homes 4 Rent's results was unremarkable, the details revealed on the earnings call have had a clear effect on the company's stock performance. The firm emphasizes the need for investors to see signs of stability in the company's occupancy and lease spreads to regain comfort with the stock.
As the market processes this new information, American Homes 4 Rent continues to navigate the post-peak leasing season landscape, with its stock performance and investor outlook being closely watched by industry observers and stakeholders.
In other recent news, American Homes 4 Rent showcased an 8.5% year-over-year increase in core Funds From Operations (FFO) per share for the second quarter, raising its full-year core FFO per share outlook to $1.76, indicating a projected 6% growth.
The company is also in negotiations to acquire a portfolio of 1,700 homes from Man Group, a move that Scotiabank believes could boost the company's FFOPS by approximately 1% by 2025. This potential acquisition aligns with American Homes 4 Rent's strategic focus on external growth and its development pipeline.
The company's shares have been upgraded to Overweight by Wells Fargo, and the firm also raised the price target for the company's shares to $42.00, up from the previous target of $36.00. Both Scotiabank and RBC Capital Markets have reaffirmed their positive outlooks on the company, with Scotiabank maintaining a Sector Outperform rating and RBC Capital Markets raising its price target to $42.00.
In addition to these developments, American Homes 4 Rent has issued a 10-year unsecured bond and closed a new $1.25 billion revolving credit facility, contributing to a stronger balance sheet. The company is leveraging the high demand for single-family rentals by enhancing the resident experience and expanding its housing stock through its development program.
Despite some supply pressure from new built-to-rent developments in the Phoenix market, the company expects continued strong demand for single-family rentals, backed by housing undersupply.
InvestingPro Insights
To complement RBC Capital's analysis of American Homes 4 Rent (NYSE:AMH), recent data from InvestingPro offers additional perspective on the company's financial health and market position. Despite the challenges in occupancy and new lease spreads noted by RBC, AMH has demonstrated resilience in certain areas.
InvestingPro data shows that AMH has a market capitalization of $15.34 billion, reflecting its significant presence in the real estate sector. The company's revenue growth of 6.57% over the last twelve months indicates continued expansion, aligning with RBC's positive view on the recent acquisition's potential for yield upside.
Two key InvestingPro Tips are particularly relevant to the current situation:
1. AMH has raised its dividend for 3 consecutive years, which may provide some reassurance to investors during this period of market uncertainty.
2. The company's liquid assets exceed short-term obligations, suggesting a strong financial position that could help weather temporary market challenges.
These insights, along with 4 additional tips available on InvestingPro, offer a more comprehensive view of AMH's financial standing. The company's ability to maintain dividend growth and manage its liquidity effectively could be crucial factors as it works to stabilize occupancy and lease spreads, as highlighted in RBC Capital's report.
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