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Janney analyst Robert Stevenson upgraded NNN REIT (NYSE:NNN) to Buy from Neutral on his thesis that the market isn’t giving enough credit to the retail-focused triple-net REIT’s solid growth, soon to be 34 straight years of dividend increases, and strong balance sheet.
In addition, the REIT is poised to outperform as interest rate hikes wane.
“We believe that NNN’s valuation remains too cheap, given its track record,” the analyst wrote in a note to clients. He points out that the company’s portfolio hasn’t fallen below 96.4% over the last 20 years. Also, it has outperformed the REIT total return averages “over most time periods in this century.”
NNN’s (NNN) internal growth rate typically averages about 1.5%, with the REIT turning to acquisitions to drive overall earnings growth.
At present, NNN is trading at 5.3% dividend yield and 12.9x 2023 AFFO compared with 14.3x for its peer group, Stevenson said. If it traded at the average 2023 AFFOPS multiple of its retail-focused triple-net REIT peer group, the stock would be trading 11% higher, he added.
“Additionally, the stock’s current implied 6.9% cap rate (based on $41.80 stock price) remains inexpensive within the retail-focused triple-net REIT universe,” he said.
NNN REIT (NNN) stock gained 0.4% in Wednesday premarket trading.
Stevenson’s Buy rating compares with the average SA analyst rating and the average Wall Street rating, both at Buy, while the SA Quant rating stands at Strong Buy.