On Wednesday, American Homes 4 Rent (NYSE:) was affirmed by Scotiabank with a Sector Outperform rating and a price target of $42.00. The affirmation follows reports that the real estate investment trust is close to acquiring a portfolio of 1,700 homes from Man Group located in key markets such as Florida, Texas and Nevada.
Scotiabank forecasts the acquisition could increase American Homes 4 Rent’s funds from operations per share (FFOPS) by approximately 1% by 2025. This estimate is based on the average portfolio rent of $2,100 and other underlying assumptions. The company has been predominantly focused on its development pipeline, but the potential acquisition was viewed as attractive enough in terms of value and geographic fit to pursue.
The deal, which has not yet been completed, is expected to complement American Homes 4 Rent’s strategic focus on external growth and its development pipeline, which has consistently contributed to earnings growth. The acquisition fits the company’s market presence and is expected to add value to its portfolio.
While the market awaits more detailed information from American Homes 4 Rent on the transaction, Scotiabank’s stance reflects confidence in the company’s growth strategy. The analyst’s commentary highlights the deal’s potential to be accretive to earnings and the preference for American Homes 4 Rent within its peer group due to its sustained, development-led growth story.
In other recent news, American Homes 4 Rent showed a strong second quarter performance, reporting an 8.5% year-over-year increase in funds from operations (FFO) per share. The company raised its full-year FFO per share outlook to $1.76, reflecting forecast growth of 6%. RBC Capital Markets adjusted its outlook on the company and raised the price target to $42.00 from the previous $41.00, while maintaining an Outperform rating. The adjustment followed better-than-expected leasing spreads and the company’s revised guidance.
The company’s strategic financial actions included the issuance of a 10-year unsecured note and the closing of a new $1.25 billion revolving credit facility, which contributed to a stronger balance sheet. The company is capitalizing on the high demand for single-family rental homes by enhancing the resident experience and expanding its housing inventory through its development program.
Despite some supply pressure from new rental housing in the Phoenix market, the company expects continued strong demand for single-family rentals, supported by a housing shortage. Finally, the company has a presence in 35 markets and is focused on growth in the development market.
InvestingPro Insights
With recent backing from Scotiabank and potential acquisition to expand American Homes 4 Rent’s (NYSE:AMH) portfolio, looking at the company’s financial health and market performance provides useful context. American Homes 4 Rent has a solid track record with a market capitalization of $16.12 billion, reflecting its significant presence in the real estate investment trust sector. In addition, the company’s commitment to shareholder returns is evident, as it has increased its dividend for three consecutive years, a testament to its stable financial position and confidence in sustainable profitability.
While American Homes 4 Rent trades at a high earnings multiple, with a P/E of 40.02 and an adjusted P/E for the trailing twelve months from Q2 2024 of 70.39, this could be indicative of investors’ expectations for future growth, especially given the ongoing strategic acquisitions and development projects. In addition, the company’s gross profit margin for the same period is a healthy 55%, highlighting its ability to effectively manage costs while growing its operations.
For investors who want a more in-depth analysis, additional InvestingPro tips are available that highlight the company’s moderate debt levels and its ability to cover short-term obligations with cash. With analysts predicting profitability for the year and the stock trading near its 52-week high, American Homes 4 Rent’s financial stability appears robust. To gain more insights and tips, investors can visit InvestingPro’s dedicated page for American Homes 4 Rent at https://www.investing.com/pro/AMH.
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