4/9/2019
Realty Income Corp (NYSE: O)
Let's face it, as an individual investor buying real estate and then managing it is time-consuming and annoying. You're going to end up paying a management company or spending a lot of your time, and if you're going to hire someone to manage it for you, why not just farm the whole thing out? Is it worth the loss of tangibly owning the land and buildings yourself? Let's take a look.
Price at write-up $71.57
Indexes (30, 180 day looks)
VIX: 12.82 (16, 20)
TED: 24.98 (18, 43)
S&P500: 2893 (5.46%, 12.37)
Valuation Ratios
Target:
Much of the strength of this stock is priced in, that's the biggest issue. Everyone is looking for consistent, downturn resistant, returns, especially with regular dividends and while the stock price previously correlated with the S&P500 it diverged in October of last year with 10.96 points of Alpha. They missed quarterly earnings, but who cares? The market, also with the Fed getting packed you should expect this stock to fall by 24% this year according to Goldman. But this industry is cyclical and dependant upon the underlying economy, who's going to rent your strip mall when the economy is contracting? And what about your interest rates, coupled with the general circumstance of cheap leverage real estate prices are at another all-time high translates to poor prospects compared to having a lot of cash in a high-interest rate environment.
Much of Realty Income's tenants are resistant to economic downturns such as Walgreens (6.3% of rental revenue, 12.4% total in convenience stores), FedEx, and 95% in service-oriented, non-discretionary, or low price point businesses.
Insiders are selling, mostly in the $60 range. Fair value is probably around $64.
My Thoughts
O is overvalued. I'd look to pick this up below $60 ($57 is 20% off) and would be pleased to pick it up below $55 (24% off) - it was $52 in March of 2018 and I'll consider selling puts in that range. This stock does well as the market does well, it's not exactly what I'm looking for at the moment.
Realty Income Corp (NYSE: O)
Let's face it, as an individual investor buying real estate and then managing it is time-consuming and annoying. You're going to end up paying a management company or spending a lot of your time, and if you're going to hire someone to manage it for you, why not just farm the whole thing out? Is it worth the loss of tangibly owning the land and buildings yourself? Let's take a look.
Price at write-up $71.57
Indexes (30, 180 day looks)
VIX: 12.82 (16, 20)
TED: 24.98 (18, 43)
S&P500: 2893 (5.46%, 12.37)
Valuation Ratios
| Price/Earnings (TTM) | 57.36 |
| Price/Sales (TTM) | x16.47 |
| Earnings per share | 1.26 |
| Price/Book (MRQ) | x2.7 |
| Price/Cash Flow (TTM) | x24.19 |
| Held by institutions | 71.48% |
| Short interest | 4.31% |
| Dividend | 3.77% |
| MarketCap | $21.7B |
| Beta | 0.2 |
Target:
Much of the strength of this stock is priced in, that's the biggest issue. Everyone is looking for consistent, downturn resistant, returns, especially with regular dividends and while the stock price previously correlated with the S&P500 it diverged in October of last year with 10.96 points of Alpha. They missed quarterly earnings, but who cares? The market, also with the Fed getting packed you should expect this stock to fall by 24% this year according to Goldman. But this industry is cyclical and dependant upon the underlying economy, who's going to rent your strip mall when the economy is contracting? And what about your interest rates, coupled with the general circumstance of cheap leverage real estate prices are at another all-time high translates to poor prospects compared to having a lot of cash in a high-interest rate environment.
Much of Realty Income's tenants are resistant to economic downturns such as Walgreens (6.3% of rental revenue, 12.4% total in convenience stores), FedEx, and 95% in service-oriented, non-discretionary, or low price point businesses.
Insiders are selling, mostly in the $60 range. Fair value is probably around $64.
My Thoughts
O is overvalued. I'd look to pick this up below $60 ($57 is 20% off) and would be pleased to pick it up below $55 (24% off) - it was $52 in March of 2018 and I'll consider selling puts in that range. This stock does well as the market does well, it's not exactly what I'm looking for at the moment.
Risks
Goldman expects O to fall by 20% or more this year.
E-commerce competes with most tenants, directly and indirectly. To the extent that the competition competes indirectly there is a margin of sustainability.
At 98% occupancy currently, the highest in the past 5 years.
Conclusion
January 17, 2020: $60 put is selling for $1.30 with a lot of interest (793 contracts) - would be worth it closer to $3. $50 & $52.50 are selling for ~$0.55 with nearly double that interest (651 and 670 respectively) - not that bad. But otherwise, nah.
Due Diligence - REG, BRX, NNN, SPG
Goldman expects O to fall by 20% or more this year.
E-commerce competes with most tenants, directly and indirectly. To the extent that the competition competes indirectly there is a margin of sustainability.
At 98% occupancy currently, the highest in the past 5 years.
Conclusion
January 17, 2020: $60 put is selling for $1.30 with a lot of interest (793 contracts) - would be worth it closer to $3. $50 & $52.50 are selling for ~$0.55 with nearly double that interest (651 and 670 respectively) - not that bad. But otherwise, nah.
Due Diligence - REG, BRX, NNN, SPG
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