I am neutral on Realty Income (O) as it has a strong competitive position, Wall Street analysts are generally bullish on it, and the average price target implies decent upside. However, the stock looks only fairly valued based on its historical valuation multiples.
Realty Income is a real estate investment trust company that was formed in 1969 and is currently headquartered in San Diego, California in the United States. The company invests in single-tenant, free standing commercial properties that are located in the U.S., U.K., Puerto Rico, and Spain.
Commercial properties that are subjected to long-term net lease agreements come under the company’s diversified portfolio. Currently, the company has invested in such properties across 50 states and has leased them to about 650 clients from 60 or more separate industries. The company maintains a total of approximately 11,000 properties.
Strengths
Realty Income has created a stable revenue stream with its investments in a diversified portfolio. The company has also created a robust list of clients, getting customers like FedEx and Walgreens on board.
Its automation has also brought consistency into its operations, making it easier for Realty Income to scale up or down according to the external factors involved.
According to a 2019 report, the company had a total of 194 employees with high-level skills and expertise in the industry. With the vast revenue streams, network of clients, and a strong brand presence, Realty Income has various opportunities to enter new markets and succeed with its superior go-to-market strategies.
Recent Results
In Q3 of 2021, Realty Income had total revenue of $491.9 million, which was greater than the previous year’s third-quarter results that led to revenues totaling $404.6 million.
Its net income for the quarter also jumped to a staggering number reaching $135.3 million, compared to Q3 2020 results that showed a net income of $23.1 million.
The basic and diluted net income per common share increased from $0.07 in Q3 2020 to $0.34 in Q3 2021.
Valuation Metrics
O stock looks fairly valued here as it trades roughly in line with its historical valuation multiple average on a price-to-adjusted funds from operation (AFFO) basis and EV/EBITDA basis.
Its EV/EBITDA ratio is 18.2 compared to its historical average of 19.6, and its price-to-AFFO ratio is 17.31 compared to its historical average of 17.23 times.
Moving forward, analysts expect EBITDA to increase by 59.1% and AFFO per share to increase by 9.4% over the next 12 months.
Wall Street’s Take
According to Wall Street analysts, O earns a Moderate Buy analyst consensus based on five Buy ratings, four Hold ratings, and zero Sell ratings in the past three months. Additionally, the average O price target of $76.25 puts the upside potential at 17.9%.
Summary and Conclusions
O stock is backed by a portfolio of high-quality triple net lease properties and has a long and storied history of growing its dividend and compounding shareholder wealth year after year.
Known as “The Monthly Dividend Company,” countless investors count on it for a monthly income stream.
On top of that, analysts are generally bullish on the company, the average price target implies decent upside potential, and the share price is in line with historical averages.
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