We have recently upgraded our recommendation for UDR Inc. (UDR) to “Outperform” from “Neutral” as we anticipate it to perform well above the broader market.
UDR is among the best-positioned apartment REITs in the U.S., with the majority of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rent vs. own spread remains high. The housing meltdown will continue to help apartment REITs and we expect this sector to remain comparatively stable in the coming quarters.
In addition, UDR has a geographic diversification that increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of the earnings. Furthermore, UDR has continuously upgraded the overall quality of its portfolio by selling smaller market, older properties and replacing them with newer assets in better, long-term markets. This provides an upside potential for the company.
The company also has a healthy balance sheet, with adequate coverage ratios and liquidity to pay off debt as loans mature. Additionally, UDR has a huge unencumbered asset base, which provides additional flexibility to address further capital requirements.
Earnings Estimate Revisions
Estimates have moved up for UDR in the last 30 days; analysts were overtly optimistic about the current fiscal performance of the company. Let’s look into the earnings estimate details.
Agreement of Estimate Revisions
In the last 7 days, fiscal 2010 and 2011 earnings estimates have been increased by 2 analysts each. Analysts, in general, are in consensus about the future outlook for UDR’s earnings, as is visible below. About 6 analysts have increased their estimates for fiscal 2010, while only 1 has lowered in the last 30 days. For fiscal 2011, the picture is better, with 6 analysts raising earnings estimates and none lowering them.
Magnitude of Estimate Revisions
Earnings estimates increased 2 cents for fiscal 2010 from $1.08 to $1.10 since the earnings announcement. For fiscal 2011, earnings estimates have also moved up 2 cents from $1.13 to $1.15. This is encouraging news for the company.
Moving Forward
Currently, UDR shares are maintaining a Zacks #1 Rank, which translates to a short-term ‘Strong Buy’ recommendation. We also remain bullish about one of its peers, Equity Residential (EQR) and maintain a Zacks #2 Rank, which translates to a short-term ‘Buy’ recommendation. Our long-term recommendation for Equity Residential remains at ‘Neutral’ as we anticipate the stock to perform in line with the broader market.
Read the full analyst report on “UDR”
Read the full analyst report on “EQR”
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