3 Retail REIT Stocks Set To Escape Pandemic-Led Industry Weakness

Zacks Industry Rank Indicates Bleak Prospects

The Zacks REIT and Equity Trust - Retail industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #198, which places it at the bottom 22% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are losing confidence in this group’s growth potential. Over the past year, the industry’s FFO per share estimate for 2021 and 2022 moved 14.5% and 2.6% south, respectively.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags on Stock Market Performance

The REIT and Equity Trust - Retail Industry has underperformed the broader Zacks Finance sector, as well as the S&P 500 composite in a year’s time.

The industry has gained 54.1% during this period compared with the S&P 500’s rally of 67.9%. During the same time frame, the broader Finance sector increased 62.6%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-FFO (funds from operations) ratio, which is a commonly used multiple for valuing Retail REITs, we see that the industry is currently trading at 16.85X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 22.54X. Moreover, the industry is trading below the Finance sector’s forward 12-month P/E of 17.45X. This is shown in the chart below.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

Over the last five years, the industry has traded as high as 19.41X, as low as 9.68X, with a median of 14.72X.

3 Retail REIT Stocks Trying to Survive the Industry Challenges

Simon Property Group: This retail REIT is a behemoth in its industry and enjoys a portfolio of premium retail assets in the United States and abroad. Amid the choppiness in the retail real estate space, the adoption of an omnichannel strategy and successful tie-ups with premium retailers have been driving the company. It is also tapping growth opportunities by assisting digital brands to enhance their brick-and-mortar presence. Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years among those who prefer to live, work and play in the same area. Moreover, with solid balance-sheet strength and available capital resources, Simon Property Group looks poised to remain afloat and bank on opportunities emanating from market dislocations.

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