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Realty Income (NYSE: O) stock price continued slipping on Tuesday after Bank of America downgraded the highly popular REIT. The shares plunged to a low of $49.25, a few points above the year-to-date low of $48.26. It has dropped by more than 25% from the highest level this year and by 30% from last year’s high.

Bank of America downgrades O stock

Analysts at Bank of America believe that net lease REITs will go through a major challenge as interest rates remain at an elevated level. In a note, the analyst argued that the rapid cost of capital adjustment will be a major headwind in 2024.

The other challenges are higher bad debt in the industry, mark-to-market on the interest rate of the line of credit, and the need for equity. The analyst also slashed the outlook for other net lease companies like NetSTREIT and Spirit Realty. 

Realty Income, like other companies in the industry, has faced numerous challenges as interest rates surge. The Federal Reserve has hiked interest rates from 0% in 2022 to between 5.25% and 5.50%. It has hinted that it will deliver another 0.25% hike this year.

The most recent results showed that Realty Income’s net income was $195.41 million or 29 cents per share. Its normalised funds from operations (FFO) was $688.3 million. It also boosted its balance sheet by selling $2.2 billion in common stock.

Therefore, the question among most investors is whether to invest in Realty Income or buy safe assets like money market funds (MMF). For one, Realty Income has a dividend yield of more than 6% while money market funds and certificates for deposit (CDs) have a yield of almost 6%.

I believe that more people will opt to invest in safe assets like money market funds and short-term government bonds. 

Realty Income stock price forecast

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The daily chart shows that the Realty Income share price has been in a strong bearish trend in the past few months. It has crashed below the important support at $57, the lowest point on March 23rd and May 26th. The stock also fell below the support at $52.74, the lowest level in October 22nd. 

Realty Income share price has crashed below the 50-day and 100-day moving averages and the descending trendline. It has also formed a bearish flag pattern. Therefore, the stock will likely continue plunging as sellers target the key support at $40.

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