One of Our Top Real Estate Stocks Is Getting A New Price Target

October 28, 2022
Investing Strategies Real Estate

Invitation homes just recently hit our price target! After crossing our $40 target, we went back to the drawing board to see if the stock warranted a new update. We’re excited to jump into our findings below:

 

Background on Invitation Homes:

For those of you unfamiliar with Invitation Homes, Invitation Homes is the owner of the largest single-family rental real estate investment trust portfolio of over 80,000 single family rental homes. The company focuses on owning homes in the starter and move-up segments of the housing market with an average sale price below $300,000 and its properties are generally less than 1,800 square feet. The portfolio is geographically diversified across 16 target markets that feature high employment and household formation growth with roughly 70% of the portfolio in the Western U.S. and Florida. More specifically, of the 16 U.S. markets, approximately 37% of their homes are in the western United States, 31% in Florida, and 22% in other Southeastern markets.

Invitation Homes Update:

The core business of Invitation Homes has not changed much since the last time we wrote about them but they’ve been receiving strong growth via recent new tailwinds coming their way. When looking at their most recent financials, we see new growth that is compounding faster than we originally anticipated. This is truly exciting and speaks to the growth opportunity that they have in front of them. The biggest updates that are causing this increase in growth and ultimately our price target are:

  • Their blended lease growth grew to 11% in August of 2021. When comparing this to historical numbers we see that their growth was 9.9% in July of this year, 8% in the second quarter of this year and 4.1% in August of last year. Using all of these different time periods, we can see that their current growth now signals that they still have a much larger opportunity ahead of them. This is extremely encouraging and allows us to update our projections on their growth rate going forward, thus making their projected market cap, higher on later this year!
  • The company received $19 million in rental assistance payments last year and this year. Because they’re going after many individuals who are young and will likely rent, getting these individuals to seek out government programs, greatly improves their cash flow. The company has already helped thousands of residents apply for these government programs and will continue to do so for the remainder of the year. Their commitment towards solving the root cause of the issue, is helping them shine above the pack.
  • Federal Trade Commission (FTC) Tailwinds: While the above two factors are extremely important, this last one is what we believe the market is totally missing. Invitation Homes recently told investors that they received correspondence from the FTC requesting information as to how they’ve handled their business during the pandemic. This is because the White House has made it a stated mission to support more affordable housing given the rapid rise in home prices over the last year. If the government ends up stepping in and giving them exclusive access or preferential treatment, this could be a major competitive advantage for them over the longer term. While this will likely take time to play out, this could end up being the catalyst needed for them to sky rocket in price over the next year or two. We are watching closely for any updates here and will inform you once any news is broken!

 

Invitation Homes Projections:

As we mentioned last time, Invitation Homes is in a unique position to capture the mass move of the younger demographic across the country into new desirable locations. However, this “capturing” is now significantly faster than we originally anticipated and their growth is beating everyone’s expectations. Due to this, we’ve updated our financial model to reflect the newfound growth against their competitors. When looking at their current valuation, we feel that an increased price target of ~15% is justified over the remainder of the year. We will continue to keep you all updated of any new changes. This is a stock that we will likely continue to hold until (at the very earliest) the end of next year.

 


 

Price Target: $55 (20% upside)

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