Scotiabank upgrades Netstreit shares to Sector Outperform on positive outlook By Investing.com

On Monday, shares of Netstreit Corp. (NYSE: NTST) was upgraded by Scotiabank, with the bank changing its rating from Sector Perform to Sector Outperform. Accompanying this upgrade, the price target for the stock was also raised from $16.00 to $18.00.

Scotiabank’s decision is based on a positive outlook that highlights an attractive risk-reward profile for investors. The bank expects Netstreit to deliver above-average multi-year earnings growth compared to its peers in the Net Lease Real Estate Investment Trusts (REITs) sector.

The bank’s analysts forecast a two-year compound annual growth rate (CAGR) for adjusted funds from operations per share (AFFOPS) of 4.5% from 2024E to 2026E. This growth rate is slightly above the weighted average of 4.2% for the peer group.

In addition to the growth expectations, Netstreit’s current trading valuation was rated as attractive. The stock trades at a discount of -1.0x to the next 12-month price-to-AFFOPS ratio, which compares favorably to the peer group’s average premium of +1.3x over the last three years.

Scotiabank also highlighted Netstreit’s solid investment grade exposure of 61%. This level of exposure indicates strong credit quality of the assets in the company’s portfolio, potentially providing a level of financial stability and reducing investment risk.

In other recent news, NETSTREIT Corp. reported mixed results for the third quarter of 2024, with a net loss of $5.3 million but also a 3% year-over-year increase in core funds from operations (core FFO) to $24.9 million.

Despite the net loss, the company is sticking to one of its forecasts for the year. Gross capital expenditures for the quarter reached a record $152 million, and the company declared a quarterly cash dividend of $0.21 per share. In addition, NETSTREIT plans to maintain a profitable acquisition margin and reduce tenant concentrations below 5%.

The company’s portfolio, consisting of 671 leased properties, generated over 75% of Turkey’s base rent from investment grade tenants. The Company’s strategic focus on sale-leaseback transactions has resulted in an extended weighted average lease term and a diversified tenant base. NETSTREIT also confirmed that Big Lots’ rental payments are expected to resume in January 2024.

Given concerns about the impact of lower reimbursement rates on pharmacies and profitability challenges for tenants such as pharmacies, NETSTREIT remains vigilant on tenant performance. The company also expressed confidence in the long-term productivity of its assets.

InvestingPro Insights

Adding to Scotiabank’s positive outlook for Netstreit Corp. (NYSE: NTST), recent data from InvestingPro provides further insights into the company’s financial position and growth prospects.

InvestingPro data shows that Netstreit’s revenue growth remains strong with an increase of 26.69% in the trailing twelve months through the third quarter of 2024. This is consistent with Scotiabank’s forecast for above-average earnings growth. The company’s gross margin is 88.37%, indicating efficient operations and potentially supporting expected AFFOPS growth.

Two key InvestingPro tips support the optimistic view: First, analysts expect Netstreit’s revenue to grow this year, which Scotiabank’s growth forecasts have confirmed. Second, the company’s cash and cash equivalents exceed its short-term obligations, indicating a solid financial foundation that could support future growth initiatives.

It’s worth noting that Netstreit offers a 5.2% dividend yield, which could be attractive to income-focused investors. However, the company’s profitability metrics show a mixed picture, with a negative return on assets of -0.23% over the last twelve months.

For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Netstreit Corp. that provide a deeper understanding of the company’s financial health and market position.

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