On Wednesday, Raymond James made a notable adjustment to its stance on CTO Realty Group (NYSE:CTO), elevating the company's stock from an Outperform rating to a Strong Buy. Accompanying this upgrade, the firm also increased CTO Realty's price target from $22.00 to $24.00.
The revision follows a period of significant growth for CTO Realty, with the firm exceeding expectations in its recent quarterly results. The analyst highlighted CTO Realty's active third quarter, which saw accretive external growth and a substantial rise in the company's market capitalization, now exceeding $500 million. These developments are expected to expand CTO Realty's investor base and potentially pave the way for index inclusions, which could further drive demand for the stock.
CTO Realty's shares are currently trading at a multiple that is significantly lower than the average of its peers. Specifically, the shares are priced at 10 times the firm's projected adjusted funds from operations (AFFO) for 2025, which is less than the peer group's average of 19 times. The analyst from Raymond James argues that this discrepancy is not justified.
Furthermore, the stock is trading with an implied capitalization rate of 7.75%, which represents a 12% discount to its net asset value (NAV). Additionally, CTO Realty's shares offer a current yield of 7.9%. Despite the dividend not being forecasted to be covered on a funds available for distribution (FAD) basis in 2024, the analyst anticipates that it will be covered in 2025 and expects a surplus going into 2026.
The price target increase to $24 reflects the analyst's confidence in CTO Realty's continued accretive external growth and the potential for further upward revisions of estimates. The positive outlook for the company's financial performance and market position has clearly influenced Raymond James's upgraded rating and price target.
In other recent news, CTO Realty Growth has reported robust performance in the third quarter of 2024. The company's strong results were driven by significant investments, leasing activity, and strategic acquisitions. CTO Realty invested $191.3 million at a 9.5% yield, including major acquisitions in North Carolina and Florida, and achieved a leased occupancy rate of 95.8%.
Notably, the company's core Funds From Operations (FFO) per diluted share increased to $0.50, while Adjusted Funds From Operations (AFFO) per share rose to $0.51. The full-year 2024 guidance for core FFO is now $1.83-$1.87 per share, and AFFO is projected to be $1.96-$2.00 per share.
In addition, CTO Realty is targeting an additional $25 million to $75 million in acquisitions by year-end. The company also revealed plans for a structured investment portfolio expansion, which includes a $43.8 million first mortgage loan and a $10 million preferred equity investment.
Despite macroeconomic uncertainties, the management remains optimistic about future leasing and acquisition activity. These recent developments indicate a positive outlook for CTO Realty Growth as it continues to navigate the dynamic real estate market.
InvestingPro Insights
The recent upgrade by Raymond James aligns with several key metrics and insights from InvestingPro. CTO Realty Group's market capitalization stands at $575.84 million, confirming the analyst's observation of it surpassing the $500 million mark. This growth could indeed attract a broader investor base and potential index inclusions.
InvestingPro data shows that CTO's P/E ratio (adjusted) for the last twelve months as of Q3 2024 is 102.6, which is significantly higher than the current P/E ratio of 31.48. This discrepancy suggests that recent earnings have improved, potentially supporting Raymond James' optimistic outlook.
Two relevant InvestingPro Tips for CTO Realty are:
1. The company pays a significant dividend to shareholders, with a current dividend yield of 7.91% as of the latest data.
2. CTO has maintained dividend payments for 49 consecutive years, demonstrating a strong commitment to shareholder returns.
These tips reinforce the analyst's focus on CTO's attractive dividend yield of 7.9% mentioned in the article. The long history of consistent dividend payments adds credibility to the company's dividend strategy, even as the analyst anticipates future coverage improvements.
For investors seeking a deeper understanding of CTO Realty's financial health and growth prospects, InvestingPro offers 6 additional tips, providing a more comprehensive analysis to inform investment decisions.
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