On Thursday, Morgan Stanley (NYSE:MS) adjusted its stance on Vornado Realty Trust (NYSE:VNO) stock, shifting the rating from Underweight to Equalweight and increasing the price target to $26.00, up from the previous $24.00. The firm recognized Vornado's comparative underperformance over the last two years, with a notable decline of 36% against its peers, SL Green Realty (NYSE:SLG)'s 22% and the broader REIT sector's 10% downturn.
The upgrade comes after a period of challenges for Vornado, including decreased occupancy rates and rising interest costs that resulted in a substantial drop in core funds from operations (FFO), estimated at 17% and 10% for 2023 and 2024, respectively. Morgan Stanley notes several factors that now position Vornado for potential growth.
Firstly, the New York market, where Vornado primarily operates, is showing stronger leasing and occupancy rates compared to the West Coast and the Sun Belt. This trend is expected to help Vornado maintain its occupancy levels.
Secondly, the completion of Vornado's PENN 1 and PENN 2 developments is anticipated to be a significant boost to FFO growth in the years 2025 and 2026, with projections indicating a 6% increase, which is considered leading amongst its peers.
Additionally, the analyst highlighted the recovery of Vornado's retail portfolio, which constitutes 16% of its net operating income (NOI). The portfolio is expected to see positive re-leasing spreads of about 30% in 2024, contrasting with the office portfolio's flat performance.
Lastly, there is potential for Vornado to benefit from the strategic sale of assets and the ability to raise debt on unencumbered assets, which could help in reducing leverage and enhancing liquidity.
InvestingPro Insights
Morgan Stanley's recent upgrade of Vornado Realty Trust (NYSE:VNO) to Equalweight with a revised price target of $26.00 aligns with some of the real-time data from InvestingPro. Currently, VNO is trading at a high earnings multiple with a P/E Ratio of 119.6, reflecting a market that may have high expectations for future earnings growth. This is particularly noteworthy as analysts do not anticipate the company to be profitable this year, which could be a point of concern for potential investors.
From a financial health perspective, VNO has maintained dividend payments for 34 consecutive years, showcasing a commitment to returning value to shareholders. The company's liquid assets also exceed its short-term obligations, indicating a solid liquidity position. In terms of performance, VNO has seen a high return over the last year, with a 95.81% price total return, which may capture the attention of those looking for strong historical performers.
InvestingPro Tips highlight two additional points: VNO's net income is expected to drop this year, and the stock price movements have been quite volatile. Investors might want to consider these factors when evaluating the potential risks associated with VNO.
For those who wish to delve deeper into VNO's financial analytics and future projections, InvestingPro offers additional tips and insights. There are currently 5 more InvestingPro Tips available for Vornado Realty Trust, which can be accessed by visiting https://www.investing.com/pro/VNO. To enrich your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription on InvestingPro.
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