Mizuho Securities Starts Spirit Realty Capital (SRC) at Buy
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Mizuho Securities initiates coverage on Spirit Realty Capital (NYSE: SRC) with a Buy rating and a price target of $14.50.
Analyst Haendel St. Juste commented, "We are initiating coverage of Spirit Realty (SRC) with a Buy rating and a $14.50 price target. We think SRC has made considerable progress over the past year improving its balance sheet and addressing select tenant risks (i.e., Haggen, Shopko). Further, we think SRC offers an improving growth profile over the next couple of years, fueled by an expected pick up in acquisition activity. Despite this, SRC trades at a significant discount to peers (namely O and STOR) and trades in the vicinity of VER, despite its superior earnings and risk profile vs VER. To be fair, SRC’s shorter operating history and its recent Haggen and ShopKo experiences still weigh on investors’ perception of management asset underwriting acumen and there are concerns regarding SRC’s 84 Lumber put option (minor issue, in our view). That said, we feel the current relative valuation gap (400+bps AFFO multiple gap to triple net sector, for instance) more than compensates for these perceived risks. Lastly, as with the other triple net names under coverage, we see potential risk to valuation on a potential hike in rates (not likely near-term), if the market returns to a ‘risk-on’ stance (and capital flows away to other cheaper, “riskier” sectors) or if earnings (i.e., acquisitions) disappoint."
Shares of Spirit Realty Capital closed at $12.35 yesterday.
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