KeyBanc Downgrades EastGroup Properties (EGP) to Underweight

KeyBanc downgraded EastGroup Properties (NYSE: EGP) from Hold to Underweight with a price target of $55.00. Analyst Craig Mailman is cautious on the market in Texas.

"As part of our outlook into next year, we maintain our MARKET WEIGHT weighting on the Industrial REIT vertical, though reduce our rating on EGP from Hold to UNDERWEIGHT ($55PT). The group has outperformed 4Q YTD, reversing some of the gap vs. the RMZ through the first 3 quarters of the year; we believe the recent run has generally left the space fairly valued in light of our outlook for fundamentals into ’15, which should remain solid, though could see some regional dislocation due to ramping supply, e.g., TX, where greater supply could be further exacerbated by the recent fall in crude prices. In that vein, we are more cautious on EGP given its outsized exposure to TX and a full valuation at current levels."

"While we see overall levels of new supply as contained over the coming periods, there are several markets where new deliveries are expected to exceed historical avg. through ’16 (highlighted by the Dallas/FW and Houston markets). In the TX market, this supply outlook meets with added uncertainty stemming from the recent decline in crude; TX’s energy focus extends across the local economy," continued the analyst.

"Our call on EGP is predicated on the Company’s exposure to TX, which has the largest concentration of NOI across the state among the Industrial REITs (~36%), and its valuation, which on an absolute basis appears rather full (12.2% NAV premium, 5.7% implied cap. rate)," he added.

For an analyst ratings summary and ratings history on EastGroup Properties click here. For more ratings news on EastGroup Properties click here.

Shares of EastGroup Properties closed at $64.55 yesterday.

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