Why Easterly Government Properties Stock Topped the Market Today

Source The Motley Fool

While Easterly Government Properties (NYSE: DEA) had no proprietary news to report as the trading week kicked off, it was bolstered by an analyst's move. With that at its back, the specialty real estate investment trust's (REIT) shares were pushed more than 3% higher in price on Monday. That percentage was well above the 0.8% gain posted by the S&P 500 index.

Recommendation upgrade

Easterly is an outlier among REITs, as its focus is on commercial properties leased to agencies of the U.S. government. Given the federal authorities' scale and scope, this is more than sufficient for a large-scale business.

Analyst Peter Abramowitz of Jefferies thinks this profile is now potentially quite the winner. In an update published Monday, Abramowitz upgraded Easterly stock to buy; previously, he tagged it as a hold. Accompanying this was a modest but meaningful price target hike to $15 per share from $13.

In his note, he acknowledged that the company had struggled to grow its earnings at compelling rates -- in fact, the REIT saw a notable drop in annual profitability last year, with headline net income tumbling to slightly over $18 million from the 2022 profit of nearly $31 million. Yet he believes that declining interest rates and client demand will drive the company's fundamentals higher.

Lower rates a boon for all

In his research note, Abramowitz wrote that it "could bring renewed interest/multiple expansion; at a more than 20% discount to historical average price-to-funds from operations." Funds from operations (FFO) is widely considered to be the most important profitability metric for REITs.

Lower interest rates are a boon for any company in the real estate sphere, including REITs. Abramowitz's new thesis on Easterly is entirely plausible on that basis alone.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool recommends Easterly Government Properties. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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