Invitation Homes Inc. (INVH) in Dallas, Tex., is a real estate investment trust (REIT) that conducts its operations through Invitation Homes Operating Partnership LP. The company operates by acquiring, renovating, leasing, and operating single-family homes. Its business activity includes property operations, marketing and leasing, digital marketing initiatives and branding, resident relations and property maintenance, and investment and asset management.
REITs own, operate, or finance real estate and generate rental income. By regulatory structure, REITs are required to pay out most of their profits as dividends. So, they offer a steady income stream. Investing in REITs can be an excellent strategy to hedge one’s portfolio against the current market volatility. In addition, real estate rents and property values increase during inflationary conditions, which helps REITs increase their dividends. With inflation at a multi-decade high, investing in REITs could help investors hedge their portfolios against the inflationary pressure also.
INVH has declined 7.7% year-to-date, while it has gained 27.8% in price over the past year to close the last trading session at $41.83. It is currently trading 8.6% below its 52-week high of $45.80, which it hit on Dec. 31, 2021.
Here is what could influence INVH’s performance in the coming months:
Robust Financials
INVH’s total revenues increased 12% year-over-year to $520.22 million for the fourth quarter, ended Dec. 31, 2021. The company’s net income increased 5.2% year-over-year to $74.87 million. Also, its adjusted FFO increased 28% year-over-year to $198.44 million. In addition, its adjusted EBITDA increased 14.4% year-over-year to $307.90 million.
Favorable Analyst Estimates
Analysts expect INVH’s revenues to grow 10.9% in its fiscal year 2022 and 8.4% in its fiscal 2023. Its EPS for its fiscal year 2022 and 2023 is expected to grow 33.3% and 15% year-over-year, respectively.
Stretched Valuation
In terms of forward non-GAAP P/E, INVH’s 76.05x is higher than the 42.25x industry average. Also, its 28.80x trailing-12-month EV/EBITDA is 31.1% higher than the 21.97x industry average.
Low Profitability
In terms of trailing-12-month AFFO/total revenue, INVH’s 38.99% is 7.7% lower than the 42.28% industry average. And its 0.11% trailing-12-month asset turnover ratio is 8.9% lower than the 0.12% industry average.
POWR Ratings Reflect Uncertainty
INVH has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. INVH has a C grade for Stability, which is in sync with its 0.93 beta.
It has a D grade for Value, which is consistent with its 2.57x trailing-12-month P/B, which is 31.1% higher than the 1.96x industry average.
Furthermore, INVH’s 61.02% trailing-12-month gross profit margin is 9.7% lower than the 67.63% industry average, justifying its D-grade for Quality.
Among the 25 stocks in the D-rated REITs - Residential industry, INVH is ranked #19.
Beyond what I have stated above, view INVH’s ratings for Growth, Momentum, and Sentiment here.
Bottom Line
Despite its robust financials and analysts’ optimism over its revenue and earnings growth, INVH’s lower-than-industry profitability and stretched valuation make its near-term prospects uncertain. Thus, we think it could be wise to wait for a better entry point in the stock.
How Does Invitation Homes Inc. (INVH) Stack Up Against its Peers?
INVH has an overall POWR Rating of C, which equates to a Neutral rating. Therefore, one might want to consider investing in other REITs - Residential stocks with a B (Buy) rating, such as Daiwa House Industry Co., Ltd. (DWAHY).
INVH shares were trading at $41.85 per share on Thursday morning, up $0.02 (+0.05%). Year-to-date, INVH has declined -7.21%, versus a -6.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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