On Thursday, Compass Point adjusted its share price target for Sun Communities (NYSE:SUI), a real estate investment trust specializing in manufactured housing and recreational vehicle communities. The firm increased the target to $125.00 from the previous $116.00 but chose to maintain a Neutral rating on the stock.
The adjustment reflects Compass Point's analysis of Sun Communities' financial outlook for the year 2024, anticipating a slight decrease in the company's balance sheet size while expecting earnings to remain relatively unchanged.
The firm projects a contraction in the net asset value (NAV) per share from an estimated $134 at the end of 2023 to $127 by the close of 2024, despite maintaining a constant capitalization rate of 5.8%, which matches the rate suggested by the current market valuation.
Compass Point also noted a correction in their computation of Sun Communities' quarterly core funds from operations (FFO) run rate. However, this correction did not affect the full-year estimate. The firm acknowledged the company's efforts to refine its business operations and focus on its core strengths, which could eventually provide clearer insights into the appropriate capitalization rate to apply to the property net operating income (NOI).
The price target increase to $125 is attributed to a slight expansion in the trading multiple over the past month. Compass Point recognizes the long-term potential in Sun Communities' business due to favorable supply and demand dynamics. Nonetheless, the firm suggests that economic challenges and recent asset write-downs in the UK indicate that there might be more opportune moments to invest in Sun Communities' shares in the near future.
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