Wolfe Research upgrades First Industrial Realty Trust: Can it reach $64?

On August 13, 2024, Wolfe Research upgraded First Industrial Realty Trust (FR) from Peer Perform to Outperform, setting a year-end 2025 price target of $64.

This upgrade suggests a potential 19% upside from its current trading price of around $53.89.

The upgrade highlights an improved supply outlook, anticipated earnings growth, and favorable valuation, making FR an attractive investment.

FR’s revenue rose by 7.8% year-over-year in Q2

In the second quarter of 2024, First Industrial Realty Trust reported funds from operations (FFO) of $0.66 per share, surpassing estimates by $0.02.

The company’s revenue rose by 7.8% year-over-year to $164.14 million, exceeding expectations by $0.66 million.

However, diluted net income slightly decreased to $0.39 per share from $0.41 per share a year earlier.

The company’s leasing and development activities were particularly strong during the quarter.

FR secured 1.1 million square feet of new leases for speculative developments and a 212,000-square-foot partial build-to-suit lease.

Additionally, the company initiated two new developments in South Florida and Houston, totaling 683,000 square feet, with an estimated investment of $109 million.

The company also renewed its largest 2025 lease rollover of 1.3 million square feet, achieving a 45% cash rental rate increase on leases signed to date.

Growth driven by focus on high-demand markets

First Industrial Realty Trust’s portfolio consists of 428 properties, with a focus on supply-constrained markets.

The company’s in-service occupancy rate was 95.3% at the end of Q2 2024, slightly down from 95.5% in Q1 2024, reflecting challenges in the industrial property sector due to oversupply.

FR’s growth is driven by its strategic focus on high-demand markets and robust leasing activities.

The company’s significant cash rental rate increases and its investment in new developments position it well for continued growth.

Furthermore, the company has successfully pre-leased a substantial portion of its properties under development, indicating strong demand for its industrial spaces.

Fixed-rate-oriented debt structure

First Industrial Realty Trust maintains a strong financial position with a BBB credit rating and a fixed charge coverage ratio of 4.4x.

With no debt maturities until 2026, the company enjoys financial flexibility.

Its balance sheet is further strengthened by a solid fixed-rate-oriented debt structure, protecting it from interest rate fluctuations.

FR trades at a forward-looking P/FFO multiple of 20.9x, which is lower than many of its peers.

Given the company’s growth prospects and market position, analysts believe there is potential for valuation multiple expansion, possibly reaching the 22x-23x range, offering additional upside beyond earnings growth.

The company declared a quarterly dividend of $0.37 per share, offering a forward yield of 2.7%.

While the yield may seem modest, FR’s dividend has grown at a compound annual growth rate of 8.0% from 2019 to 2023.

Looking ahead, FR’s management has raised its 2024 FFO guidance to $2.57-$2.65 per share, reflecting confidence in continued growth.

Despite a positive outlook, FR faces challenges, including potential oversupply in certain markets and the impact of high interest rates.

Maintaining high occupancy rates and successfully executing its development plans will be crucial to sustaining its growth trajectory.

However, with a strong focus on high-demand markets and effective management strategies, FR is well-positioned for future success.

Now, let’s analyze the stock’s price trajectory and see if technical indicators align with this optimistic outlook.

Fresh uptrend can lead to new highs

FR’s stock made a double top above $65 in early 2022 and has been in a downtrend since then.

However, it has broken above that long-term bearish trendline recently and has been taking support above $51.25.

Source: TradingView
Considering that breakout which suggests a change of trend, investors bullish on the stock can take a long position in the stock at current levels near $53 with a stop loss at $51.2. If the upward momentum persists, the stock can indeed reach Wolfe Research’s target near $64, where short-term bulls can take profits.

Traders who are bearish on the stock must refrain from shorting it at current levels because its 50-day moving average has recently crossed above its 100-day moving average. Fresh short positions must only be considered if the stock closes below its recent swing low at $51.26.

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