Shares of Kimco Realty Corporation (KIM) scaled a new 52-week high of $25.77 on Nov 28. The stock closed at $25.45, reflecting a solid year-to-date return of 32.7%. The trading volume for the session was over 1.7 million shares.
With encouraging third-quarter results, this retail real estate investment trust (“REIT”), is poised well to benefit from this year’s busiest shopping season, backed by an improving economy and consequent positive sentiments. The company’s efforts to drive more customers to its malls are encouraging. Moreover, the anticipation of a continued low interest rate is an added bliss.
Therefore, despite scaling such high, we believe that this retail REIT can prove to be a good choice, given the improving retail market fundamentals.
Growth Drivers
The annual shopping spree has already started in the U.S. and shoppers are expected to spend more this time. As per a forecast by the National Retail Federation (“NRF”), holiday sales (November and December) will see a solid 4.1% jump to $616.9 billion.
The NRF prediction is higher than both last-year growth of 3.1% and the 10-year average sales increase of 2.9%. As per Shop.org, online sales too are projected to increase 8–11% to around $105 billion for this holiday season.
These projections tag along big promises for the retailers, thanks to a fall in unemployment rate, gain in consumer confidence and declining oil price that are leaving people with more disposable income. Growth in consumer confidence and disposable income drive retail sales, which in turn, raise the demand for space at retail assets.
Kimco is currently focused on transforming its portfolio and simplifying its business model. For this, the company is shedding slower-growth assets from non-strategic markets and joint ventures. At the same time, it is aggressively pruning its Latin American portfolio and redeploying the proceeds to acquire high-quality shopping centers in key U.S. markets.
As a result, we believe the company is now better placed to leverage the busiest shopping season of the year. Moreover, solid demand for its properties along with an easy access to capital, promises considerable upside potential for Kimco, going forward.
On the other hand, low oil price and weak global economic growth have resulted in anticipations of a tepid inflation. This fuels the projections of a continued low rate environment for an extended period, which is expected to particularly benefit the rate sensitive business of REITs.
The company also came up with encouraging results in third-quarter 2014. It reported an earnings surprise of 2.86% as it benefited from growth in U.S. same-property net operating income. The company has also raised the quarterly dividend by 6.7%.
Over the last 30 days, the Zacks Consensus Estimate for both 2014 and 2015 remained unchanged at $1.39 and $1.44 per share, respectively.
Other REITs Scaling Highs
Other REITs that have scaled 52-week highs on Nov 28 include The Macerich Co. (MAC), Taubman Centers, Inc. (TCO) and Host Hotels & Resorts, Inc. (HST).
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