BMO cuts RioCan REIT target to Cdn$20; maintains Outperform

On Monday, BMO Capital Markets adjusted its outlook on RioCan REIT (REI-U:CN) (OTC: RIOCF (OTC:RIOCF)), reducing the price target to Cdn$20.00 from the previous Cdn$21.50, while continuing to recommend the stock as an Outperform. With a market capitalization of $3.57 billion and trading at a P/E ratio of 10.89, InvestingPro analysis indicates the stock is currently fairly valued. For investors seeking deeper insights, InvestingPro offers comprehensive analysis with 8 additional key tips for RioCan. This change comes as a response to the real estate investment trust’s recent performance in the market, which saw its unit price decline by 10.5% following the creditor protection filing by Hudson (NYSE:HUD)’s Bay Company (HBC) under the Companies’ Creditors Arrangement Act (CCAA). According to InvestingPro data, RioCan’s RSI suggests the stock is in oversold territory, while maintaining an impressive 32-year streak of consistent dividend payments, currently yielding 6.72%.

The sell-off in RioCan’s shares was sparked by concerns over the impact of HBC’s financial troubles on the REIT. BMO Capital’s analyst noted that the magnitude of RioCan’s underperformance seemed excessive when compared to the overall market, citing the S&P/TSX Capped REIT Index’s (XRE) smaller loss of 1.4% in the same timeframe.

In light of the current market conditions, BMO Capital has revised its net asset value (NAV) and funds from operations (FFO) estimates for RioCan, leading to the adjusted price target. Despite this reduction, the firm believes that the stock still holds a significant one-year total return potential of 23%.

The analyst’s statement emphasized that although the market reaction to HBC’s CCAA filing was justified, the extent of the sell-off in RioCan’s shares may have been overblown. The maintained Outperform rating suggests that BMO Capital continues to see RioCan as a stock that will outperform the broader market or its sector in the foreseeable future.

Investors and market watchers will likely keep an eye on RioCan’s performance, particularly in relation to the developments surrounding HBC’s financial restructuring and the broader implications for the retail real estate sector. InvestingPro’s Financial Health Score rates RioCan as ’FAIR’, with analysts forecasting a 10% sales decline in the current year. Get access to the complete RioCan Pro Research Report, part of InvestingPro’s coverage of 1,400+ top stocks, for comprehensive analysis and actionable insights.

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