Howard Hughes stock downgraded by JPMorgan on valuation concerns

Investing.com - JPMorgan downgraded Howard Hughes Holdings (NYSE:HHH) stock rating from Overweight to Neutral on Monday, while also lowering its price target to $76.00 from $82.00. The stock, currently trading at $69.26 with a market capitalization of $3.45 billion, maintains an attractive P/E ratio of 11.12. According to InvestingPro analysis, the company is currently trading below its Fair Value.

The downgrade comes despite JPMorgan acknowledging that the company’s real estate business "continues to perform well" against expectations and that the stock remains discounted compared to the firm’s assessment of underlying asset value. InvestingPro data supports this view, showing the company maintains a GOOD financial health score and has remained profitable over the last twelve months. InvestingPro subscribers have access to 6 additional key insights about Howard Hughes Holdings through comprehensive Pro Research Reports.

JPMorgan updated its model for Howard Hughes to incorporate first-quarter earnings and the completion of Pershing Square’s $900 million investment in the company at $100 per share. The model now includes management fees to Pershing Square going forward, amounting to $15 million annually plus 1.5% of market value above $66.1453 per share, adjusted annually for inflation.

Following these updates, JPMorgan estimates Howard Hughes’ 2025 Adjusted Operating Cash Flow at $6.18 per share, slightly below the midpoint of company guidance at $6.21 per share. The firm projects this figure will rise to $7.77 in 2026.

JPMorgan calculates Howard Hughes’ spot net asset value per share at $94.20, with a forward net asset value per share estimate of $112.61, suggesting the stock trades at a discount to the firm’s valuation of the underlying assets.

In other recent news, Howard Hughes Holdings reported its first-quarter 2025 earnings, which showed a mixed financial performance. The company posted earnings per share of $0.21, falling short of analysts’ expectations, and revenue was $199.33 million, below the anticipated $211.24 million. Despite these misses, the company’s master-planned communities segment demonstrated a strong performance, with earnings before taxes increasing by 161% year-over-year to $63 million. Additionally, the operating assets net operating income grew by 9% to $72 million.

Piper Sandler analysts maintained an Overweight rating on Howard Hughes Holdings, expressing optimism about the company’s strategic transformation under the guidance of Bill Ackman and Pershing Square. They highlighted the company’s shift towards a diversified holding company, which aims to expand into property and casualty insurance and other business acquisitions. The analysts believe this transformation, along with an improved cost of capital, could attract more investor interest.

The company’s strategic direction was further emphasized during a recent investor meeting hosted by Bill Ackman, who is also the executive chairman of Howard Hughes Holdings. Ackman discussed the company’s plans to diversify its holdings to bolster long-term growth and value creation. Howard Hughes projects its 2025 master-planned communities earnings before taxes to rise by 5-10% year-over-year, while liquidity remains strong with over $800 million available.

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