Sun Communities stock initiated with Equalweight rating by Morgan Stanley

Investing.com - Morgan Stanley (NYSE:MS) initiated coverage on Sun Communities (NYSE:SUI) with an Equalweight rating and a $135.00 price target on Tuesday. According to InvestingPro data, the stock currently trades at $125.23, with analyst targets ranging from $126 to $155.

The investment bank sees "a wide range of outcomes" for the real estate investment trust, noting that Sun Communities’ under-levered balance sheet creates optionality for acquisitions. The company maintains a strong financial position with a Fair Value suggesting current slight overvaluation, while boasting a 33-year streak of consistent dividend payments and a current yield of 3.32%.

Morgan Stanley believes the company will likely focus on manufactured housing (MH) and recreational vehicle (RV) properties, with an emphasis on MH based on management commentary. The firm expects Sun Communities to prioritize optimizing existing businesses through strong rental rate growth and operating efficiencies.

In 2024, Sun Communities has emphasized divesting non-strategic assets and simplifying operations and capital structure, which led to selling its Safe Harbor marina business while retaining its UK holdings.

Morgan Stanley analysts believe Sun Communities would still consider selling its Park Holidays business—a move they think the market would reward—though there is "likely less urgency given the balance sheet is now underlevered."

In other recent news, Sun Communities reported its first-quarter financial results, revealing an earnings per share (EPS) of -$0.34 and revenue of $470.2 million, both falling short of analyst expectations. This underperformance contrasts with the company’s Core Funds From Operations (FFO) of $1.26 per share, which exceeded the consensus estimate. Barclays (LON:BARC) has upgraded Sun Communities to an Overweight rating, noting the positive impact of its recent operational changes, including the $5.25 billion sale of its marina segment, which has refocused the company on manufactured housing and RV operations. Citizens JMP also maintained a Market Outperform rating for the company, citing the potential for reinvestment of the proceeds from the marina sale to drive future earnings growth. Sun Communities is currently in the process of searching for a new CEO, with outgoing CEO Gary Shiffman expressing confidence in the candidate pool. Additionally, the company has amended its bylaws to align with common practices among publicly traded Maryland corporations and to include new provisions of Maryland law. These developments highlight Sun Communities’ strategic maneuvers aimed at strengthening its financial position and operational focus.

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