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Investing.com --Citi upgraded Invitation Homes (NYSE:INVH) to Buy and downgraded American Homes (NYSE:AMH) 4 Rent to Neutral, citing relative valuation and expectations that Invitation Homes’ earnings growth will soon catch up with its peer.
Citi said the recent underperformance of INVH shares, about 6% behind American Homes since first-quarter results, has widened the valuation gap to an attractive entry point.
INVH now trades at a roughly 30 basis point implied cap rate discount to AMH, which Citi sees as near the lower end of historical levels.
“We believe INVH is in a good position to assess these risks given its knowledge of BTR rents and valuations in the market,” the analysts wrote, adding that INVH’s guidance appears more conservative and may beat expectations on occupancy and rent growth.
Citi sees additional upside from INVH’s new lending program, which could add 7 cents to annual earnings, about a 3.5% boost, over the medium term.
The initiative also opens up more opportunities to acquire built-to-rent communities from homebuilders.
Despite slower lease growth in recent months, Citi expects both INVH and AMH to grow rents at around 4% over the next few years.
While AMH may have already peaked in new lease growth in May, the bank noted that differences in rent trends were modest and likely driven by methodology and market reaction to seasonality.
Citi raised its price target on INVH to $38.50 from $35, implying a 4.8% cap rate and a 19x multiple on 2026 core FFO. It maintained a $41 target for AMH, equating to a 4.7% cap rate and a 21x multiple.
We continue to like the single-family rental sector overall, Citi said, but sees greater upside in INVH due to potential earnings reacceleration and a return to more typical relative valuation.