According to a FactSet report, more S&P 500 companies are beating EPS estimates for the third quarter than on average, and beating EPS estimates by a wider margin than on average. However, high inflation continues to worry investors. Against his backdrop, we think it could be wise to bet on quality real estate investment trusts (REITs) because they tend to be relatively stable amid market volatility.
Investors’ interest in REITs is evident in the Real Estate Select Sector SPDR Fund’s (XLRE) 8.3% gains over the past month and 14.4% returns over the past six months.
Therefore, we think REITs stocks The GEO Group Inc. (GEO) and Retail Value Inc. (RVI) could be solid additions to one’s watch list now. Wall Street analysts expect them to rally by 80% or more in price in the near term.
The GEO Group Inc. (GEO)
GEO is the first fully-integrated equity real estate investment trust that specializes in designing, financing, developing, and operating secure facilities, processing centers, and community re-entry centers worldwide. It operates in four segments: U.S. Secure Services; GEO Care; International Services; and Facility Construction & Design segments.
On October 21, GEO entered a new lease agreement with the State of New Mexico for the Guadalupe County Correctional Facility. This is expected to boost the company’s revenue.
GEO’s operating income came in at $72.42 million for its fiscal second quarter, ended June 30, 2021, up 11.7% year-over-year. The company’s net income was $41.96 million, up 14.3% year-over-year. Also, its adjusted EBITDA was $118.36 million, representing a 4.8% year-over-year rise.
For its fiscal year 2021, analysts expect GEO’s EPS to be $1.37, representing a 14.2% year-over-year rise. The company’s EPS is expected to increase at a 15% rate per annum over the next five years. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 59.3% in price to close yesterday’s trading session at $9.13. Wall Street analysts expect the stock to hit $15 in the near term, which indicates a potential 64.3% upside.
Retail Value Inc. (RVI)
RVI owns and operates a portfolio of retail real estate assets located in the continental United States and Puerto Rico. Its subsidiaries include SITE Centers Corp., a self-managed REIT. In addition, it owns and operates retail shopping centers.
For the second quarter ended June 30, 2021, RVI’s net operating income was at $26.72 million, up 23.6% year-over-year. Its cash came in at $67.19 million for the second quarter of 2021, compared to $56.85 million for the fourth quarter of 2020. And its total liabilities were $237.66 million, versus $406.09 million for the same period.
Analysts expect RVI’s EPS to increase 26.1% in the current year, and 55.3% in the next year. The stock has gained 161.4% in price since hitting its 52-week low of $2.28 on November 6, 2020, to close yesterday’s trading session at $5.96. Wall Street analysts expect the stock to hit $27 in the near term, which indicates a potential 352% upside.
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GEO shares were trading at $8.76 per share on Thursday morning, down $0.37 (-4.05%). Year-to-date, GEO has gained 1.81%, versus a 25.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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