MLV Upgrades Rouse Properties To Buy Amid Emergence Of Positive Catalysts


In a research report issued yesterday, MLV analyst Paul Morgan upgrades shares of Rouse Properties (NYSE:RSE) from a Hold rating to a Buy with a $19 price target, following the emergence of positive catalysts for the company.

Morgan wrote, “First, today’s positive news from Sears regarding backfilling stores with Primark (and other) stores should help assuage fears regarding anchor exposure to contracting department store chains. Second, today’s activist letter to the PEI Board highlighted valuation upside, which could have benefits for the rest of the B-mall peers (incl. RSE). Lastly, with more peers targeting asset sales, we see increasing acquisition opportunities for RSE that should fuel earnings and dividend growth upside. Our $19 PT (17% total return upside) is based on a conservative 7.75% cap rate and 5% forward NAV discount.”

The analyst continued, “Sears operates stores in 24 of Rouse’s 35 assets, and consequently — along with peers CBL, PEI, and WPG — often trades as a proxy for the retailer when news breaks. In many cases, we view these swings as head-fake trading opportunities; however, today’s news that Ireland-based Primark will sublease seven locations from Sears helps demonstrate that there is an active list of takers for Sears locations, and that the company’s ongoing space rationalization is not as negative as B-mall bears fear. Beyond Primark, Sears deals with Dick’s Sporting Goods, Forever 21, and others provide comfort that in a slow-paced development environment, large-format chains have become increasingly flexible in their space requirements, opening the window wider for department store anchors to convert to alternative retail formats.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Paul Morgan has a total average return of 12.9% and a 100% success rate. Morgan is ranked #1317 out of 3354 analysts.

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