Initiating Coverage: Veris Residential Inc
Veris Residential, Inc. has been given a “Sell” recommendation with an anticipated one-year price target of $10.25, suggesting a possible 25% decrease in value. This evaluation is based on a comprehensive review of several financial metrics in comparison to industry counterparts. Strengths are seen in the company’s ability to generate revenue and growth, yet there are significant concerns regarding profitability, cash flow, and financial health.
The analysis starts with the income statement, where Veris Residential reported revenues of $283.58 million for the last twelve months (LTM), outperforming the industry median of $226.97 million. This shows a strong capability in sales compared to competitors. The company’s revenue growth of 21% LTM, well above the industry median of 5%, indicates strong sales growth momentum. Despite this, the company’s net income (NI) growth over the last two years is 0%, in sharp contrast to the industry median of 53.3%. This difference points to difficulties in maintaining profitability, although the company managed to reduce its net income decline to 5% LTM, which is less severe than the industry median decline of 18.3%.
Examining the cash flow statement provides more insights. Veris Residential’s levered free cash flow (LFCF) for the LTM was $45.54 million, below the industry median of $78.64 million, showing lesser cash generation after financing expenses. Nevertheless, the company consistently generated positive LFCF, with a success rate of 100% over the past fiscal years, surpassing the industry average of 91.9%. The 31% LFCF decrease over the LTM highlights the challenges in sustaining cash flow growth.
The balance sheet analysis, including the Altman Z Score and debt to tangible equity ratio, offers additional details. The Altman Z Score of 0.48 indicates a higher financial distress risk, significantly lower than the industry average of 2.40. However, Veris Residential has prioritized shareholder value, as seen by a 3.6% shareholder yield, more favorable than the industry average. The debt to tangible equity ratio is 165.1%, showing less dependence on debt than peers.
The dividend performance analysis reveals a current yield of 1.5%, lower than the industry average of 7.5%. This lower yield, along with 0.0% dividend growth LTM, indicates a cautious approach to dividend payments, yet with a consistent payout history.
The final assessment of the stock’s valuation, considering dividend target, multiple adjustments, and stability, leads to a valuation of $10.25. Given the current stock price of $14.42, this suggests the stock might be overvalued, advising caution for investors. The emphasis on dividend stability with a 25% premium highlights the significance of regular dividend payments against levered free cash flow.
While Veris Residential, Inc. demonstrates impressive revenue generation and sales growth, the analysis uncovers key areas requiring attention. The company is challenged by issues in profitability, cash flow management, and financial stability, which influence its overall rating and investment perspective.
