BofA upgrades Mid-America Apartment Communities to 'Buy', raises target to $189

Investing.com - Analysts at Bank of America (BofA) have issued a compelling endorsement for Mid-America Apartment (NYSE:MAA) Communities, Inc. (NYSE: MAA), upgrading the stock from "Underperform" to "Buy" and significantly raising the price objective from $144 to $189. This double upgrade follows a recent portfolio trade in the Sunbelt region, highlighting a valuation discrepancy that positions MAA as undervalued.

Sunbelt Assets Prompt Revaluation

The catalyst for this shift in perspective is a recent deal announced by Equity Residential (NYSE:EQR) on August 7. EQR acquired a $964 million apartment portfolio from Blackstone (NYSE:BX) at an implied capitalization rate of around 5%. In contrast, MAA’s current implied cap rate stands at 6.0%, suggesting that MAA is undervalued relative to its Sunbelt-focused assets.

BofA analysts have adjusted their model to reflect a 5.1% cap rate for MAA (down from the previously applied 6.3%). This revaluation underpins the substantial increase in their price objective to $189, marking it as one of the highest targets on Wall Street.

Valuation and Risk Assessment

Despite notable fundamental risks, including expected challenges in market rent growth in the Sunbelt through 2025, analysts argue that MAA’s current valuation offers a significant margin of safety. Investors appear to be looking beyond the near-term headwinds and focusing instead on a more balanced outlook for 2026.

The recent EQR/BX portfolio trade lends credence to this forward-looking view, making it easier for investors to overlook short-term risks. The spread between current applied and implied cap rates is considerable, further supporting the bullish stance on MAA.

Attractive Valuation and Low Expectations

BofA analysts noted that the market’s expectations for MAA have reached a low point, fully pricing in the demand and supply imbalances in the Sunbelt region. Should the second half of 2024 avoid a significant softening in rents, there’s potential for upward revisions to earnings estimates, making the stock even more attractive.