The Realty Income (NYSE: O) has made headlines recently as its stock plunged to the lowest point in May 2020. It has been one of the worst-performing REITs as its shares have dropped by more than 28% from its highest level this year.
Realty Income earningsRealty Income, one of the biggest REITs in the US, has made several headlines recently. The biggest news was the company’s decision to acquire Spirit Realty in a $9.3 billion deal. The company aims to use Spirit to supercharge its growth and diversify its offerings.
It also hopes to generate substantial synergies in the near term. It expects that it will have $50 million in G&A synergies. Also, the transaction would be over 2.5% accretive to Realty Income AFFO.
Analysts have mixed opinions about the deal. Some believe that Realty Income overpaid since Spirit Realty was valued at less than $9 billion. Others believe that the company is now focusing on growth, which could hurt its margins in the long term.
On the other hand, some investors welcomed the deal, since it will help Realty Income expand its growth and diversify its earnings. In a statement, the company’s CEO said:
“As we look further to the future, we believe the enhanced scale and diversification afforded by Spirit’s complementary portfolio will support and expand our future growth runway.”
The other important Realty Income news was the company’s earnings. Its net income came in at $233.5 million in the third quarter. Normalised FFO was $739 million while the AFFO available to shareholders was $721 million.
Realty Income ended the quarter with over $3.4 billion in unused capacity on its $4.25 billion revolving credit facility. All this, together with its strong credit rating means that the company will continue doing well.
Still, there are risks to Realty Income and other REITs. For one, while the Federal Reserve may be done hiking rates, they will likely remain at an elevated level for a while. This means that the cost to service Realty Income’s debt could jump to over $1 billion in the coming years. Its total interest expense in the fourth quarter stood at over $586 million.
Watch here: https://www.youtube.com/embed/E0exLZ889n0?feature=oembedRealty Income stock price forecast
The weekly chart shows that the Realty Income share price formed a double-top pattern at $70. This is one of the most popular bearish signs in the market. It has also formed a death cross pattern, where the 50-week and 200-week Exponential Moving Averages (EMA) make a bearish crossover.
The stock is also trading at the key price of $50.61, the highest point in August 2016. Therefore, while Realty Income is doing well, I suspect that the shares will remain under pressure in the coming weeks.
If this happens, the next level to watch will be at $44.77, the lowest point last week. A break below that level will see it drop to the key support at $40. In the long-term, however, the shares will likely bounce back as investors buy the dip.
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