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Wells Fargo upgraded EastGroup Properties (NYSE:EGP) to Overweight from Equal Weight and downgraded Terreno Realty (NYSE:TRNO) to Equal Weight from Overweight as the firm now favors supply-constrained markets and small size segments as demand eases in industrial real estate.
EastGroup (EGP) has turned in consistently strong results amid broader supply in its markets. “While we’ve been cautious on EGP given high general supply levels in their markets, their small-box infill segment of the market remains tighter and continues to generate high demand,” analyst Blaine Heck wrote in a note to clients. “We now see better risk/reward in EGP given more attractive relative valuation & exposure to markets that continue to benefit from population growth and near- & on-shoring.”
Meanwhile, Terreno’s (TRNO) valuation appears to be justified and its outsized exposure to East and Gulf Coast ports could pose a near-term headwind, Heck noted. “We believe shares could be influenced by extended East/Gulf Coast labor negotiations (along with potential broader tariff concerns) given its geographic mix.”
The analyst sees less upside for TRNO’s stock, given its ~8x premium on AFFO and 110 basis points inside the peer group average implied cap rate. Still, he continues to view the REIT’s overall footprint and portfolio favorably.
Wells Fargo’s Overweight rating on EastGroup (EGP) contrasts with the SA Quant rating of Hold and aligns with the average Wall Street rating of Buy.
Meanwhile, the Equal Weight rating on Terreno (TRNO) aligns with the SA Quant rating of Hold and diverges from the average Wall Street rating of Buy.
EastGroup (EGP) stock edged down 0.2% and Terreno Realty (TRNO) stock slid 1.5% in Wednesday premarket trading.
