Why REIT Simon Property Group is Currently Undervalued

Keep an eye on this commercial real estate giant in 2021

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Simon Property Group, Inc. (NYSE:SPG) is one of the largest commercial real estate investment companies, with a market cap totaling $31.7 billion and properties across North America, Europe, and Asia.

The commercial real estate investment trust (REIT) will report earnings after the market closes on Monday, Feb. 8. While the stock has averaged a muted post-earnings move of 1.5% in the eight quarters, regardless of direction, the options market is pricing in a much bigger move of 8.4% ahead of Monday's report.

SPG has struggled to find its form over the past year. Simon Property Group beat its earnings expectations just once out of the last four quarters. For the fourth quarter of 2019, the company beat expectations by a margin of $0.10 and reported an earnings per share (EPS) of $1.66. For the first quarter of 2020, SPG reported a decrease in earnings down to $1.43 per share and missed earnings expectations by a margin of $0.22.

Simon Property Group reported another decrease in earnings for second quarter 2020. SPG reported an EPS of $0.83 for the quarter, missing expectations by $0.15. In the company's most recent quarterly report, Simon Property Group once again reported a decrease in earnings. This time, SPG earnings dropped to $0.48 per share, marking a big earnings miss by a margin of $0.42.

SPG has more than doubled off its April 2 11-year bottom near $42. However, the shares are a ways off their Feb. 11 annual high of $144.30. It's been a good start to 2021 for SPG though, with a 13.2% year-to-date gain.

Simon Property Group stock’s recent bullish form is likely the result of a recovery from an overcorrection. All signs seem to point at SPG being undervalued. Over the past 12 months, the company’s revenue and net income have both decreased by about $800 million. However, Simon Property Group stock still trades at a solid price-earnings ratio of 21.96. If the company can recover its top and bottom-line figures, Simon Property Group stock will undoubtedly follow suit.

SPG's revenue currently stands at $5 billion for this past year, and its net income is at $1.35 billion. The biggest fundamental issue for Simon Property Group is its massive debt of $25.66 billion. Nonetheless, SPG is an all-around value play for potential investors. If anything, Simon Property Group stock’s 5.25% dividend yield would rake in some nice profits should the company stagnate. In addition, Simon Property’s dividend dates to 1994, making it fairly secure by most standards.

 

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