The housing market has been hit hard by rising interest rates and inflation, which are eating away at buyers’ budgets. In addition, high home prices and rising mortgage rates have had a significant impact on homebuyer affordability.
According to the National Association of Realtors monthly report, sales of existing homes fell nearly 6% sequentially and 20% year-on-year in July. This decline is mainly due to an increase of more than 6% in 30-year fixed rate mortgages during the month.
Additionally, according to surveys by John Burns Real Estate Consulting, home builder cancellation rate have more than doubled since April. More than 17% of builder contracts failed in July, compared to 8% in April and 7.5% in July 2021.
Additionally, new home listings fell 15% year-over-year in the four weeks ending Aug. 21, the largest annual decline since the pandemic began. Against this backdrop, we think it might make sense to avoid real estate stocks Agree Realty Corporation (CDA), Redfin Corporation (RDFN) and Doma Holdings Inc. (DOMA).
Accept Realty Corporation (CDA)
ADC is a publicly traded real estate investment trust that primarily invests in and develops net leased properties to prime retail tenants. As of June 30, 2022, the company owned and operated a portfolio of 1,607 properties across all 48 continental states with a total gross leasable area of approximately 33.8 million square feet.
Last month, ADC announced that its operating partnership, Agree Limited Partnership, had priced a public offering of $300 million of 4.800% senior unsecured notes due 2032. The offering price public offering for the Notes was 99.171% of the Principal Amount, resulting in an Effective Yield to Maturity of 4.904%. The Notes will be senior unsecured obligations of the Operating Company, guaranteed by the Company and certain of its subsidiaries.
The net proceeds of this offering will be used for general corporate purposes, including reducing amounts outstanding under its senior unsecured revolving credit facility and financing property acquisitions and development activities.
During the second quarter ended June 30, 2022, ADC’s base FFO increased 12.5% year over year to $74.5 million. Its AAFO rose 13.3% from the previous year’s value to $73.7 million. Additionally, the company’s net income rose 52.7% year-over-year to $34.1 million.
However, in non-GAAP forward P/E terms, the ADC’s 41.16x is 37.3% above the industry average of 29.99x. Additionally, its 12-month price/sales of 14.08x is 165.7% higher than the industry average of 5.30x.
Analysts expect ADC’s EPS to decline 15.4% year-over-year to $0.44 billion in the current quarter. The stock is down 5.4% over the past month.
CDA POWR Rankings fit into these gloomy prospects. The stock’s overall D rating translates to a sell in our proprietary rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ADC was rated D for Value and Sentiment. In category D Real estate services industry, it is ranked No. 32 out of 42 stocks.
To view additional POWR ratings for Growth, Quality, Stability, and Momentum for ADC, Click here.
Redfin Company (RDFN)
RDFN is a residential real estate brokerage firm that operates in the United States and Canada. The company operates an online real estate marketplace and offers real estate services, such as helping people buy or sell a home. It also provides securities and settlement services, buys and sells homes, and issues and sells mortgages.
RDFN’s revenue increased 29% year-over-year to $606.9 million for the second quarter ended June 30, 2022. However, its net loss increased 179.9% from the previous year’s value to reach $78.1 million. Its adjusted EBITDA loss jumped 921.4% from the year-ago quarter to $28.6 million. Additionally, its cash and cash equivalents were $379.92 million, a decrease of 35.7% for the six months ended June 30, 2022.
The stock is down 83.1% over the past year and 78.7% since the start of the year.
RDFN’s weak fundamentals are reflected in its POWR ratings. The stock has an overall F rating, which equates to a strong sell in our proprietary rating system. The stock has an F rating for growth, quality and sentiment. In the same sector, it is ranked #41.
In addition to the POWR ratings I just highlighted, you can see the RDFN rating for Momentum, Stability, and Value here.
Doma Holdings Inc. (DOMA)
DOMA creates, underwrites and offers title, escrow and settlement services to owners, lenders, title agents and real estate experts. Distribution and underwriting are the two divisions through which it operates.
The company provides services in the areas of purchase and refinance transactions in the residential real estate market, as well as title insurance underwriting activities, including referred policies through its direct agents and of its third-party agents.
For the second quarter ended June 30, 2022, DOMA’s revenue decreased 4.8% year-over-year to $123.74 million. His operating loss jumped 217.8% from the year-ago quarter to $59.22 million, while its net loss rose 151.8% year-over-year to $58.65 million dollars. Its loss per share was $0.18.
The company’s EPS is expected to decline 3.6% in the current year. Analysts expect its revenue to decline 16.3% year-over-year to $466.95 million in fiscal 2022. The stock fell 92.9% over the past year and 88.1% since the beginning of the year.
DOMA’s weak outlook is also apparent in its POWR ratings. The stock has an overall D rating, which is equivalent to a sell in our proprietary rating system. It also has a D rating for stability and feeling. DOMA is ranked No. 35 in the same sector.
Click here to see additional POWR ratings for DOMA. (Quality, Momentum, Value and Growth).
ADC shares were trading at $74.90 per share Thursday morning, down $0.42 (-0.56%). Year-to-date, the ADC has gained 7.79%, versus a -17.05% rise in the benchmark S&P 500 over the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate. After…