Will This Downgrade Hurt Essex Property Trust (ESS) Today?

Tickers in this article: BRE ESS GS

NEW YORK (TheStreet) -- Essex Property Trust Inc.  shares were downgraded to "neutral" from "buy" by Goldman Sachs  in a report published Wednesday.

The firm increased the price target for the company to $177 from $156.

Essex Property shares opened trading down 0.68% at $172.82 Wednesday.

The downgrade comes following yesterday's announcement of the real estate investment trust's merger with BRE Properties .

"We downgrade shares of Essex Property Trust to neutral from buy on valuation following the completion of the BRE merger on April 1, 2014. Although our 2015-16 estimates are above consensus, current valuation appears to price in higher estimates" Goldman Sachs said.

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Separately, TheStreet Ratings team rates ESSEX PROPERTY TRUST as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ESSEX PROPERTY TRUST (ESS) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly increased by 65.89% to $79.90 million when compared to the same quarter last year. In addition, ESSEX PROPERTY TRUST has also vastly surpassed the industry average cash flow growth rate of 10.91%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • ESS, with its decline in revenue, underperformed when compared the industry average of 6.9%. Since the same quarter one year prior, revenues slightly dropped by 8.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ESSEX PROPERTY TRUST's return on equity is below that of both the industry average and the S&P 500.
  • ESSEX PROPERTY TRUST has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ESSEX PROPERTY TRUST increased its bottom line by earning $3.25 versus $3.09 in the prior year. For the next year, the market is expecting a contraction of 13.2% in earnings ($2.82 versus $3.25).
  • You can view the full analysis from the report here: ESS Ratings Report
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