Strong Cash Position Will Support Future Acquisitions And Diversification

Key Takeaways

• Successful capital raising and strong cash position enable capability for future acquisitions, likely enhancing revenue and earnings growth opportunities.
  
• Diversification into automotive retail sectors and extended lease agreements aim to ensure stable revenue, reduce risks, and support long-term growth.
  
• Getty Realty faces risks from tenant bankruptcies, economic slowdown, interest rates, and market conditions impacting revenue growth, expansion, and financial performance.

Catalysts

A publicly traded, net lease REIT specializing in the acquisition, financing and development of convenience, automotive and other single tenant retail real estate.

• Getty Realty is well-capitalized for future acquisitions, having raised $289 million in attractively priced capital, securing $125 million of long-term notes, and having a strong cash position. This enhances their ability to fund acquisitions and developments, potentially boosting future revenue and earnings.
  
• The company is executing a diversification strategy beyond convenience stores to include automotive retail sectors like car washes and quick-service restaurants. This diversification is expected to lead to future growth and an increase in rental income, impacting revenue positively.
  
• Getty Realty's sale-leaseback model allows the company to acquire assets with large and emerging high-growth tenants. This strategy is designed to ensure stable long-term rental income, thereby supporting steady revenue growth and potential margin improvement.
  
• The company has a significant pipeline of investments, with more than $85 million under contract expected to be deployed over the next 9 to 12 months. This is likely to contribute to revenue growth by increasing the number of income-generating properties.
  
• Getty Realty is addressing near-term lease maturities and has extended unitary leases, reducing future maturity risks, which can stabilize or increase future revenue streams by minimizing churn and maintaining existing rental income levels.

Getty Realty Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Getty Realty's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 33.6% today to 37.2% in 3 years time.
• Analysts expect earnings to reach $85.9 million (and earnings per share of $1.39) by about March 2028, up from $68.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.7x on those 2028 earnings, up from 25.2x today. This future PE is lower than the current PE for the US Retail REITs industry at 34.0x.
• Analysts expect the number of shares outstanding to grow by 1.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.12%, as per the Simply Wall St company report.

Getty Realty Future Earnings Per Share Growth

Risks

• Getty Realty's portfolio is exposed to risks tied to tenant bankruptcies, as highlighted by the Zips Car Wash situation. This can result in temporary revenue loss and additional expenses related to re-leasing efforts.
  
• The company faces challenges related to economic slowdown and higher interest rates, which are affecting the real estate transaction market and potential cap rate compression. This could impact revenue growth and acquisition costs.
  
• A significant portion of Getty Realty's future growth is contingent upon capital markets and the successful raising and deployment of new capital, posing a risk if market conditions impede these activities, impacting its expansion capabilities and earnings.
  
• There is uncertainty related to the refinancing of debt and the impact of interest rates on the company's financial performance, which could affect net margins if costs increase unexpectedly.
  
• Market fluctuations and shifts in M&A activity could lead to a disconnect in pricing expectations between buyers and sellers, potentially slowing down Getty Realty's investment pace and subsequent revenue and earnings growth.

Valuation

• The analysts have a consensus price target of $33.667 for Getty Realty based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $230.7 million, earnings will come to $85.9 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $31.3, the analyst price target of $33.67 is 7.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.