How Realty Income’s 13% Jump This Year Shapes Its Investment Outlook for 2025

Trying to decide what to do with Realty Income stock? You are definitely not alone. This past year, it has been anything but boring for shareholders. While the last twelve months delivered a slight gain of just 0.4%, Realty Income’s share price has steadily revived in more recent periods, posting a 13.0% climb year-to-date and a 3.6% pop in just the last month. That comes after a stretch where investors grew more cautious about interest rates and the state of commercial real estate, both major factors for a REIT like Realty Income. Now, as the market’s mood shifts and fresh optimism creeps in, it pays to take a closer look at what’s driving the valuation.

On our standard six-point undervaluation checklist, Realty Income scores a 2 out of 6 right now. That tells us the stock checks some, but not all, of the boxes for an “undervalued” label. Curious which methods make the cut? Next, we’ll break down the different valuation approaches, and stick around, because we’ll close with a better lens for understanding what this figure really means for your portfolio.

Realty Income scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Realty Income Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's true value by projecting its future adjusted funds from operations and discounting those numbers back to today. For Realty Income, this approach considers its current Free Cash Flow of $3.62 billion. Analysts anticipate rising cash flows over the next several years. By 2029, projections have Free Cash Flow reaching $4.74 billion, and longer-term forecasts from Simply Wall St extrapolate further FCF growth through 2035.

The DCF methodology, using these projections, calculates Realty Income’s intrinsic value at $94.47 per share. With the current share price standing well below that number, this implies a substantial 37.1% discount. In plain terms, Realty Income appears meaningfully undervalued based on this future cash flow analysis. This suggests investors might be getting more value than the market price reflects today.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Realty Income.

Our Discounted Cash Flow (DCF) analysis suggests Realty Income is undervalued by 37.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Realty Income Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like Realty Income because it gives a quick snapshot of how much investors are willing to pay for each dollar of earnings. It is especially helpful when looking at steady, income-generating businesses, where profits are a key indicator of long-term value.

Not all PE ratios are created equal. Growth expectations, stability, and business risks all play a part in determining what is “fair.” Fast-growing companies, for example, usually command higher PE multiples, while slower-growing or riskier firms tend to trade at lower ones. That is why comparing Realty Income’s current PE ratio against the right benchmarks can be revealing.

Realty Income is currently trading at a PE ratio of 59.85x, which stands well above both the industry average of 27.01x for Retail REITs and the peer average of 33.22x. That might look rich at first glance, but these industry or peer benchmarks do not tell the full story. Simply Wall St’s proprietary “Fair Ratio” goes a step further, calculating a tailor-made expected PE ratio of 40.94x in Realty Income’s case, based on factors like its earnings growth, risk profile, profit margins, industry, and market cap. This method provides a much more holistic sense of what buyers should reasonably pay for the stock.

By weighing all the relevant company-specific details, the Fair Ratio offers a more accurate lens than simple averages. When we put things side by side, Realty Income’s current PE of 59.85x is significantly higher than the 40.94x Fair Ratio, suggesting the stock is trading at a premium to what would be considered justified by its fundamentals and outlook.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Realty Income Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your personal story and perspective on a company, where you connect the facts and your assumptions, such as future revenue growth, profits, margins, or risks, to arrive at your own estimate of fair value. Narratives help bring the numbers to life by linking Realty Income’s unique story to your financial forecast and ultimately to what you believe is a reasonable price to pay for the stock.

Simply Wall St makes building Narratives easy and accessible through its Community page. Millions of investors can share their views, compare their fair value estimates, and update their opinions whenever fresh news or earnings are released. This tool empowers you to move beyond static metrics like the PE ratio and instead decide when to buy or sell by comparing your own Fair Value to the current Price. Since Narratives update dynamically as new information comes in, your analysis can always reflect the latest company developments.

For example, looking at Realty Income right now, some investors write Narratives with conservative assumptions and a fair value around $61 per share, while others with a more bullish outlook calculate values as high as $75. This demonstrates how your personal perspective shapes your investment decisions.

Do you think there's more to the story for Realty Income? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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