How Recent Rate Cut Signals Are Impacting Realty Income’s True Value in 2025

Thinking about what to do with your Realty Income shares or considering starting a position? You are not alone. This dependable real estate investment trust has long been a favorite for investors drawn to steady dividends, but its recent performance has folks weighing whether now is the right time to buy, hold, or rethink their stance. In the past week alone, Realty Income ticked up by 0.5%, building on a 4.1% gain over the last month. The year-to-date move is especially impressive at 14.2%, putting the stock well ahead of many sector peers. Even over the past five years, Realty Income is up nearly 25%, a testament to both resilience and consistent investor interest.

Much of that strength can be traced back to favorable market developments, particularly a growing appetite for income-producing, defensive assets in a world where many investors remain wary of volatility. Shifts in the interest rate outlook have also encouraged fresh capital into the REIT space. Still, price movements like this always get people talking about valuation. Is Realty Income getting expensive, or does it still offer a margin of safety? Our current valuation score for the company is 2 out of 6, suggesting it is undervalued on only two of the six key metrics analysts monitor.

Of course, not all valuation methods tell the same story, and some can miss the forest for the trees. Before we get into the numbers and the familiar ratios, let’s break down what those different approaches actually say. Stay tuned for an even more insightful way to put Realty Income’s valuation in context at the end of the article.

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 offers a direct look at the value of Realty Income by estimating how much cash the business is projected to generate in the future, and then discounting those cash flows back to today's dollars. For Realty Income, this means tracking the company's adjusted funds from operations, a preferred metric for real estate investment trusts, and projecting how these steady streams of cash can grow and support investor value over time.

At present, Realty Income produces about $3.62 billion in free cash flow. Analyst forecasts see this figure rising each year, with projections reaching $4.7 billion by the end of 2029. Beyond 2029, Simply Wall St extrapolates that free cash flow could approach $5.8 billion by 2035, which underlines solid long-term growth expectations. All these cash flows are accounted for in US dollars.

Based on these calculations, the DCF model arrives at an estimated intrinsic value of $93.47 per share. With a current share price roughly 35.7% below this intrinsic value, the DCF model signals Realty Income is undervalued.

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 35.7%. 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 because it tells investors how much they are paying for each dollar of a company’s earnings. For companies like Realty Income, which generate consistent profitability and regularly report positive earnings, the PE ratio provides a quick, intuitive snapshot of market expectations.

It is important to remember that what counts as a “normal” or “fair” PE ratio for a company depends on more than just its profits. Factors such as projected growth rates, the risk profile of the business, and current market sentiment play a big role. Higher expected growth or lower risk usually means investors are willing to pay a greater multiple for future earnings, pushing the PE higher. More cautious or slower-growing companies tend to see lower ratios.

Currently, Realty Income trades at a PE ratio of 60.5x. This is well above the industry average for Retail REITs, which is 25.9x, and the average among close peers, which sits at 32.9x. On the surface, this could suggest the stock is expensive. However, Simply Wall St’s proprietary “Fair Ratio” provides deeper insight. The Fair Ratio for Realty Income is calculated as 38.5x and reflects not just how its earnings compare with others but also its growth outlook, profit margins, scale, sector characteristics, and specific risk factors.

Unlike a plain industry or peer comparison, the Fair Ratio is customized for Realty Income’s full profile. This approach helps address the shortcomings of apples-to-apples comparisons by considering everything from growth rates to market cap, and offers a more precise sense of whether shares are truly overvalued or undervalued on their own merits.

Comparing the current PE of 60.5x to the Fair Ratio of 38.5x, Realty Income is trading noticeably above what these fundamentals would suggest is reasonable.

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's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple, intuitive tool that lets you combine your perspective on a company’s future, such as your estimates for future revenue, profits and margins, with a financial model to create your own story behind the numbers and arrive at your version of Fair Value for a stock.

By linking your beliefs about what matters most at Realty Income to a concrete financial forecast, Narratives directly connect a company's unique story to its expected financial outcomes, and ultimately to a fair value per share. Unlike static ratios, this method is easy to use and accessible for everyone. Simply Wall St’s Community page, used by millions of investors, lets you create or explore Narratives for almost any stock in just minutes.

Narratives help investors decide when to buy or sell by showing how your Fair Value compares to the current market price, and are updated automatically when key news or earnings data is released, so your view always stays relevant. For Realty Income, some investors see slow dividend growth and a fair value near $61, so they may prefer to wait, while others see global expansion driving future earnings and set their fair value closer to $75, showing just how personal, flexible, and empowering a Narrative can be.

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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