Is Realty Income Fairly Priced After Recent Expansion and 37% Discount to Cash Flow?

If you are eyeing Realty Income and wondering whether to buy, sell, or hold, you are definitely not alone. There is a lot of chatter around this dependable real estate stock, and it is easy to see why. Over the last five years, Realty Income has delivered a solid 31.9% return for investors, with a notable 12.6% gain so far this year. But a closer look shows the journey has not been all upward, with a 1.8% dip over the last 30 days and a slight 1.4% slide in the last week alone. This serves as a reminder that even so-called “safe” stocks have their swings.

Much of the current conversation revolves around Realty Income’s recent high-profile property acquisitions and a series of strategic partnerships that have caught investors’ attention. The company’s continued expansion in the retail and industrial property space is seen by many as a vote of confidence in its long-term growth story. Others have expressed concerns about changing market dynamics and interest rate pressures affecting future returns.

So, what does all this mean for the stock’s valuation right now? According to our assessment, Realty Income earns a valuation score of 2 out of 6, indicating it is considered undervalued by just two key valuation checks. That detail might surprise you, especially given its reputation for steady dividends and resilience, but as we dig into each approach to valuing the company, you will see why the picture is more nuanced than the headline numbers suggest. And stick around, because there is an even more insightful way to assess Realty Income’s value that we will uncover by the article’s end.

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 the intrinsic value of Realty Income by projecting future adjusted funds from operations, also known as free cash flows, and discounting them back to today's value. This method provides a systematic way to gauge what the business is fundamentally worth based on its ability to generate cash for shareholders over time.

Currently, Realty Income is generating $3.62 Billion in free cash flow. According to analyst projections, that figure is expected to steadily rise, reaching as much as $4.7 Billion by the end of 2029. After that point, future cash flows are extrapolated using moderate growth assumptions. These ongoing streams of cash are then adjusted to reflect their value in today's dollars.

Based on the DCF analysis, the intrinsic value per share is estimated at $93.83. Compared to the current market price, this implies the stock is about 36.9% undervalued. The DCF result suggests that, despite market concerns, Realty Income is trading at a significant discount to its underlying cash flow potential.

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 36.9%. 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 directly links a company's stock price to its underlying earnings. For established REITs like Realty Income, the PE ratio gives investors an at-a-glance read on how much they are paying for each dollar of profit, making it a helpful tool for quickly comparing value.

However, what makes a "normal" or "fair" PE ratio can vary. Higher growth expectations or lower risk profiles may justify a pricier multiple, while riskier or slower-growing companies often trade at lower ratios. That means looking at the PE ratio alone is not enough; you have to place it in context against relevant benchmarks.

Currently, Realty Income trades at a PE ratio of 59.6x. This stands well above the industry average of 26.9x for Retail REITs and also surpasses the peer average of 33.2x. At first glance, this suggests the stock might be richly valued. But instead of relying solely on these broad averages, Simply Wall St's proprietary "Fair Ratio" calculation takes into account the company's growth prospects, industry trends, profit margins, market capitalization, and unique risk profile. For Realty Income, the Fair Ratio is calculated at 38.4x, providing a more tailored benchmark.

This makes the Fair Ratio a more accurate tool than simple industry or peer comparisons, as it adapts to the company's specific financial and risk dynamics. Comparing Realty Income's actual PE of 59.6x to its Fair Ratio of 38.4x shows the stock appears to be trading above its expected value on this metric.

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, data-backed story of what you believe about Realty Income’s future. It combines your assumptions about growth, margins, and fair value with the company’s facts. Instead of just crunching numbers, Narratives let you articulate your forecasts and perspective, linking the company’s real-world story to a dynamic financial model that gives you an updated fair value in real time.

This approach is easy and accessible on Simply Wall St’s Community page, where millions of investors share and update Narratives as news or earnings reports roll in. Narratives empower you to decide whether to buy, sell, or hold by comparing your own Fair Value estimate against the current market price, so your decisions are always grounded in both numbers and your unique viewpoint.

For example, one Narrative might see Realty Income’s stable dividends and slow, steady growth as supporting a fair value of $61.26, recommending a hold. Another, based on more optimistic revenue and margin forecasts, might value the company at $63.26. Which Narrative fits your view of the story?

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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