Terreno Realty (TRNO): Evaluating Valuation Following Major Newark Lease and Early Termination Windfall

Terreno Realty has just secured a 226,000 square foot lease with a cloud hardware manufacturer in Newark, California. The new agreement replaces a previous tenant and generates a sizable early termination payment for the company.

See our latest analysis for Terreno Realty.

This sizeable lease agreement comes after a year of relatively muted progress for Terreno Realty, with the latest share price sitting at $57.77 and a 1-year total shareholder return of -1.56%. Still, upbeat momentum over the last quarter, highlighted by a 4.13% share price return, may signal that the market is reassessing growth prospects on the back of recent events such as this large early termination payment and revenue lift. Over a three- and five-year horizon, total shareholder returns of 11.85% and 15.11% respectively underline the company’s ability to build long-term value, despite short-term fluctuations.

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With the share price still trading at a discount to analyst targets and intrinsic value, the question now is whether Terreno Realty is still undervalued following its recent moves, or if the market is already anticipating future growth.

Price-to-Earnings of 23.6x: Is it justified?

At its last close of $57.77, Terreno Realty currently trades on a price-to-earnings (P/E) ratio of 23.6x, appearing undervalued compared to both its fair P/E and peer group averages.

The P/E ratio reflects how much investors are willing to pay per dollar of earnings, offering a window into expectations for profit growth and risk. For a real estate company, especially in the industrial REIT space, this measure is a key gauge of how the market perceives potential future cash flows and resilience amid shifting demand for its properties.

Terreno Realty’s P/E of 23.6x is below the peer group average of 31.9x, suggesting the company is not being priced as aggressively as its counterparts. The ratio is also lower than the estimated fair P/E of 28.3x, pointing to possible overlooked value, especially given Terreno’s significant recent earnings growth and robust leasing activity. This valuation gap sets a level that the market could move towards if confidence in future earnings continues to build.

Explore the SWS fair ratio for Terreno Realty

Result: Price-to-Earnings of 23.6x (UNDERVALUED)

However, slower net income growth or a shift in industrial real estate demand could challenge Terreno Realty’s current valuation and future upside potential.

Find out about the key risks to this Terreno Realty narrative.

Another View: SWS DCF Model Puts the Spotlight on Undervaluation

While the price-to-earnings ratio paints Terreno Realty as attractively priced against peers and expectations, our DCF model tells a similar but even stronger story. According to the SWS DCF model, Terreno is trading about 29.2% below its fair value, which is a significant margin for investors to consider. The real question is whether the market still underestimates Terreno’s future cash flows or if there is something in the outlook that explains this wide discount.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Terreno Realty for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 839 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Terreno Realty Narrative

If you want to draw your own insights from the numbers and see how the facts line up from your perspective, you can build your personal analysis in just a few minutes, then Do it your way.

A great starting point for your Terreno Realty research is our analysis highlighting 4 key rewards and 3 important warning signs that could impact your investment decision.

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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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