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Home Properties, Inc.

HME

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Shares of Home Properties, Inc. (HME - Snapshot Report) have been on a long-term uptrend since mid-2010, barring volatility in late 2011 on fears of a double-dip recession. This apartment REIT has put together six earnings surprises in the last seven quarters and has an impressive dividend yield of 4.4%.

Strong fundamentals in the multifamily apartment market and solid first quarter 2012 results add further strength to this Zacks #2 Rank (Buy) stock. Earnings are presently expected to grow 12.1% in 2012 and 6.4% in 2013.

Strong First Quarter

Home Properties reported strong first quarter results on May 3, with a 13.4% year-over-year growth in total revenues to $160.3 million. Same-store net operating income increased 9.9%. This was the highest such first quarter increase recorded in the past five years, driven by a same-store revenue growth of 4.6% and a decrease in operating expenses of 2.8%.

Funds from operations (FFO) came in at 98 cents per share, surpassing the Zacks Consensus Estimate by 5.4% and the year-ago FFO by 14.0%. Average physical occupancy for same-store properties remained solid at 95.5% for the quarter, while average monthly rental rates surged 4.8% year-over-year to $1,207.

Outlook Raised

Based on healthy first quarter results, management raised the FFO guidance for 2012 to between $3.87 and $3.99 per share from the earlier range of $3.79 to $3.95. For the second quarter of 2012, FFO is expected in the range of 93 cents to 97 cents per share.

Analysts have revised their earnings estimates upward for both 2012 and 2013, driving the stock to a Zacks #2 Rank (Buy). The current Zacks Consensus Estimate for 2012 is at the higher end of the company guidance at $3.97, implying year-over-year growth of 12.1%. For 2013, the Zacks Consensus Estimate of $4.22 represents growth of 6.4%.

Dividend Payout

Home Properties paid a dividend of 66 cents per share in the first quarter of 2012, which marked a 6.5% increase over the year-ago quarter. The company has historically paid an uninterrupted dividend since 1995, even during the recession. The current dividend payment affirms a yield of 4.4%.

Premium Valuation

Home Properties’ valuation metrics are at a premium on a price-to-earnings (P/E) and price-to-sales (P/S) basis. Shares are currently trading at a forward P/E of 15.06x versus the peer group average of 12.82x. On a P/S basis, Home Properties is trading at 4.86x versus 2.31x for the peer group average.

Given the double-digit earnings growth prospects of the company in the current year, the premium valuation should not disappoint investors.

Earnings estimates for 2012 are moving higher for Home Properties, as mirrored in the following 12 Month EPS chart.

The Bottom Line

With a favorable supply/demand relationship, rising earnings estimates, robust growth projections and a healthy dividend yield, Home Properties offers an enticing upside potential going forward. Also supporting long-term growth is the company’s continued focus on stable markets in major metropolitan areas with significant barriers to entry and its prudent cost-control initiatives.

Based in Rochester, New York, Home Properties owns and operates apartment communities primarily along the East Coast of the U.S. The company provides quality housing alternatives at affordable prices to a broad range of middle-income residents. Presently, its portfolio includes 124 apartment communities containing 42,068 apartment units. The company currently has a market cap of $2.9 billion.

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