Is Cousins Properties Stock a Buy? Real estate investment trusts (REITs) are a favorite of income-focused investors due to their high dividend yields. During difficult economic times, these stocks can also be safe havens due to their basis in physical real estate. One REIT you may want to consider looking at is Cousins Properties.
Cousins Properties (NYSE:CUZ) is a real estate investment trust that maintains a mix of commercial and residential properties, including a large amount of office space.
The company mostly focuses on markets in the American South, particularly Georgia and Texas. Cousins Properties was founded in 1958 and makes nearly all of its money from collecting rents.
Revenues and Earnings
Q1 revenues totaled $186.9 million for Cousins Properties. While this was above the consensus estimate of $184.7 million, it was still 1.4 lower than revenue in Q1 2021. Same-property revenues, however, were up slightly. Cousins also executed new leases for 224,000 square feet of space in the quarter.
In Q1, Cousins reported earnings of just $0.19 per share, a significant miss when compared to the consensus estimate of $0.67. Earnings were also down slightly year-over-year.
In Q1 2021, Cousins reported $0.20 per share. The company’s earnings have had significant ups and downs, however. In Q4 2021, EPS hit $1.12 against an estimate of just $0.19.
Despite inconsistency in earnings, margins at Cousins appear reasonably strong. The overall profit margin for the company stands at 36.59 percent. Operating margin over the past 12 months is also decent at 23.65 percent.
Cousins Properties Valuation
Cousins Properties currently trades at a forward P/E of 11.15 and a price-to-sales ratio of 6.01. While these metrics are a bit high, it’s important to keep in mind that REITs often trade at relatively high multiples. The popular Realty Income REIT, for example, trades at over 18 times estimated earnings for this fiscal year.
Cousins Properties holds a price-to-book ratio of 0.99. Taking this into account alongside the metrics mentioned above, it’s likely that Cousins trades at a roughly fair value or is very slightly undervalued. There isn’t much meat on the bone for value investors on Cousins, but it also isn’t doesn’t appear to be priced unreasonably.
Cousins Properties is one of three major office space REITs, along with Alexandria Real Estate and Boston Properties. With the exception of some overlap with Alexandria in North Carolina, though, neither of these other two office REITs operates in the areas of the South where Cousins focuses its efforts.
As a result, Cousins has a geographic moat against its two closest publicly traded competitors.
What Could Go Wrong?
Due to its focus on office spaces, Cousins Properties’ biggest risk is the possibility that demand for physical offices will remain depressed.
During the pandemic, working from home became the norm for many workers who previously had to report to central offices. By some projections, remote work could continue growing as a percentage of employment into 2023. This trend could keep leasing slow, putting pressure on Cousins properties.
Rising debt could also be a concern for investors looking at Cousins Properties. Debt to EBITDA was 5.28 in Q1, up from 4.87 the year before. While not drastic, rising debts at a time when interest rates are increasing could put a modest drag on the company’s earnings.
A final concern investors should be aware of is low insider ownership at Cousins Properties. At the moment, company insiders own just 0.86 percent of the outstanding shares. This may suggest lack of belief among management in the company’s performance.
Is Cousins Properties a Buy?
The strongest argument in favor of buying Cousins is its overwhelming presence in large metropolitan centers throughout the South. The population of the Sun Belt is growing quickly, and office space will likely be at a premium in rapidly expanding cities. Cousins Properties is in a unique position to benefit from these trends due to its large existing portfolio of commercial properties in Southern cities.
Cousins Properties’ dividend yield of 4.23 percent is respectable, though not massive for a REIT. The company also has a relatively short dividend increase streak, having only raised its dividend consecutively for the past five years.
With that said, Cousins Properties has increased its dividends at a decent rate. The payout has increased at a compounded growth rate of 5.9 percent over the last five years and 9.5 percent over the last 10.
Cousins could also have decent upside potential in terms of share price. The stock’s median price target is $39, which would represent a gain of 28.8 percent from its current price of $30.29. Adding this price growth to its dividend would make Cousins a very strong performer.
It’s also worth noting that Cousins still has room to grow. Its earnings are still inconsistent, but its positive surprises show considerable potential.
Rising rents in expanding cities could also propel Cousins toward higher earnings. The company is well-positioned to take advantage of the growing economic power of the American South, and current trends will likely continue to improve its outlook going forward.
While remote work poses a threat to office space REITs, Cousins’ presence in large, growing metropolitan centers will likely keep its properties in demand. Inconsistent earnings, however, are a larger problem. If Cousins can improve its earnings, shareholders will likely continue to be rewarded with higher share prices and growing dividends.
Overall, Cousins Properties is likely a moderate buy for investors searching for income from a REIT. This trust has real potential and is trading at a fair price for the dividend it produces.
If earnings stabilize, the stock could prove to be a good long-term buy-and-hold proposition. Given the uncertainty surrounding the market for office space, though, it may be a good idea to include Cousins as part of a diversified group of REITs within your portfolio.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.