Summary
- FRT stock is trading at a large valuation premium, either compared to the sector median or to risk-free rates.
- However, uncertain times like ours are not the time to chase yield or look for basement bargains.
- FRT’s growth would shrink its valuation multiples steadily to very attractive levels in a few years.
- And as for FRT’s P/FFO premium over the sector, it is well justified in my view given the quality of its properties compared to the sector average.
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FRT stock: buy wonderful businesses at fair valuations
The current situation surrounding Federal Realty Investment Trust (NYSE:FRT) is a textbook reflection of the wisdom to buy/hold wonderful businesses at fair prices (rather than fair businesses at wonderful prices).
The chart below summarizes FRT stock’s valuation grade in comparison to the sector median. As seen, FRT multiples are not cheap in any way or by any standard. Based on the data here, FRT’s P/E and P/FFO ratios are currently higher than the sector median by a large margin. Its trailing-twelve-month (TTM) P/E ratio is about 38x, almost 24% higher than the sector median of 30x. In terms of P/FFO, FRT’s TTM P/FFO ratio is 15.6x, again more than 20% higher than the sector median of 13x.