Wolfe Research says it’s time to bet on shares of AvalonBay Communities and Prologis as a mild recession looms. “With the backdrop, we upgrade both AVB and PLD whom we believe will be able to produce (1) internal growth on the back of loss to lease and (2) external growth due to in process developments assembled well before recent rent growth occurred,” wrote analyst Andrew Rosivach in a note to clients Tuesday. The firm assumes a mild recession will occur in late 2022 followed by a downtick in employment next year. Within the single-family and industrial real estate sectors, Wolfe Research also anticipates a slowdown in earnings growth ahead. Rosivach cited good balance sheets, resilient business models and lower debt to market caps relative to Wolfe’s coverage area among his reasons for liking both stocks. “We anticipate AVB external growth is particularly powerful in 2024, while PLD has an attractive self-funded business model, with additional funding coming from particularly strong promote earnings in 2022 and 2023,” he wrote. “In short, both companies have business models to create value-and earnings-from sources beyond being only price takers for rent growth.” The firm trimmed its price targets on AvalonBay and Prologis to $282 and $193, respectively, implying a more than 36% and 50% upside for the stocks from Tuesday’s close. — CNBC’s Michael Bloom contributed reporting
