Monday, June 13, 2011

EastGroup Properties Inc (NYSE: EGP) Q3 2011 Price Target

Recent price: 42.20$
P/E Ratio: 62.20
3 Months Target Price: 38$

Company Description
According to Reuters, EastGroup Properties, Inc. is an equity real estate investment trust. EastGroup is engaged in the acquisition, development and operation of industrial properties in Sunbelt markets throughout the United States, including the states of Florida, Texas, Arizona and California. During the year ended December 31, 2010, EastGroup increased its ownership in real estate properties through its acquisition and development programs. The Company purchased three business distribution complexes with a total of six buildings (499,000 square feet) and 2.1 acres of land. During 2010, EastGroup transferred five properties (426,000 square feet) from development to real estate properties. During 2010, EastGroup acquired Commerce Park 2 & 3 in Charlotte, North Carolina; Ocean View Corporate Center in San Diego, Canada, and East University Distribution Center III in Phoenix, Arizona. During 2010, it also acquired 2.1 acres of land adjacent to its Country Club buildings in Tucson, Arizona. As of December 31, 2010, EastGroup owned 247 industrial properties and one office building. These properties are located primarily in the Sunbelt states of Florida, Texas, Arizona and California, and are clustered around the transportation features in supply constrained submarkets.

Confidence Margins
Strong resistance $49.00 (-16%)
Light resistance $46.91 (-11%)
Light support $38.52 (+9%)
Strong support $33.14 (+21%)

This REIT seems to be overvalued by many metrics compared to it's peers in the industry and the market will continue to run down those shares. The current dividend is also unsustainable in the long term compared to their profits.

Entry strategy
For the cautious investor:
Sell short the stock for 42$ or more.

For the risk-taking trader:
The September 2011 40$ out-of-the-money put option contract seems to be the right position to take, they can be acquired for about 165$ per contract.

Exit Strategy
For the cautious investor:
Buy to cover when the stock reaches 38$, or keep it until 34$ if you are more bearish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches 38$. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.

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