BofA Upgrades Mid-America Apartment Communities to ‘Buy’, Raises Target to $189 Via Investing.com

Investing.com – Mid-America Apartment (NYSE: ) Communities, Inc. has been given a strong rating by analysts at Bank of America (BofA). (NYSE: MAA ), raising the stock from “Underperform” to “Buy” and significantly raising the price objective from $144 to $189. This double upgrade follows a recent portfolio transaction in the Sunbelt region, highlighting a valuation discrepancy that positions MAA as undervalued.

Prompt revaluation of Sunbelt assets

The catalyst for this shift in perspective is a recent transaction announced by Equity Residential (NYSE: ) on August 7th. EQR acquired a $964 million apartment portfolio from Blackstone (NYSE: ) at an implied capitalization rate of approximately 5%. In contrast, MAA’s current maximum default rate is 6.0%, suggesting that MAA is undervalued relative to its Sunbelt-focused assets.

BofA analysts adjusted their model to reflect a 5.1% MAA cap rate (down from 6.3%) previously applied. This revaluation supports the substantial increase in their price target to $189, marking it as one of the highest targets on Wall Street.

Assessment and risk assessment

Despite notable fundamental risks, including expected challenges in growing market rents in the Sunbelt through 2025, analysts say MAA’s current valuation provides a significant margin of safety. Investors appear to be looking past short-term headwinds and are instead focusing on a more balanced outlook for 2026.

The recent trading of the EQR/BX portfolio lends credence to this outlook, making it easier for investors to overlook short-term risks. The difference between the current and default applied cap rates is considerable, further supporting the bullish stance on the MAA.

Attractive valuation and low expectations

BofA analysts noted that market expectations for the MAA have bottomed out, completely pricing in supply-demand imbalances in the Sunbelt region. If the second half of 2024 avoids a significant decline in rents, there is the potential for upward revisions to earnings estimates, making the stock even more attractive.