This Stock Deserves More Than Window-Shopping

Macerich is a major player in ownership of Class A malls. At year-end 2021, they owned or had interests in 44 regional town centers. Covid-related forced closures knocked the shares way down in 2020. Funds from operations (FFO) were cut in half from peak pre-Covid levels. MAC shares followed dropping from a 2019 peak of $47.10 to as low as $4.80 at the worst of the Covid-panic. Since then, though, operations and FFO stabilized. Quarterly dividend payments were raised 13.3% in the fourth quarter of 2022 as management appears confident that better times lay ahead. Research house Morningstar loves MAC's prospects. In an article last week, Morningstar called it the most undervalued real estate investment trust (REIT) of everyone they follow. As of Jan. 27, it sold for a 53% discount to its present-day fair value estimate of $27.50. Current yield on its Monday quote of $13.52 is now an attractive 5.03%. I give Morningstar credit for having put MAC on its 5-star, best buy, rating list a while back when it first declined to under $16.50. Regular readers of m y columns know I was a fan of MAC as far back as 2020. I wrote about MAC again in July of 2022 after the shares pulled back from $22.88 in November of 2021 to south of $9. My graphic explaining why I liked MAC, and where I thought it could go from there is reprinted below. At that time I let readers know about heavy insider buying from March to June of 2022 at an average cost of $10.96. A couple of days later MAC's President picked up another 60,000 shares even cheaper, at $8.75. How does MAC look today now that it fetches $13.52? Value Line thinks MAC's FFO will rebound to about $2.10 per share in 2023. The REIT's average P/FFO since 2012 ran 14.1-times. Assume only a partial valuation reversal to 12-times FFO and MAC could command north of $25 by the end of 2023. That implies potential upside of 86.3% plus dividends over the coming year. In my world that is an impressive number. My goal is not far-fetched. Just ahead of the Covid crisis MAC changed hands at $27. MAC hit $26 again in January of 2021 with help from meme traders who briefly played it. Late in 2021, without any help of meme buyers, MAC still reached $22.88. Morningstar's current take on Macerich is shown below. It is not often that you see a research opinion that calls for a doubling in value. Quantitatively-based FAST Graphs calls a typical P/FFO for Mac as 13.3-times. It also takes a decidedly less bullish stance on year-ahead FFO. They feel MAC will only achieve $1.85 this year, down from $1.95 if the fourth-quarter estimate proves correct. Those both seem too conservative to me. Even so, reverting to a more normalized valuation on even their lower estimate, leads FAST Graphs to call for a Dec. 31, 2023 target price of $24.62. Total return to that goal price comes to over 87% from MAC's Feb. 6, 2023 quote. I would gladly settle for that. Option-minded traders can play MAC via shorting puts out to either Jan. 19, 2023 or Jan. 17, 2025. Actual pricing on those options is shown below, with MAC at $13.52. The strike prices on MAC are in whole dollars as shown, not $12.50 or $13.50. Worst-case, forced purchase prices dropped to from $9.90 to $11.40 per share depending on which strike price you employ. Margins of safety are substantial no matter which of the strike prices you choose. If you believe that MAC is worth much more than its current price, it is hard to imagine being afraid to commit to owning it at much low net entry prices. Maximum gains on these, or any other option sales, always equals keeping 100% of the premium dollars received up front. In these examples that would equate to $165, $210 or $360 per each 100-share commitment. Post-Covid, people are enjoying getting out of their homes and shopping at malls again. Mall occupancy rates are healthy and average rents are holding up well. Buy some MAC shares, sell some MAC LEAP puts or consider doing both.

This Stock Deserves More Than Window-Shopping

Macerich is a blast from the past that still looks good today.

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