Invitation Homes (INVH) is expected to see a higher valuation as comparisons in the single-family rental market normalize in the following years, UBS Securities said in a note emailed Monday.

"We believe that Invitation Homes is not getting the credit that it deserves for its growth algorithm," the investment firm said. "We remain confident in the longevity of the single-family rental subsector given consistent demand and generally limited supply."

Invitation Homes' same-store rent growth has slowed from 6.9% in 2023 to 4.4% in 2024, trailing American Homes 4 Rent (AMH) by 140 basis points year-to-date, with the latter's stronger market navigation reflected in its valuation, according to the note.

For context, Invitation Homes and American Homes' same-store growth on a three-year stack has been similar, with Invitation Homes underperforming American Homes in H1 of 2024 by only 10 basis points. Excluding California which experienced pressure post-COVID-19 pandemic, Invitation Homes' same-store rent growth in H1 of 2024 on the three-year stack outperformed American Homes by 80 basis points, UBS said.

Thus, Invitation Homes' underperformance is mainly due to the company pushing hard on rents in 2021 and 2022, UBS added.

UBS said it believes Invitation Homes can close the rent growth gap with American Homes as comparisons normalize in the coming years, potentially narrowing the current valuation gap.

"Based on our funds from operations growth to valuation analysis, Invitation Homes deserves a higher multiple. [The company's] expected 2025 growth of 4.5% is deserving of a 20x multiple, which compares with its current multiple of 18.6x," UBS said.

UBS has a buy rating on Invitation Homes with a 12-month price target of $42.

Price: 36.40, Change: +0.36, Percent Change: +0.99