UBS has lifted its recommendation on Stockland to "buy" from "neutral", labelling the stock a key pick in the Australian real estate investment trust sector going into reporting season.
What sets Stockland apart from its peers for the broker is its strong earnings growth for 2013-14, estimated at 8%, the fact that it is discounted at around 10% to its net tangible asset value against the sector's 2% discount, a resilient retail portfolio and that it is primed to benefit from Australia's recovering housing market.
"While first home buyers and land sales remain subdued, various economic indicators suggest we are in an early stage of recovery," UBS said.
The broker estimates Stockland's residential operating earnings will grow to $88 million from $69 million in 2013-14 from margin improvements and volume growth, largely because of a significant lift in new sales contracts.
UBS also sees a 3% lift in earnings growth for 2013-14 as a result of this year's restructuring charge providing approximately $5 million post tax earnings.
The broker lifted its price target on Stockland by 6 cents to $3.90. The stock has lifted by almost 1% to $3.67 at 1317 AEST.
Back in May, Stockland announced that it anticipated earnings per share to be cut by 25% to around 22 cents and a distribution payment of 24 cents per stapled security for 2012-13.