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PreMarket Prep Stock Of The Day: Simon Property Group

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action fo

Benzinga · 05/12/2020 16:58

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

For those who thought first-quarter earnings season was going to be a disaster for all stocks, especially ones involved in the retail or commercial real estate sector, think again. Since the COVID-19 crisis and corresponding stay-at-home policies weren't instituted until late March, for the most part it was business as usual for many companies until the last few weeks of the quarter.

As a result, the reports from many companies weren't that bad. This scenario applies to Simon Property Group (NYSE: SPG), which reported results after close on Monday, making it the PreMarket Prep Stock Of The Day.

What They Do And What They Did

Simon Property Group, Inc. is an American commercial real estate company, the largest retail real estate investment trust, and the largest shopping mall operator in the U.S. Its portfolio is made of more than 325 properties that operate under five different real estate platforms.

In early February, SPG paid a hefty premium ($52.50) to purchase 80% of Taubman Centers (NYSE: TCO). At that time., Simon shares were worth $142. The stock now trades at the $55 level and Taubman Centers can be had for $40 a share.

Major Top In July 2016

One of the first victims of the "Amazoning" of the world was large malls and their operators. When purchases could be made so easily online, the need for going to a mall or similar retail centers was no longer a necessity. As a result, these monstrosities that were expensive to build and costly to maintain were confronted with lower and lower foot traffic.

Along these lines, huge per square foot tenants such as Macy's (NYSE: M) and JC Penney (NYSE: JCP) began to close stores.

While the S&P 500 index had appreciated handsomely since July of 2016, this issue has gone in the other direction. In fact, it has shed 75% of its value since it peaked in July 2017 at $229.10.

No Mercy During Market Retreat

As the COVID-19 crisis gripped the world and stay-at-home-policies were instituted the markets began to crumble, Simon went along with it. Whereas the S&P 500 index fell 35% from peak to trough, SPG fell from Feb. 21 high ($142.77) to $42.25 on April 2 -- a 70% decline.

Only five days after hitting rock bottom, the issue rallied 75% when it peaked at $74.17, but it has been unable to hold onto those gains. At the current price of $55, it's only 30% off its April low.

Meanwhile, the S&P 500 index has tacked on over 60% and is trying for more. Keep in mind, it much easier to rally in percentage terms from a much lower price point, which is the case between Simon and the S&P 500 index.

Moving Forward

After the close on Monday, the company announced first-quarter fund from operations of $2.78 down from $3.04 year over year. The bright spot is sales come in above estimates at $1.35 billion versus estimate of $1.29 billion.

The Street focused on the sales beat as the issue peaked just off the open at $60.54 and continues to make news lows for the session and unchanged for the day at $55.08.

Long before the COVID-19 crisis, Credit Suisse made a bold call in May 2017 and reiterated in June 2018 on the mall sector. That being the firm expected 25% of U.S. malls to close by 2022. In view of recent events, they may be considering shortening that timetable.