Shares of Icade (EPA:ICAD) rose on Monday after Citi Research in a note dated Monday upgraded the stock to “buy” from “sell.”
At 6:10 am (1010 GMT), Icade was trading 3.8% higher at €26.40.
This upward revision comes with a new price target of €40.5 per share, implying a 63.2% potential return from the current market price of €24.82.
Citi’s optimistic outlook on Icade is driven by a combination of strong dividend potential, improving balance sheet, and the expectation of a positive cyclical growth phase in the real estate sector, beginning in 2026.
Citi analysts believe that Icade’s dividend yield is a key factor that investors cannot overlook. The company’s projected 2024 dividend yield is around 19.5%, bolstered by the proceeds from its healthcare asset sales.
This payout is among the highest in the market, offering investors an appealing return in a challenging economic environment.
The anticipated completion of the healthcare asset sales, which are expected to total €2.9 billion, forms the backbone of this dividend strategy.
By 2026, €1.3 billion of these proceeds will have been distributed, resulting in cumulative dividends of €12.9 per share over three years.
“This implies investors could see >50% of the current share price back in cash over the next 3 years,” the analysts said.
Another factor in Citi’s upgrade is the projected cyclical growth in the real estate sector. As interest rates are expected to decline, Icade is well-positioned to capitalize on an upturn in market conditions starting in 2026.
The company’s portfolio, which has undergone repositioning and deleveraging, is poised to benefit from improving demand and rising property values.
Citi emphasizes that the sale of Icade’s healthcare assets will not only support the company’s generous dividend payout but will also allow it to reduce debt.
This deleveraging will improve Icade’s financial stability, giving the company more flexibility to invest in future growth opportunities.
The stock is currently trading at a discount to its net asset value (NAV), which stood at €67.17 in 2023. This discount, coupled with a projected 2026 price-to-earnings (P/E) ratio of 4x, suggests that the market is undervaluing Icade’s future prospects.
Historically, Icade traded at multiples closer to 15x during previous growth cycles, which further highlights the opportunity for significant upside.
Citi estimates an 83% total return, driven largely by the dividend yield and the company’s improving fundamentals.
Despite these positive indicators, some risks remain. Icade’s substantial exposure to the Paris office market, where vacancy rates have been rising and rental growth has stalled, presents a challenge.
The shift to remote work and an increase in office supply have created headwinds for the market, but Citi believes these risks are already reflected in Icade’s deeply discounted share price.
Additionally, there is some concern among investors about the possibility of Icade retaining the proceeds from the healthcare sales rather than distributing them as dividends.
However, Citi analysts are confident that management remains committed to its dividend strategy, having already demonstrated a willingness to prioritize shareholder returns.
Citi also flags potential execution risks in Icade’s strategic plan, which involves further asset sales and repositioning projects.
Any delays in completing these transactions could impact the company’s financial performance and its ability to meet its dividend commitments.
Nevertheless, Citi remains optimistic that Icade’s management can successfully navigate these challenges, particularly given the progress made so far in reducing debt and stabilizing the company’s balance sheet.
