Is Weakness In First Industrial Realty Trust, Inc. (NYSE:FR) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?

With its stock down 6.6% over the past three months, it is easy to disregard First Industrial Realty Trust (NYSE:FR). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to First Industrial Realty Trust’s ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for First Industrial Realty Trust

How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for First Industrial Realty Trust is:

13% = US$277m ÷ US$2.1b (Based on the trailing twelve months to December 2021).

The ‘return’ refers to a company’s earnings over the last year. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.13.

Why Is ROE Important For Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

First Industrial Realty Trust’s Earnings Growth And 13% ROE

To begin with, First Industrial Realty Trust seems to have a respectable ROE. Further, the company’s ROE compares quite favorably to the industry average of 6.4%. This certainly adds some context to First Industrial Realty Trust’s decent 12% net income growth seen over the past five years.

As a next step, we compared First Industrial Realty Trust’s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 8.8%.

past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is FR worth today? The intrinsic value infographic in our free research report helps visualize whether FR is currently mispriced by the market.

Is First Industrial Realty Trust Making Efficient Use Of Its Profits?

First Industrial Realty Trust seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 54%, meaning the company retains only 46% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. In spite of this, the company was able to grow its earnings by a fair bit, as we saw above.

Besides, First Industrial Realty Trust has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts’ estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 50%. However, First Industrial Realty Trust’s future ROE is expected to decline to 7.0% despite there being not much change anticipated in the company’s payout ratio.

Conclusion

Overall, we are quite pleased with First Industrial Realty Trust’s performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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