Why Select Income REIT (SIR) Stock Is Down Today

NEW YORK (TheStreet) -- Select Income REIT (SIR) was falling -7.2% to $28.19 Thursday after pricing a 9 million share spot secondary offering.

The company priced the 9 million shares of common stock at $29.00 a share. The underwrites of the offering were given a 30-day option to buy up to an additional 1.35 million shares of common stock. The offering is expected to close May 20, 2014.

Select Income REIT plans to use the proceeds of the offering to repay outstanding amount under its revolving credit facility, and for general corporate purposes.

Must read: Warren Buffett's 10 Favorite Growth Stocks

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TheStreet Ratings team rates SELECT INCOME REIT as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate SELECT INCOME REIT (SIR) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, increase in stock price during the past year, increase in net income and notable return on equity. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 20.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for SELECT INCOME REIT is rather high; currently it is at 53.36%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SIR's net profit margin of 47.34% significantly outperformed against the industry.
  • The net income growth from the same quarter one year ago has exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 10.7% when compared to the same quarter one year prior, going from $22.63 million to $25.06 million.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, SELECT INCOME REIT's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: SIR Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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