Is Kilroy Realty a buy after announcing three strategic acquisitions?

on Jun 17, 2021
Updated: Aug 17, 2021
  • Kilroy shares are up 31% this year at the back of a booming US real estate market.
  • The company announced three strategic acquisitions on Wednesday.
  • KRC is looking to expand its market share in Austin, TX, and the entire West Coast. Time to buy?

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Kilroy Realty Corp (NYSE:KRC) shares on Wednesday eased 1.71% lower, trimming the year-to-date gains to about 30%. The company announced three key acquisitions that will boost its expansion plans in Austin, Texas, and the West Coast.

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Kilroy stock is yet to reach pre-covid highs, leaving a lot of room to run. The company’s latest deals could provide the required momentum to take the stock to 2020 highs. Its current valuation of about 13.13 P/E also suggests KRC could be potentially undervalued.

An insight into the three acquisitions

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Kilroy bought three companies worth $670 million in total. The biggest of the three deals is the skyscraper, Indeed Tower, located in Austin, Texas, costing $580 million. It will give Kilroy a firm grip on the office realty market in the highly populous city. Commercial real estate is beginning to recover after the reopening of the US economy. Therefore, the acquisition is perfectly timed for KRC to pounce on the expected growth.

The company also bought two new properties on the west coast. The first one is a $42 million site located directly adjacent to its 2100 Kettner project in the Little Italy neighborhood of San Diego. The other is a $47 million purchase of a ground lease next to its 488,000 square foot Key Center project in Bellevue. 

These acquisitions will affect the company’s current financial position. KRC earnings per share will decline by 12.70% this year and 57.15% next year, according to analyst estimates. However, once they begin to pay off, the company will realize a significant rise in the top line, resulting in an improved bottom line.

Source – TradingView

Technical overview

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Technically, Kilroy shares appear to be trading in an ascending triangle formation in the daily chart. However, the stock recently pulled back after reaching overbought conditions in the 14-day RSI.

Investors expecting extended upward movement can target profits at approximately $79.48 and $88.25. On the other hand, investors that expect the pullback to continue can target profits at about $65.29 and $55.82.

Bottom line: Kilroy faces a potential pullback before building on gains

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In summary, Kilroy shares look potentially undervalued. However, the stock is up 30% this year, and analysts expect an earnings squeeze this year and next year. Therefore, although the three strategic acquisitions will help the company solidify its position on the West Coast, the stock looks poised for a pullback.

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