Boston Properties: Considerable upside potential, but stock is not for the squeamish

Posted Dec 15th 2009 3:20PM by Joseph Lazzaro
Filed under: Stocks to Buy

As expected, Boston Properties (BXP) is faring well amid challenging commercial real estate conditions, which a major reason I'm Reiterating my Buy rating for the company's shares, first recommended on June 11, 2009 at a price of $48.89. If you bought BXP in June, you're up an impressive 41%.

Boston Properties' high-quality portfolio, combined with the fact that only about 20% of BXP's leased space is set to expire by the end of 2011, limits BXP's exposure to leases renewed at lower rates. A rebound in rental rates is not expected in 2010, but given cost cutting, including the suspension of an office tower project on Manhattan's West Side, cash flow should be more than adequate.

However, don't expect any major acquisitions from BXP until the U.S. economy achieves sustainable GDP growth. The First Call FY2009/FY2010 EPS estimates for BXP are $4.61 to $4.11. That $4.11 FY2010 EPS estimate will likely prove to be low.

Technically, Boston Properties' stock chart is strong -- an uptrend, but with above-average volatility. Don't buy BXP if you can't tolerate a 10-15% price decline in one month -- it could happen.

Stock Analysis: Boston Properties is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in BXP now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your BXP position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $37.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Boston Properties, BXP