Highwoods Properties (HIW) released first quarter results that mixed higher sales with lower profitability. This combination can shift how investors think about the stock’s earnings power and income profile.

The latest earnings release, which paired higher sales with a drop in net income, comes as the stock has a 1 month share price return of 19.59% but a 1 year total shareholder return decline of 4.54%. This suggests short term momentum against a softer longer term record.

If these moves in an office focused REIT have you thinking about where else capital could work, it may be worth scanning 19 top founder-led companies

With the share price up 19.6% over the past month and the stock trading only about 1.6% below its US$26.22 analyst target despite a weaker quarter for earnings, is Highwoods Properties undervalued, or is the market already pricing in future growth?

Most Popular Narrative: 1.5% Undervalued

Highwoods Properties last closed at $25.82 compared with a widely followed fair value estimate of $26.22. This small gap still hinges on some firm assumptions about future office demand and capital spending.

Aging buildings and the need for continual asset modernization, including sustainability retrofits and elevated tenant improvements, will keep capital expenditures high over the next several years, putting sustained pressure on net margins and limiting growth in cash flows.

Want to see what sits behind that modest discount call? The narrative leans on steady revenue growth, thinner margins, and a richer future earnings multiple than many office REIT peers.

Result: Fair Value of $26.22 (UNDERVALUED)

However, there are still clear swing factors here, including the risk that remote and hybrid work keeps vacancies elevated, or that ongoing capital upgrades squeeze cash generation.

Another View: Richer Multiples, Different Message

Our DCF model points to upside, but the picture changes when you look at the P/E. Highwoods trades on a 31.2x P/E, compared with 16.6x for the global office REIT industry and a fair ratio of 33x. That puts the stock richer than peers, yet close to where the fair ratio suggests the market could settle. This raises a simple question for you: is that premium something you are comfortable paying for this income stream?

Next Steps

Mixed signals on value and income can split opinion, so do not sit on the fence. Review the data, weigh the 2 key rewards and 3 important warning signs, and decide whether the balance of risks and potential rewards makes sense for you with 2 key rewards and 3 important warning signs.

Looking for more investment ideas?

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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.