AvalonBay Communities upgraded at Morgan Stanley on earnings growth potential

Apartment REIT AvalonBay Communities (NYSE:AVB [https://seekingalpha.com/symbol/AVB]) was rising as Morgan Stanley raised its recommendation on the stock, citing that they "see best-in-class earnings growth" in 2026/2027.

Shares were +0.32% during Wednesday morning trade to $187.53.

The financial services provider has had a cautious stance on apartments since early in 2025.

"Apartments have underperformed most of the year, and after a significant sell-off during 2Q earnings, they are now the 4th worst performing REIT subsector of 17 YTD and 2nd worst-performing over the last 1 and 3 months," said analyst Adam Kramer in a research note.

Apartment REITs now trade at rare discounts to the S&P 500 & REITs, and Morgan Stanley said it pivots and takes a constructive approach to the subsector today.

The investment bank sees AvalonBay Communities as the worst-performing apartment REIT year-to-date. AVB stock has declined ~15% year-to-date.

"With valuation now roughly in-line with peers and greater conviction in best in class earnings growth, we see an opportunity to upgrade the stock," said Kramer.

MS upgraded AVB to Overweight from Equal-weight, but reduced the price target to $225.00 from $228.00.

The Overweight rating is predicated on best earnings growth among all apartments in 2025, 2026, and 2027; significant ramp in development contribution; relatively more diversified Washington DC exposure; and valuation.

The rating aligns with the average Wall Street analysts [https://seekingalpha.com/symbol/AVB/ratings/sell-side-ratings] rating and Seeking Alpha authors [https://seekingalpha.com/symbol/AVB/ratings/author-ratings] rating of Buy. Meanwhile, the Quant Rating [https://seekingalpha.com/symbol/AVB/ratings/quant-ratings] system sees the stock as Hold.

MORE ON AVALONBAY COMMUNITIES

* AvalonBay Communities: Buy The Dip [https://seekingalpha.com/article/4808170-avalonbay-communities-buy-the-dip]
* AvalonBay: Concerning Demand Signs Weigh (Rating Downgrade) [https://seekingalpha.com/article/4808171-avalonbay-concerning-demand-signs-weigh-downgrade]
* AvalonBay Communities, Inc. 2025 Q2 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4807141-avalonbay-communities-inc-2025-q2-results-earnings-call-presentation]
* Piper Sandler downgrades AvalonBay Communities, Essex Property Trust after earnings [https://seekingalpha.com/news/4477306-piper-sandler-downgrades-avalonbay-communities-essex-property-trust-after-earnings]
* AvalonBay signals $1.7B in development starts for 2025 while maintaining core FFO guidance [https://seekingalpha.com/news/4476149-avalonbay-signals-1_7b-in-development-starts-for-2025-while-maintaining-core-ffo-guidance]