EQR

We rate EQUITY RESIDENTIAL (EQR) as a Reduce with a composite score of 45.9/100 at a current price of $63.57. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (71th percentile) and quality (48th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (29th percentile) and investment (45th percentile) tempers our overall conviction. We assign a No Moat rating (29/100), Low uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

EQUITY RESIDENTIAL holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.9/100 places it at rank #2640 in our full 7,333-stock universe. With a $24.7B market capitalization, EQUITY RESIDENTIAL operates at meaningful scale within the Finance, Insurance, And Real Estate sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 5%, though momentum at the 29th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 82% (+5.5pp vs sector) narrow to operating margins of 0% (-17.0pp vs sector) and net margins of 38.0%, yielding a gross-to-net conversion rate of 46%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $63.57, EQUITY RESIDENTIAL is trading near fair value based on current fundamentals. Our value factor score of 46/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 26.2x (a 120% premium to the sector median of 11.9x), EV/EBITDA of 26.8x (at a premium), P/B of 2.1x, P/S of 7.9x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Low uncertainty rating to EQUITY RESIDENTIAL. The company exhibits strong financial stability with a beta of 0.65, and a stability factor in the 71th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.65 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 71th percentile and quality factor at the 48th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 82% provide a buffer against cost pressures; above-average stability (71th percentile) suggests predictable business dynamics; a 4.25% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate EQUITY RESIDENTIAL's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 8.1%, and the balance sheet is managed within acceptable parameters (D/E: 73%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; EQUITY RESIDENTIAL falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 4.25% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, EQUITY RESIDENTIAL receives a Reduce rating with a composite score of 45.9/100 (rank #2640 of 7,333). Our quantitative framework assigns a No Moat (29/100, trend: stable), Low uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 48/100.

Our analysis does not support a constructive view on EQUITY RESIDENTIAL at this time. The combination of limited competitive advantages, low uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.