ESRT

We rate Empire State Realty Trust, Inc. (ESRT) as Avoid with a composite score of 32.8/100 at a current price of $5.94. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in value (52th percentile) and stability (36th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (12th percentile) and quality (30th percentile) tempers our overall conviction. We assign a No Moat rating (23/100), High uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. 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.

Empire State Realty Trust, Inc. 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 32.8/100 places it at rank #4308 in our full 7,333-stock universe. At $1.3B in market capitalization, Empire State Realty Trust, Inc. is a small-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 4%, though momentum at the 12th 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 0% (-76.5pp vs sector) narrow to operating margins of 19% (+1.8pp vs sector) and net margins of 8.3%, yielding a gross-to-net conversion rate of N/A%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $5.94, Empire State Realty Trust, Inc. is trading near fair value based on current fundamentals. Our value factor score of 52/100 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 15.9x (a 33% premium to the sector median of 11.9x), EV/EBITDA of 3.0x (discounted to peers), P/B of 0.6x, P/S of 1.3x. 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 High uncertainty rating to Empire State Realty Trust, Inc.. Key risk factors include significant leverage (128% debt-to-equity), below-average price stability (36th percentile), weak quality scores (30th percentile). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (128% debt-to-equity); below-average price stability (36th percentile); weak quality scores (30th percentile). 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 36th percentile and quality factor at the 30th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate Empire State Realty Trust, Inc.'s capital allocation as Poor. Key concerns include low returns on equity (3.5%), weak asset returns (ROA 1.6%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Empire State Realty Trust, Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Empire State Realty Trust, Inc. receives a Avoid rating with a composite score of 32.8/100 (rank #4308 of 7,333). Our quantitative framework assigns a No Moat (23/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 33/100.

Our analysis does not support a constructive view on Empire State Realty Trust, Inc. at this time. The combination of limited competitive advantages, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.