AvalonBay Communities (NYSE: AVB - News) posted good results in the first-quarter, with FFO [funds from operations] per share increasing 11% over the year-earlier period. Growth was driven by higher rental rates, contributions from new developments and smaller share counts. However, we still rate the shares a Hold due to a still-high comparative valuation, and what could be worsening multi-family fundamentals.

While new apartment construction is down, more unsold condos and homes are now being rented which adds competition to the company's high-end rentals. Additionally, U.S. job growth is non-existent, which will negatively affect apartment demand.

AVB currently trades at a 20% premium to the Zacks apartment REIT weighted average 2008 FFO estimates and now a 15% discount to our calculated NAV (net asset value). Fundamentals are still good and the company is pushing rents while holding stable occupancy. We are setting our price target at nearly 20x 2008 FFO estimates or $97.00 per share.

Read the full analyst report on AVB