Shopping mall developer Simon Property Group is a “cash engine,” according to Wolfe research. The firm upgraded the company to outperform from peer perform. Its price target of $127 implies 7.4% upside from where shares closed on Wednesday. Including dividends, Wolfe sees a return of about 15%. “We expect internal growth to be relatively stable (~2.5% SSNOI) as share is taken from closing malls. In addition, the company is a cash engine at just ~70% AFFO payout ratio which we assume will be used to fund external growth – particularly buybacks,” analyst Andrew Rosivach wrote in a Wednesday note. “We believe now is a target rich environment for SPG for capital deployment — be it buybacks (given multiple) or acquisitions (as competitors retreat from the space),” he added. While Rosivach expects the real estate business to remain relatively stable, he added that a decline in retail sales amid a difficult macro backdrop is an overhang on the company. “However, on an encouraging note, Authentic Brands Group, where SPG held a 12.3% position as of March 31, recently received incremental investment from General Atlantic,” he noted. The company is currently trading at a discount to Wolfe’s strip center and overall coverage, said Rosivach. “In fact, SPG is currently trading well below its historic discount to our overall coverage. Our review of supply-demand in the space is constructive which should allow for some convergence in the valuation bifurcation. Shares of Simon Property Group are trading near the flatline in 2023, but have jumped more than 22% over the past 12 months. SPG 1Y mountain SPG in past year —CNBC’s Michael Bloom contributed to this report.