Here’s why you should buy Westfield Group

The company’s future earnings potential seems to have been forgotten by the market.

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Westfield Group’s (ASX: WDC) World Trade Centre (WTC) store, located at Ground Zero in New York, is shaping up to be one of the company’s strongest shopping centres around the globe with some of the world’s most iconic retailers lining up for a space in the mall.

So far, the shopping centre giant has revealed only a few big names to have become tenants, including Tom Ford, Tiffany & Co and Armani. However, a further 40 stores have also been named by New York real estate magazine, The Real Deal, as having already signed up or being in the final stages of negotiations, including Michael Kors, Hugo Boss, Pandora, Lacoste, Swarovski and Victoria’s Secret.

It is prestigious brands like these that will draw far greater customer foot traffic to the iconic centre than any of its smaller assets ever could. In an effort to strengthen its balance sheet and better position itself against the strong headwinds being caused by the online retail sector, the company has been divesting its non-core assets and using the proceeds to redevelop stores like the WTC. Although this strategy has created earnings pressure in recent periods, it should also help to ensure greater and more sustainable returns in the long-run.

In fact, CLSA analyst, John Kim, has recently stated that WTC could become the company’s “most productive asset globally”, after last year describing it as Westfield’s “Crown Jewel”. Aside from its position within an area of a growing white-collar workforce, its decked-out look, restaurants and entertainment offerings should make it a world-beater for Westfield. Should the company achieve sales of US$450 per square foot, the centre would boast the highest rents of any asset within Westfield’s portfolio.

The centre is just one of the many projects that shareholders should be getting excited about. It is also developing its Westfield London and Croydon stores which are shaping up to be enormous revenue generators, while there is plenty of international growth potential in countries like Brazil, Italy and even throughout Asia.

Foolish takeaway

Conditions continue to improve throughout the US and European economies, and Westfield is in a prime position to benefit. While investors have remained cautious of the stock – in part due to its controversial merger proposal with Westfield Retail Trust (ASX: WRT) – it has significantly underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the last 12 months. Based on the company’s strengths and future earnings potential, it represents a good buy at today’s prices.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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