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Saturday, January 19, 2019

Starwood Property Trust Inc Stock Valuation – February 2016 $STWD


Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Starwood Property Trust Inc (STWD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Starwood Property Trust, Inc. is a holding company that operates as a real estate investment trust (REIT). The Company, through its subsidiaries, focuses on originating, acquiring, financing and managing commercial mortgage loans, commercial mortgage-backed securities (CMBS), and other commercial real estate-related debt investments in the United States and Europe. The Company operates through two segments: Lending Segment, and Investing and Servicing Segment. The Company’s Lending Segment represents investments in real estate-related loans and securities that are held-for-investment. The Investing and Servicing Segment includes servicing businesses in the United States and Europe, an investment business that acquires and manages real estate finance investments, and a mortgage loan business. The Company is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of STWD

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,309,192,222 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 20733233.33% Pass
5. Moderate PEmg Ratio PEmg < 20 8.89 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.02 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

STWD value chart February 2016

EPSmg $2.01
MG Growth Estimate 15.00%
MG Value $77.31
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $29.12
MG Value based on 0% Growth $17.07
Market Implied Growth Rate 0.20%
Current Price $17.86
% of Intrinsic Value 23.10%

Starwood Property Trust, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.76 in 2011 to an estimated $2.01 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.2% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Starwood Property Trust, Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

STWD charts February 2016

Graham Number $29.20
PEmg 8.89
PB Ratio 1.02
Dividend Yield 10.75%
Number of Consecutive Years of Dividend Growth 6

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Long-Term Debt $1,320,207,000
Total Assets $91,819,407,000
Intangible Assets $331,517,000
Total Liabilities $87,648,634,000
Shares Outstanding (Diluted Average) 237,925,000

Earnings Per Share History

Next Fiscal Year Estimate $2.16
Dec2014 $2.24
Dec2013 $1.82
Dec2012 $1.76
Dec2011 $1.38
Dec2010 $1.14

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.01
Dec2014 $1.84
Dec2013 $1.50
Dec2012 $1.18
Dec2011 $0.76
Dec2010 $0.38

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies with a Low Beta – February 2016
Starwood Property Trust Inc. Valuation – October 2015 Update $STWD
10 Most Undervalued Companies for the Enterprising Investor – October 2015
The Best Companies of the Banking Industry – October 2015
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – October 2015

Other ModernGraham posts about related companies

Kimco Realty Corp Stock Valuation – February 2016 $KIM
HCP Inc Valuation – January 2016 Update $HCP
Macerich Co Valuation – January 2016 Update $MAC
American Tower Corp Valuation – November 2015 Update $AMT
Weyerhaeuser Co Valuation – November 2015 Update $WY
Boston Properties Inc. Valuation – November 2015 Update $BXP
Welltower Inc. Valuation – November 2015 Update $HCN
Kimco Realty Corporation Valuation – November 2015 Update $KIM
Prologis Inc. Valuation – October 2015 Update $PLD
HCP Inc. Valuation – October 2015 Update $HCP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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