REIT Stocks

Vornado Realty Trust Valuation – July 2016 $VNO

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 – June 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 Vornado Realty Trust (VNO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Vornado Realty Trust is a fully integrated real estate investment trust (REIT). The Company conducts its business through, and its interests in properties are held by, Vornado Realty L.P. (the Operating Partnership). It is the sole general partner of, and owns common limited partnership interest in the Operating Partnership. Its segments include New York and Washington, DC. The New York segment consists of approximately 29.3 million square feet in over 80 properties. The Washington, DC segment consists of over 70 properties aggregating approximately 20 million square feet, which consists of over 15.8 million square feet of office space in over 60 properties, seven residential properties containing over 2,410 units and a hotel property. It also owns approximately 3.6 million square foot Mart (theMart) in Chicago; interest in 555 California Street; interest in Vornado Capital Partners, its real estate fund; interest in Toys “R” Us, Inc., and other real estate and other investments.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of VNO – July 2016

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 $18,888,533,686 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 121.67% Pass
5. Moderate PEmg Ratio PEmg < 20 26.29 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.90 Fail
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

VNO value chart July 2016

EPSmg $3.82
MG Growth Estimate 6.46%
MG Value $81.74
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $55.32
MG Value based on 0% Growth $32.43
Market Implied Growth Rate 8.89%
Current Price $100.30
% of Intrinsic Value 122.70%

Vornado Realty Trust is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 Overvalued after growing its EPSmg (normalized earnings) from $2.67 in 2012 to an estimated $3.82 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.89% 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 below the price.

Vornado Realty Trust receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

VNO charts July 2016

Graham Number $53.99
PEmg 26.29
PB Ratio 2.90
Dividend Yield 2.51%
TTM Dividend $2.52
Number of Consecutive Years of Dividend Growth 0

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Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-Term Debt $11,059,832,000
Total Assets $20,873,374,000
Intangible Assets $218,388,000
Total Liabilities $14,348,450,000
Shares Outstanding (Diluted Average) 188,658,000

Earnings Per Share History

Next Fiscal Year Estimate $4.66
Dec2015 $3.59
Dec2014 $4.15
Dec2013 $2.09
Dec2012 $2.94
Dec2011 $3.23
Dec2010 $3.24
Dec2009 $0.28
Dec2008 $2.10
Dec2007 $3.22
Dec2006 $3.29
Dec2005 $3.43
Dec2004 $4.27
Dec2003 $3.73
Dec2002 $1.87
Dec2001 $2.42
Dec2000 $2.16
Dec1999 $1.90
Dec1998 $1.56
Dec1997 $0.78
Dec1996 $2.44

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.82
Dec2015 $3.33
Dec2014 $3.18
Dec2013 $2.58
Dec2012 $2.67
Dec2011 $2.49
Dec2010 $2.22
Dec2009 $1.96
Dec2008 $2.96
Dec2007 $3.45
Dec2006 $3.48
Dec2005 $3.44
Dec2004 $3.26
Dec2003 $2.64
Dec2002 $2.06
Dec2001 $2.02
Dec2000 $1.80

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
Vornado Realty Trust Annual Valuation – 2015 $VNO
16 Companies in the Spotlight This Week – 5/24/14
Vornado Realty Trust 2014 Annual Valuation $VNO

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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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