Public Storage Valuation – January 2019 $PSA

Company Profile (excerpt from Reuters): Public Storage, incorporated on March 13, 2007, is a real estate investment trust (REIT). The Company’s principal business activities include the ownership and operation of self-storage facilities, which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities, such as merchandise sales and tenant reinsurance to the tenants at its self-storage facilities, as well as the acquisition and development of additional self-storage space. The Company’s segments include Self-Storage Operations, Ancillary Operations, Investment in PS Business Parks, Inc. (PSB) and Investment in Shurgard Europe.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PSA – January 2019

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $35,967,888,219 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.06 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 130.08% Pass
6. Moderate PEmg Ratio PEmg < 20 30.47 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.04 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.06 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 62.87 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.79
MG Growth Estimate 7.99%
MG Value $166.23
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $98.45
MG Value based on 0% Growth $57.71
Market Implied Growth Rate 10.98%
Current Price $206.86
% of Intrinsic Value 124.44%

Public Storage does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.43 in 2014 to an estimated $6.79 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Public Storage revealed the company was trading above its Graham Number of $68.7. The company pays a dividend of $8 per share, for a yield of 3.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 30.47, which was below the industry average of 70.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.

Public Storage scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$8.00
Graham Number $68.70
PEmg 30.47
Current Ratio 1.06
PB Ratio 4.04
Current Dividend $8.00
Dividend Yield 3.87%
Number of Consecutive Years of Dividend Growth 8

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 9/1/2018
Total Current Assets $432,525,000
Total Current Liabilities $409,973,000
Long-Term Debt $1,417,945,000
Total Assets $10,747,940,000
Intangible Assets $209,317,000
Total Liabilities $1,827,918,000
Shares Outstanding (Diluted Average) 174,348,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.42
Dec2017 $6.73
Dec2016 $6.81
Dec2015 $6.07
Dec2014 $5.25
Dec2013 $4.89
Dec2012 $3.90
Dec2011 $3.29
Dec2010 $2.35
Dec2009 $3.47
Dec2008 $4.18
Dec2007 $1.17
Dec2006 $0.33
Dec2005 $1.97
Dec2004 $1.38
Dec2003 $1.28
Dec2002 $1.14
Dec2001 $1.39
Dec2000 $1.41
Dec1999 $1.52
Dec1998 $1.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.79
Dec2017 $6.30
Dec2016 $5.85
Dec2015 $5.14
Dec2014 $4.43
Dec2013 $3.87
Dec2012 $3.39
Dec2011 $3.05
Dec2010 $2.72
Dec2009 $2.68
Dec2008 $2.13
Dec2007 $1.14
Dec2006 $1.16
Dec2005 $1.53
Dec2004 $1.31
Dec2003 $1.30
Dec2002 $1.32

Recommended Reading:

Other ModernGraham posts about the company

Public Storage Valuation – March 2018 $PSA
Public Storage Valuation – July 2016 $PSA
24 Companies in the Spotlight This Week – 3/28/15
Public Storage Annual Valuation – 2015 $PSA
17 Companies in the Spotlight This Week – 3/22/14

Other ModernGraham posts about related companies

Macerich Co Valuation – January 2019 $MAC
HCP Inc Valuation – January 2019 $HCP
Apartment Investment and Management Co Valuation – January 2019 $AIV
Simon Property Group Inc Valuation – January 2019 $SPG
Crown Castle International Corp Valuation – January 2019 $CCI
Welltower Inc Valuation – January 2019 $WELL
Boston Properties Inc Valuation – January 2019 $BXP
AvalonBay Communities Inc Valuation – December 2018 $AVB
Weyerhaeuser Co Valuation – December 2018 $WY
Alexandria Real Estate Equities Inc Valuation – November 2018 $ARE

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.

Public Storage Valuation – March 2018 $PSA

Company Profile (excerpt from Reuters): Public Storage, incorporated on March 13, 2007, is a real estate investment trust (REIT). The Company’s principal business activities include the ownership and operation of self-storage facilities, which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities, such as merchandise sales and tenant reinsurance to the tenants at its self-storage facilities, as well as the acquisition and development of additional self-storage space. The Company’s segments include Self-Storage Operations, Ancillary Operations, Investment in PS Business Parks, Inc. (PSB) and Investment in Shurgard Europe.

PSA Chart

PSA data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PSA – March 2018

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $34,876,118,567 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.29 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 127.88% Pass
6. Moderate PEmg Ratio PEmg < 20 29.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.91 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.29 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 14.88 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.72
MG Growth Estimate 7.77%
MG Value $161.56
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $97.48
MG Value based on 0% Growth $57.14
Market Implied Growth Rate 10.65%
Current Price $200.39
% of Intrinsic Value 124.03%

Public Storage does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.43 in 2014 to an estimated $6.72 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Public Storage revealed the company was trading above its Graham Number of $67.73. The company pays a dividend of $8 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 29.81, which was below the industry average of 42.02, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.8.

Public Storage scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.80
Graham Number $67.73
PEmg 29.81
Current Ratio 1.29
PB Ratio 3.91
Current Dividend $8.00
Dividend Yield 3.99%
Number of Consecutive Years of Dividend Growth 8

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 12/1/2017
Total Current Assets $433,376,000
Total Current Liabilities $337,201,000
Long-Term Debt $1,431,322,000
Total Assets $10,732,892,000
Intangible Assets $214,957,000
Total Liabilities $1,792,883,000
Shares Outstanding (Diluted Average) 174,220,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.22
Dec2017 $6.73
Dec2016 $6.81
Dec2015 $6.07
Dec2014 $5.25
Dec2013 $4.89
Dec2012 $3.90
Dec2011 $3.29
Dec2010 $2.35
Dec2009 $3.47
Dec2008 $4.18
Dec2007 $1.17
Dec2006 $0.33
Dec2005 $1.97
Dec2004 $1.38
Dec2003 $1.28
Dec2002 $1.14
Dec2001 $1.39
Dec2000 $1.41
Dec1999 $1.52
Dec1998 $1.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.72
Dec2017 $6.30
Dec2016 $5.85
Dec2015 $5.14
Dec2014 $4.43
Dec2013 $3.87
Dec2012 $3.39
Dec2011 $3.05
Dec2010 $2.72
Dec2009 $2.68
Dec2008 $2.13
Dec2007 $1.14
Dec2006 $1.16
Dec2005 $1.53
Dec2004 $1.31
Dec2003 $1.30
Dec2002 $1.32

Recommended Reading:

Other ModernGraham posts about the company

Public Storage Valuation – July 2016 $PSA
24 Companies in the Spotlight This Week – 3/28/15
Public Storage Annual Valuation – 2015 $PSA
17 Companies in the Spotlight This Week – 3/22/14
Public Storage Inc. (PSA) Annual Valuation – 2014

Other ModernGraham posts about related companies

HCP Inc Valuation – March 2018 $HCP
Apartment Investment & Management Co Valuation – March 2018 $AIV
Crown Castle International Corp Valuation – March 2018 $CCI
GGP Inc Valuation – March 2018 $GGP
Starwood Property Trust Inc Valuation – March 2018 $STWD
Simon Property Group Inc Valuation – March 2018 $SPG
Welltower Inc Valuation – March 2018 $WELL
Boston Properties Inc Valuation – March 2018 $BXP
AvalonBay Communities Inc Valuation – February 2018 $AVB
Weyerhauser Co Valuation – February 2018 $WY

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.

Public Storage Valuation – July 2016 $PSA

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 Public Storage (PSA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Public Storage is a real estate investment trust. The Company’s business activities include the ownership and operation of self-storage facilities, which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities, such as merchandise sales and tenant reinsurance to the tenants at its self-storage facilities, as well as the acquisition and development of additional self-storage space. It operates through Self-Storage Operations, Ancillary Operations, Investment in PS Business Parks, Inc. (PSB) and Investment in Shurgard Europe segments. It also has direct and indirect equity interests in over 30 million net rentable square feet of commercial space located in over nine states in the United States primarily owned and operated by PSB under the PS Business Parks name. It manages approximately 30 self-storage facilities for third parties, and has equity interests in and manages over 12 additional self-storage facilities.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PSA – 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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $44,163,108,239 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 136.35% Pass
6. Moderate PEmg Ratio PEmg < 20 37.56 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.88 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 11.03 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PSA value chart July 2016

EPSmg $6.76
MG Growth Estimate 14.94%
MG Value $259.54
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $98.08
MG Value based on 0% Growth $57.49
Market Implied Growth Rate 14.53%
Current Price $254.07
% of Intrinsic Value 97.89%

Public Storage does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.39 in 2012 to an estimated $6.76 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 14.53% 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 within a margin of safety relative to the price.

Public Storage scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

PSA charts July 2016

Net Current Asset Value (NCAV) -$4.08
Graham Number $79.33
PEmg 37.56
Current Ratio 1.11
PB Ratio 4.88
Current Dividend $6.80
Dividend Yield 2.68%
Number of Consecutive Years of Dividend Growth 7

[/not-level-free]

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 3/1/2016
Total Current Assets $305,705,000
Total Current Liabilities $275,170,000
Long-Term Debt $336,664,000
Total Assets $10,064,347,000
Intangible Assets $212,506,000
Total Liabilities $1,015,581,000
Shares Outstanding (Diluted Average) 173,850,000

Earnings Per Share History

Next Fiscal Year Estimate $9.55
Dec2015 $6.07
Dec2014 $5.25
Dec2013 $4.89
Dec2012 $3.90
Dec2011 $3.29
Dec2010 $2.35
Dec2009 $3.47
Dec2008 $4.19
Dec2007 $1.17
Dec2006 $0.33
Dec2005 $1.97
Dec2004 $1.38
Dec2003 $1.28
Dec2002 $1.19
Dec2001 $1.51
Dec2000 $1.41
Dec1999 $1.52
Dec1998 $1.30
Dec1997 $0.91
Dec1996 $1.10

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.76
Dec2015 $5.14
Dec2014 $4.43
Dec2013 $3.87
Dec2012 $3.39
Dec2011 $3.05
Dec2010 $2.72
Dec2009 $2.68
Dec2008 $2.13
Dec2007 $1.14
Dec2006 $1.16
Dec2005 $1.54
Dec2004 $1.33
Dec2003 $1.34
Dec2002 $1.37
Dec2001 $1.42
Dec2000 $1.33

Recommended Reading:

Other ModernGraham posts about the company

24 Companies in the Spotlight This Week – 3/28/15
Public Storage Annual Valuation – 2015 $PSA
17 Companies in the Spotlight This Week – 3/22/14
Public Storage Inc. (PSA) Annual Valuation – 2014
10 Companies in the Spotlight This Week – 12/21/13

Other ModernGraham posts about related companies

Macerich Co Valuation – July 2016 $MAC
HCP Inc Valuation – July 2016 $HCP
Apartment Investment & Management Co Valuation – July 2016 $AIV
Crown Castle International Corp Valuation – June 2016 $CCI
General Growth Properties Inc Valuation – June 2016 $GGP
Boston Properties Inc Valuation – June 2016 $BXP
Simon Property Group Inc Valuation – June 2016 $SPG
AvalonBay Communities Inc Valuation – May 2016 $AVB
Weyerhaeuser Company Valuation – May 2016 $WY
Realty Income Corporation Valuation – May 2016 $O

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.

Public Storage Annual Valuation – 2015 $PSA

Public_Storage_Logo_2009Benjamin 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 5 Most Undervalued Companies for the Defensive Investor – March 2015.  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 specific look at how Public Storage (PSA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Public Storage (the Trust) is a real estate investment trust (REIT). The Trust’s principal business activities includes: Domestic Self-Storage, European Self-Storage and Commercial. It acquires, develops, owns, and operates self-storage facilities, which offer storage spaces for lease, on a month-to-month basis, for personal and business use. It is an owner and operator of self-storage facilities in the United States. It has direct and indirect equity interests in 2,200 self-storage facilities located in 38 states within the United States operating under the Public Storage brand name. The Trust has 49% equity interest in Shurgard Europe, with an institutional investor owning the remaining 51% interest. The Trust has 42% equity interest in PS Business Parks, Inc. (PSB), a publicly held REIT which owns and operates 29.7 million net rentable square feet of commercial space. It also wholly owns 1.4 million net rentable square feet of commercial space, all of which is managed by PSB.
PSA Chart

PSA data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $195.56
MG Value $120.94
MG Opinion Overvalued
Value Based on 3% Growth $64.23
Value Based on 0% Growth $37.65
Market Implied Growth Rate 17.83%
Net Current Asset Value (NCAV) -$0.87
PEmg 44.15
Current Ratio 0.76
PB Ratio 3.57

Balance Sheet – December 2014

Current Assets $188,000,000
Current Liabilities $247,000,000
Total Debt $64,000,000
Total Assets $9,819,000,000
Intangible Assets $229,000,000
Total Liabilities $338,000,000
Outstanding Shares 173,300,000

Earnings Per Share

2014 $5.25
2013 $4.89
2012 $3.90
2011 $3.29
2010 $2.35
2009 $3.47
2008 $4.18
2007 $1.17
2006 $0.33
2005 $1.97
2004 $1.39

Earnings Per Share – ModernGraham

2014 $4.43
2013 $3.87
2012 $3.39
2011 $3.05
2010 $2.72
2009 $2.68

Dividend History
PSA Dividend Chart

PSA Dividend data by YCharts

Conclusion:

Public Storage is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the the low current ratio and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.72 in 2010 to $4.43 for 2014.  This level of demonstrated growth does support the market’s implied estimate of 17.83% annual earnings growth over the next 7-10 years, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Public Storage (PSA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Public Storage (PSA) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Public Storage Inc. (PSA) Annual Valuation – 2014

Public_Storage_Logo_2009REITs often attract a great deal of investors because of their strong cash flows and dividends, and those investors often overlook other parts of the business, choosing to analyze the company under a different set of criteria than companies in other sectors.  This can create a problem in that it becomes difficult to compare a REIT to an industrial, which is fine if you use the typical top-down approach to stock selection; however, a top-down approach invites speculation in the fact that you are theorizing which sector will perform well going forward.  Benjamin Graham taught that we should avoid speculation as much as possible, which is why it is critical to develop a system for analyzing companies that will allow them to be compared across industries.  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 investment opportunity.  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 specific look at how Public Storage fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Public Storage (the Trust) is a real estate investment trust (REIT). As of December 31, 2012, the Trust’s principal business activities included: Domestic Self-Storage, European Self-Storage and Commercial. The Trust acquires, develops, owns, and operates self-storage facilities which offer storage spaces for lease, on a month-to-month basis, for personal and business use. It is a owner and operator of self-storage facilities in the United States. It has direct and indirect equity interests in 2,078 self-storage facilities (132 million net rentable square feet of space) located in 38 states within the United States operating under the Public Storage brand name. The Trust has a 49% equity interest in Shurgard Europe, with an institutional investor owning the remaining 51% interest. It has a 41% equity interest in PS Business Parks, Inc. (PSB), which owns and operates 28.3 million net rentable square feet of commercial space.

PSA Chart

PSA data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $168.36
MG Value $82.04
MG Opinion Overvalued
Value Based on 3% Growth $55.83
Value Based on 0% Growth $32.73
Market Implied Growth Rate 17.61%
Net Current Asset Value (NCAV) -$6.20
PEmg 43.73
Current Ratio 0.09
PB Ratio 3.29

Balance Sheet – 12/31/2013

Current Assets $19,200,000
Current Liabilities $218,400,000
Total Debt $839,100,000
Total Assets $9,876,300,000
Intangible Assets $246,900,000
Total Liabilities $1,084,500,000
Outstanding Shares 171,780,000

Earnings Per Share

2013 $4.89
2012 $3.83
2011 $3.28
2010 $2.31
2009 $3.52
2008 $4.20
2007 $1.17
2006 $0.32
2005 $1.92
2004 $1.39
2003 $1.27

Earnings Per Share – ModernGraham

2013 $3.85
2012 $3.36
2011 $3.05
2010 $2.73
2009 $2.70
2008 $2.12

Dividend History

PSA Dividend Chart

PSA Dividend data by YCharts

Conclusion:

Public Storage does not qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the turn offs are the low current ratio and the high PEmg and PB ratios.  For the Enterprising Investor, the issue is the high level of debt relative to the current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore opportunities through a review of 5 Undervalued Companies for the Defensive Investor or 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be overvalued after only growing its EPSmg (normalized earnings) from $2.70 in 2009 to $3.85 for 2013.  This demonstrated level of growth does not support the market’s implied estimate of 17.61% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Public Storage Inc. (PSA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Public Storage Inc. (PSA) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

ModernGraham Valuation: Public Storage (PSA)

moneyCompany Profile (obtained from Google Finance): Public Storage (the Trust) is a real estate investment trust (REIT). As of December 31, 2012, the Trust’s principal business activities included: Domestic Self-Storage, European Self-Storage and Commercial. The Trust acquires, develops, owns, and operates self-storage facilities which offer storage spaces for lease, on a month-to-month basis, for personal and business use. It is a owner and operator of self-storage facilities in the United States. It has direct and indirect equity interests in 2,078 self-storage facilities (132 million net rentable square feet of space) located in 38 states within the United States operating under the Public Storage brand name. The Trust has a 49% equity interest in Shurgard Europe, with an institutional investor owning the remaining 51% interest. It has a 41% equity interest in PS Business Parks, Inc. (PSB), which owns and operates 28.3 million net rentable square feet of commercial space.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $93.72
MG Opinion Overvalued
Value Based on 3% Growth $58.39
Value Based on 0% Growth $34.23
Market Implied Growth Rate 14.64%
Net Current Asset Value (NCAV) -$1.83
PEmg 37.79
Current Ratio 0.23
PB Ratio 2.98

Balance Sheet – 9/30/2013 

Current Assets $57,000,000
Current Liabilities $243,000,000
Total Debt $100,100,000
Total Assets $9,149,900,000
Intangible Assets $217,000,000
Total Liabilities $371,000,000
Outstanding Shares 171,760,000

Earnings Per Share

2013 (estimate) $5.42
2012 $3.83
2011 $3.28
2010 $2.31
2009 $3.52
2008 $4.20
2007 $1.17
2006 $0.32
2005 $1.92
2004 $1.39
2003 $1.27

Earnings Per Share – Modern Graham 

2013 (estimate) $4.03
2012 $3.36
2011 $3.05
2010 $2.73
2009 $2.70
2008 $2.12

Conclusion:

Public Storage is a company that fails to satisfy either the Defensive Investor or the Enterprising Investor because of its low level of current assets.  The ModernGraham system puts a high emphasis on the current ratio, and Public Storage’s balance sheet is largely based on its real estate holdings (which is true for most REITs).  It is possible for a REIT to pass the requirements of the Defensive Investor by passing all of the requirements not dealing with the current ratio, but in this case Public Storage is trading at high PEmg and PB ratios, and therefore is not suitable for the Defensive Investor.  The Enterprising Investor is completely turned off by the level of debt relative to the current assets.  As a result, investors should keep the company on a watch list to see if the PEmg and PB ratios improve.  With regard to the valuation, the market is implying a growth rate of 14.64%, which is not supported by the historical level of growth.  Public Storage has displayed a significant amount of growth, but nowhere near the market’s implied estimate and the company would appear to be overvalued at the current time.

What do you think?  Do you agree that Public Storage is overvalued?  Is the company not suitable for Defensive Investors and Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Public Storage (PSA) at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

Extra Space Storage Inc Valuation – March 2019 #EXR

Company Profile (excerpt from Reuters): Extra Space Storage Inc., incorporated on April 30, 2004, is a self-administered and self-managed real estate investment trust (REIT). The Company owns, operates, manages, acquires, develops and redevelops self-storage properties located throughout the United States. The Company operates through three segments: rental operations; tenant reinsurance, and property management, acquisition and development. The Company’s rental operations activities include rental operations of stores in which it has an ownership interest. The Tenant reinsurance activities include the reinsurance of risks relating to the loss of goods stored by tenants in its stores. The Company’s property management, acquisition and development activities include managing, acquiring, developing and selling stores.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EXR – March 2019

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,701,894,064 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.50 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 403.54% Pass
6. Moderate PEmg Ratio PEmg < 20 32.23 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.79 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.50 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -65.05 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.10
MG Growth Estimate 15.00%
MG Value $119.20
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $44.89
MG Value based on 0% Growth $26.32
Market Implied Growth Rate 11.86%
Current Price $99.78
% of Intrinsic Value 83.71%

Extra Space Storage, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.42 in 2015 to an estimated $3.1 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 11.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Extra Space Storage, Inc. revealed the company was trading above its Graham Number of $35.52. The company pays a dividend of $3.36 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 32.23, which was below the industry average of 61.92, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-37.35.

Extra Space Storage, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$37.35
Graham Number $35.52
PEmg 32.23
Current Ratio 0.50
PB Ratio 4.79
Current Dividend $3.36
Dividend Yield 3.37%
Number of Consecutive Years of Dividend Growth 9

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 12/1/2018
Total Current Assets $72,690,000
Total Current Liabilities $146,658,000
Long-Term Debt $4,811,515,000
Total Assets $7,847,978,000
Intangible Assets $0
Total Liabilities $5,062,556,000
Shares Outstanding (Diluted Average) 133,589,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.94
Dec2018 $3.27
Dec2017 $3.76
Dec2016 $2.91
Dec2015 $1.56
Dec2014 $1.53
Dec2013 $1.53
Dec2012 $1.14
Dec2011 $0.54
Dec2010 $0.30
Dec2009 $0.37
Dec2008 $0.46
Dec2007 $0.53
Dec2006 $0.27
Dec2005 -$0.14
Dec2004 -$1.68
Dec2003 -$5.62
Dec2002 -$3.84

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.10
Dec2018 $2.98
Dec2017 $2.65
Dec2016 $1.97
Dec2015 $1.42
Dec2014 $1.24
Dec2013 $0.99
Dec2012 $0.66
Dec2011 $0.43
Dec2010 $0.38
Dec2009 $0.38
Dec2008 $0.22
Dec2007 -$0.38
Dec2006 -$1.29
Dec2005 -$2.13
Dec2004 -$2.83
Dec2003 -$2.90

Recommended Reading:

Other ModernGraham posts about the company

Extra Space Storage Inc Valuation – June 2018 $EXR
Extra Space Storage Inc Valuation – Initial Coverage $EXR

Other ModernGraham posts about related companies

Equity Residential Valuation – March 2019 #EQR
Prologis Inc Valuation – March 2019 #PLD
Duke Realty Corp Valuation – March 2019 $DRE
Realty Income Corp Valuation – February 2019 $O
Ventas Inc Valuation – February 2019 $VTR
SL Green Realty Corp Valuation – February 2019 $SLG
Regency Centers Corp Valuation – February 2019 $REG
Host Hotels & Resorts Inc Valuation – February 2019 $HST
Vornado Realty Trust Valuation – January 2019 $VNO
Public Storage Valuation – January 2019 $PSA

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.

Digital Realty Trust Inc Valuation – March 2019 #DLR

Company Profile (excerpt from Reuters): Digital Realty Trust, Inc., incorporated on March 9, 2004, is a real estate investment trust (REIT). The Company is engaged in the business of owning, acquiring, developing and operating data centers. It is focused on providing data center and colocation solutions for domestic and international tenants across a range of industry verticals ranging from financial services, cloud and information technology services, to manufacturing, energy, healthcare and consumer products. As of December 31, 2016, its portfolio consisted of 145 operating properties, including 14 properties held as investments in unconsolidated joint ventures, of which 104 are located throughout the United States, 32 are located in Europe, four are located in Asia, three are located in Australia and two are located in Canada.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DLR – March 2019

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,947,537,171 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.31 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -13.22% Fail
6. Moderate PEmg Ratio PEmg < 20 96.72 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.20 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.31 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -11.62 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.19
MG Growth Estimate -3.03%
MG Value $2.90
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $17.27
MG Value based on 0% Growth $10.13
Market Implied Growth Rate 44.11%
Current Price $115.23
% of Intrinsic Value 3975.43%

DIGITAL RLTY TR/SH does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.49 in 2015 to an estimated $1.19 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 44.11% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into DIGITAL RLTY TR/SH revealed the company was trading above its Graham Number of $27.74. The company pays a dividend of $4.04 per share, for a yield of 3.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 96.72, which was above the industry average of 61.92. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-60.29.

DIGITAL RLTY TR/SH scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$60.29
Graham Number $27.74
PEmg 96.72
Current Ratio 0.31
PB Ratio 2.20
Current Dividend $4.04
Dividend Yield 3.51%
Number of Consecutive Years of Dividend Growth 15

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 12/1/2018
Total Current Assets $426,321,000
Total Current Liabilities $1,381,750,000
Long-Term Debt $11,101,479,000
Total Assets $23,766,695,000
Intangible Assets $7,612,161,000
Total Liabilities $12,908,485,000
Shares Outstanding (Diluted Average) 207,027,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.82
Dec2018 $1.21
Dec2017 $0.99
Dec2016 $2.20
Dec2015 $1.56
Dec2014 $0.99
Dec2013 $2.12
Dec2012 $1.48
Dec2011 $1.32
Dec2010 $0.68
Dec2009 $0.61
Dec2008 $0.38
Dec2007 $0.30
Dec2006 $0.47
Dec2005 $0.25
Dec2004 -$0.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.19
Dec2018 $1.38
Dec2017 $1.50
Dec2016 $1.73
Dec2015 $1.49
Dec2014 $1.41
Dec2013 $1.50
Dec2012 $1.09
Dec2011 $0.81
Dec2010 $0.54
Dec2009 $0.44
Dec2008 $0.31
Dec2007 $0.24
Dec2006 $0.16
Dec2005 $0.00
Dec2004 -$0.10

Recommended Reading:

Other ModernGraham posts about the company

Digital Realty Trust Inc Valuation – June 2018 $DLR
Digital Realty Trust Inc Valuation – Initial Coverage $DLR

Other ModernGraham posts about related companies

Equity Residential Valuation – March 2019 #EQR
Prologis Inc Valuation – March 2019 #PLD
Duke Realty Corp Valuation – March 2019 $DRE
Realty Income Corp Valuation – February 2019 $O
Ventas Inc Valuation – February 2019 $VTR
SL Green Realty Corp Valuation – February 2019 $SLG
Regency Centers Corp Valuation – February 2019 $REG
Host Hotels & Resorts Inc Valuation – February 2019 $HST
Vornado Realty Trust Valuation – January 2019 $VNO
Public Storage Valuation – January 2019 $PSA

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.

Equity Residential Valuation – March 2019 #EQR

Company Profile (excerpt from Reuters): Equity Residential, incorporated on July 21, 1992, is a real estate investment trust. The Company’s primary business is the acquisition, development and management of multifamily residential properties. Its segments include Boston, New York, Washington D.C., Southern California, San Francisco, Seattle and Other Markets. Southern California includes Los Angeles, San Diego and Orange County. Other Markets includes Phoenix. It is engaged in leasing of apartment units to residents. It focuses on rental apartment properties in urban and high-density suburban coastal gateway markets.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EQR – March 2019

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $27,685,836,753 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.13 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -30.92% Fail
6. Moderate PEmg Ratio PEmg < 20 25.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.77 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -27.19 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.91
MG Growth Estimate 0.36%
MG Value $26.77
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $42.14
MG Value based on 0% Growth $24.70
Market Implied Growth Rate 8.63%
Current Price $74.85
% of Intrinsic Value 279.62%

Equity Residential does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.84 in 2015 to an estimated $2.91 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.63% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Equity Residential revealed the company was trading above its Graham Number of $26.99. The company pays a dividend of $2.16 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 25.76, which was below the industry average of 61.92, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-25.87.

Equity Residential scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$25.87
Graham Number $26.99
PEmg 25.76
Current Ratio 0.13
PB Ratio 2.77
Current Dividend $2.16
Dividend Yield 2.89%
Number of Consecutive Years of Dividend Growth 1

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 12/1/2018
Total Current Assets $47,442,000
Total Current Liabilities $371,694,000
Long-Term Debt $8,817,939,000
Total Assets $20,394,209,000
Intangible Assets $0
Total Liabilities $9,994,560,000
Shares Outstanding (Diluted Average) 384,481,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.18
Dec2018 $1.77
Dec2017 $1.63
Dec2016 $11.68
Dec2015 $2.36
Dec2014 $1.73
Dec2013 $5.16
Dec2012 $2.70
Dec2011 $2.98
Dec2010 $0.95
Dec2009 $1.27
Dec2008 $1.46
Dec2007 $3.39
Dec2006 $3.50
Dec2005 $2.79
Dec2004 $1.50
Dec2003 $1.57
Dec2002 $1.18
Dec2001 $1.34
Dec2000 $1.67
Dec1999 $1.14

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.91
Dec2018 $3.79
Dec2017 $4.70
Dec2016 $5.74
Dec2015 $2.84
Dec2014 $2.95
Dec2013 $3.25
Dec2012 $2.15
Dec2011 $1.92
Dec2010 $1.63
Dec2009 $2.14
Dec2008 $2.56
Dec2007 $2.93
Dec2006 $2.50
Dec2005 $1.89
Dec2004 $1.44
Dec2003 $1.40

Recommended Reading:

Other ModernGraham posts about the company

Equity Residential Valuation – June 2018 $EQR
11 Best Stocks for Value Investors This Week – 3/4/17
10 Low PE Stock Picks for the Defensive Investor – February 2017
Equity Residential Valuation – February 2017 $EQR
Most Undervalued Stocks of the S&P 500 – February 2017

Other ModernGraham posts about related companies

Duke Realty Corp Valuation – March 2019 $DRE
Realty Income Corp Valuation – February 2019 $O
Ventas Inc Valuation – February 2019 $VTR
SL Green Realty Corp Valuation – February 2019 $SLG
Regency Centers Corp Valuation – February 2019 $REG
Host Hotels & Resorts Inc Valuation – February 2019 $HST
Vornado Realty Trust Valuation – January 2019 $VNO
Public Storage Valuation – January 2019 $PSA
Macerich Co Valuation – January 2019 $MAC
HCP Inc Valuation – January 2019 $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.

Prologis Inc Valuation – March 2019 #PLD

Company Profile (excerpt from Reuters): Prologis, Inc., incorporated on November 24, 1997, is a real estate investment trust (REIT) company. The Company is engaged in logistics real estate business. The Company’s segments include Real Estate Operations and Strategic Capital. The Company is focused on markets across the United States, Other Americas, Europe and Asia. As of December 31, 2016, the Company owned or had investments in, on an owned basis or through co-investment ventures, properties and development projects across 676 million square feet (63 million square meters) in 20 countries spanning four continents. The Company is the general partner of Prologis, L.P.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PLD – March 2019

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $44,086,680,538 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.58 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -208.65% Fail
6. Moderate PEmg Ratio PEmg < 20 31.80 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.78 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 22.96 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.20
MG Growth Estimate 15.00%
MG Value $84.67
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $31.89
MG Value based on 0% Growth $18.69
Market Implied Growth Rate 11.65%
Current Price $69.94
% of Intrinsic Value 82.60%

Prologis Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.95 in 2015 to an estimated $2.2 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 11.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Prologis Inc revealed the company was trading above its Graham Number of $31.26. The company pays a dividend of $1.92 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.8, which was below the industry average of 61.92, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.25.

Prologis Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.25
Graham Number $31.26
PEmg 31.80
Current Ratio 1.58
PB Ratio 1.78
Current Dividend $1.92
Dividend Yield 2.75%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,314,251,000
Total Current Liabilities $831,318,000
Long-Term Debt $11,089,815,000
Total Assets $38,417,664,000
Intangible Assets $450,690,000
Total Liabilities $12,616,776,000
Shares Outstanding (Diluted Average) 655,159,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.23
Dec2018 $2.87
Dec2017 $3.06
Dec2016 $2.27
Dec2015 $1.64
Dec2014 $1.24
Dec2013 $0.64
Dec2012 -$0.18
Dec2011 -$0.51
Dec2010 -$5.90
Dec2009 -$0.37
Dec2008 -$0.68
Dec2007 $2.96
Dec2006 $2.30
Dec2005 $2.85
Dec2004 $1.39
Dec2003 $1.41
Dec2002 $0.75
Dec2001 $1.41
Dec2000 $1.35
Dec1999 $1.94

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.20
Dec2018 $2.53
Dec2017 $2.16
Dec2016 $1.52
Dec2015 $0.95
Dec2014 $0.09
Dec2013 -$0.75
Dec2012 -$1.47
Dec2011 -$1.71
Dec2010 -$1.65
Dec2009 $0.78
Dec2008 $1.50
Dec2007 $2.45
Dec2006 $2.04
Dec2005 $1.80
Dec2004 $1.27
Dec2003 $1.26

Recommended Reading:

Other ModernGraham posts about the company

Prologis Inc Valuation – May 2018 $PLD
Prologis Inc Valuation – February 2017 $PLD
Prologis Inc. Valuation – October 2015 Update $PLD
28 Companies in the Spotlight This Week – 11/1/14
Prologis Inc. Annual Valuation – 2014 $PLD

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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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