Boston Properties Inc. Quarterly Stock Valuation – October 2014 $BXP

220px-Boston-prpts-logoBenjamin 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 Undervalued Companies for the Defensive Investor.  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 Boston Properties Inc. (BXP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Boston Properties, Inc. is an integrated, self-administered and self-managed real estate investment trust (REIT). The Company is an owner and developer of office properties in the United States. The Company’s properties are concentrated in five markets: Boston, New York, Princeton, San Francisco and Washington, DC. As of December 31, 2012, the Company owned or had interests in 157 properties, totaling approximately 44.4 million net rentable square feet, including seven properties under construction totaling approximately 2.8 million net rentable square feet. In March 2012, the Company acquired 100 Federal Street in Boston, Massachusetts from an affiliate of Bank of America, N.A. On March 1, 2012, the Company acquired 453 Ravendale Drive. On October 4, 2012, the Company acquired Fountain Square. In June 2013, Sungate Fifth Avenue LLC and 767 LLC, acquired a 40% interest in the General Motors Building located in New York, from joint venture partners of Boston Properties Inc.
BXP Chart

BXP 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 - PASS
  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 - FAIL
  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 = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  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 $119.56
MG Value $60.29
MG Opinion Overvalued
Value Based on 3% Growth $54.19
Value Based on 0% Growth $31.77
Market Implied Growth Rate 11.75%
Net Current Asset Value (NCAV) -$74.20
PEmg 31.99
Current Ratio 3.79
PB Ratio 3.22

Balance Sheet – 6/30/2014

Current Assets $1,840,000,000
Current Liabilities $485,000,000
Total Debt $10,739,000,000
Total Assets $18,899,000,000
Intangible Assets $0
Total Liabilities $13,208,000,000
Outstanding Shares 153,200,000

Earnings Per Share

2014 (estimate) $5.20
2013 $4.86
2012 $1.92
2011 $1.86
2010 $1.14
2009 $1.76
2008 $0.87
2007 $10.94
2006 $7.46
2005 $3.86
2004 $2.61

Earnings Per Share – ModernGraham

2014 (estimate) $3.74
2013 $2.77
2012 $1.66
2011 $2.12
2010 $2.98
2009 $4.26

Dividend History
BXP Dividend Chart

BXP Dividend data by YCharts


Boston Properties is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the company’s low level of growth over the last ten years and the high PEmg and PB ratios.  The Enterprising Investor’s only concern is the level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.98 in 2010 to an estimated $3.74 in 2014.  This level of demonstrated growth does not support the market’s implied estimate of 11.75% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value 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 Boston Properties Inc. (BXP)?  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 Boston Properties Inc. (BXP) 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 or the company website for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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