Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 5 Most Undervalued Companies for the Defensive Investor – May 2015.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a MacerichÂ stock analysis showing a specific look at how Macerich Company (MAC)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): The Macerich Company is a fully integrated self-managed and self-administered real estate investment trust (REIT), which focuses on the acquisition, leasing, management, development and redevelopment of regional malls throughout the United States. The Company owns 54 million square feet of real estate consisting primarily of interests in 51 regional shopping centers. The Company specializes in retail properties with presence in the Pacific Rim, Arizona, Chicago and the Metro New York to Washington, DC corridor.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â PASS
- 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 -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
|Value Based on 3% Growth||$73.32|
|Value Based on 0% Growth||$42.98|
|Market Implied Growth Rate||3.98%|
Balance Sheet – MarchÂ 2015
Earnings Per Share
Earnings Per ShareÂ – ModernGraham
As this MacerichÂ stock analysis shows, Macerich CompanyÂ is suitableÂ for both the Defensive Investor and the Enterprising Investor. Â The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company satisfies the more conservative Defensive Investor. Â As a result, all value investorsÂ following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities. Â From a valuation side of things,Â the company appears to be undervalued afterÂ growingÂ its EPSmg (normalized earnings) from $1.09 in 2011 to an estimated $5.06 for 2015. Â This level of demonstrated growth outpaces the market’s implied estimate of 3.98% annual earnings growth over the next 7-10 years and leads the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well aboveÂ the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Macerich Company (MAC)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Disclaimer: Â 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. Â Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
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