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 – March 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 Simon Property Group Inc (SPG) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Simon Property Group, Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company owns, develops and manages retail real estate properties, which consist primarily of malls, Premium Outlets and The Mills. Simon Property Group, L.P. (Operating Partnership), is the Company’s partnership subsidiary that owns all of its real estate properties and other assets. The Company owns an interest in approximately 210 income-producing properties in the United States, which consists of approximately 110 malls, 70 Premium Outlets, 15 Mills and 12 other retail properties in over 35 states and Puerto Rico. The Company also owns The Mills at Jersey Gardens in Elizabeth, New Jersey, and University Park Village in Fort Worth, Texas. The Company is involved in redevelopment and expansion projects, including the addition of anchors and big box tenants, underway at approximately 25 properties in the United States.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SPG – June 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 | $62,025,336,752 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.18 | 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 | 333.88% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 28.90 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 13.50 | Fail | |
| Score | ||||
| 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 | 1.18 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 108.77 | 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 | $6.93 |
| MG Growth Estimate | 15.00% |
| MG Value | $266.75 |
| Opinion | Fairly Valued |
| MG Grade | C- |
| MG Value based on 3% Growth | $100.47 |
| MG Value based on 0% Growth | $58.89 |
| Market Implied Growth Rate | 10.20% |
| Current Price | $200.26 |
| % of Intrinsic Value | 75.07% |
Simon Property Group 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 $3.19 in 2012 to an estimated $6.93 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.2% 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 within a margin of safety relative to the price.
Simon Property Group 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) | -$82.19 |
| Graham Number | $59.56 |
| PEmg | 28.90 |
| Current Ratio | 1.18 |
| PB Ratio | 13.50 |
| Current Dividend | $6.25 |
| Dividend Yield | 3.12% |
| 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 | 3/1/2016 |
| Total Current Assets | $1,378,331,000 |
| Total Current Liabilities | $1,167,101,000 |
| Long-Term Debt | $22,975,821,000 |
| Total Assets | $31,398,498,000 |
| Intangible Assets | $0 |
| Total Liabilities | $26,807,914,000 |
| Shares Outstanding (Diluted Average) | 309,416,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $10.73 |
| Dec2015 | $5.88 |
| Dec2014 | $4.52 |
| Dec2013 | $4.24 |
| Dec2012 | $4.72 |
| Dec2011 | $3.48 |
| Dec2010 | $2.10 |
| Dec2009 | $1.05 |
| Dec2008 | $1.87 |
| Dec2007 | $1.95 |
| Dec2006 | $2.19 |
| Dec2005 | $1.82 |
| Dec2004 | $1.44 |
| Dec2003 | $1.65 |
| Dec2002 | $1.99 |
| Dec2001 | $0.85 |
| Dec2000 | $1.08 |
| Dec1999 | $0.97 |
| Dec1998 | $1.06 |
| Dec1997 | $1.08 |
| Dec1996 | $0.98 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $6.93 |
| Dec2015 | $4.87 |
| Dec2014 | $4.19 |
| Dec2013 | $3.72 |
| Dec2012 | $3.19 |
| Dec2011 | $2.31 |
| Dec2010 | $1.76 |
| Dec2009 | $1.65 |
| Dec2008 | $1.92 |
| Dec2007 | $1.90 |
| Dec2006 | $1.86 |
| Dec2005 | $1.64 |
| Dec2004 | $1.50 |
| Dec2003 | $1.46 |
| Dec2002 | $1.31 |
| Dec2001 | $0.98 |
| Dec2000 | $1.04 |
Recommended Reading:
Other ModernGraham posts about the company
| Simon Property Group Annual Valuation – 2015 $SPG | |
| 10 Companies in the Spotlight This Week – 12/28/13 | |
| ModernGraham Valuation: Simon Property Group (SPG) |
Other ModernGraham posts about related companies
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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