Realty Income Corp Valuation – November 2016 $O

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 Stocks for Using A Benjamin Graham Value Investing Strategy – August 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 Realty Income Corp (O) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Realty Income Corporation is a real estate investment trust (REIT). The Company is engaged in in-house acquisition, portfolio management, asset management, credit research, real estate research, legal, finance and accounting, information technology and capital markets capabilities. Its portfolio includes approximately 4,540 properties, of which over 4,519 are single-tenant properties, and the remaining are multi-tenant properties. The Company has over 280 lease expirations and re-leased approximately 250 properties. It sold over 30 vacant properties. The Company has grouped its tenants into 48 activity segments, including Apparel, Automotive tire services, Beverages, Child care, Convenience stores, Dollar stores, Drug stores, Financial services, Food processing, Grocery stores, Health and fitness, Health care, Home improvement, Restaurants-casual dining, Restaurants-quick service, Sporting goods, Theaters, Transportation services, Wholesale club and 30 other non-reportable segments.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:


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 $14,007,756,638 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.82 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 12.62% Fail
6. Moderate PEmg Ratio PEmg < 20 45.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.11 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 0.82 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -187.46 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 $1.21
MG Growth Estimate 3.54%
MG Value $18.82
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $17.51
MG Value based on 0% Growth $10.26
Market Implied Growth Rate 18.59%
Current Price $55.15
% of Intrinsic Value 293.09%

Realty Income Corp 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. 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 $0.98 in 2012 to an estimated $1.21 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.59% 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 Realty Income Corp revealed the company was trading above its Graham Number of $29.1. The company pays a dividend of $2.37 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 45.68, which was above the industry average of 34.03. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-21.87.

Realty Income Corp 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) -$21.87
Graham Number $29.10
PEmg 45.68
Current Ratio 0.82
PB Ratio 2.11
Current Dividend $2.37
Dividend Yield 4.30%
Number of Consecutive Years of Dividend Growth 18


Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $124,299,000
Total Current Liabilities $152,309,000
Long-Term Debt $5,250,697,000
Total Assets $12,536,453,000
Intangible Assets $1,102,813,000
Total Liabilities $5,781,722,000
Shares Outstanding (Diluted Average) 258,674,000

Earnings Per Share History

Next Fiscal Year Estimate $1.53
Dec2015 $1.09
Dec2014 $1.04
Dec2013 $1.06
Dec2012 $0.86
Dec2011 $1.05
Dec2010 $1.01
Dec2009 $1.03
Dec2008 $1.06
Dec2007 $1.16
Dec2006 $1.11
Dec2005 $1.12
Dec2004 $1.15
Dec2003 $1.08
Dec2002 $1.01
Dec2001 $0.88
Dec2000 $0.85
Dec1999 $0.77
Dec1998 $0.78
Dec1997 $0.74
Dec1996 $0.70

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.21
Dec2015 $1.04
Dec2014 $1.01
Dec2013 $1.00
Dec2012 $0.98
Dec2011 $1.04
Dec2010 $1.05
Dec2009 $1.08
Dec2008 $1.11
Dec2007 $1.13
Dec2006 $1.11
Dec2005 $1.09
Dec2004 $1.05
Dec2003 $0.97
Dec2002 $0.90
Dec2001 $0.83
Dec2000 $0.79

Recommended Reading:

Other ModernGraham posts about the company

Realty Income Corporation Valuation – May 2016 $O
Realty Income Corporation Annual Valuation – 2014 $O
10 Companies in the Spotlight This Week – 12/28/13
ModernGraham Valuation: Realty Income Corp (O)

Other ModernGraham posts about related companies

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Vornado Realty Trust Valuation – July 2016 $VNO
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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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