Welltower Inc Valuation – November 2016 $HCN

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 Welltower Inc (HCN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Welltower Inc., formerly Health Care REIT, Inc., is a provider of healthcare infrastructure. The Company operates through three segments: triple-net, which includes independent living facilities, independent supportive living facilities (Canada), continuing care retirement communities, assisted living facilities, care homes with and without nursing (United Kingdom), Alzheimer’s/dementia care facilities, long-term/post-acute care facilities and hospitals; seniors housing operating, which includes a range of facility types, including independent living facilities and independent supportive living facilities, assisted living facilities, care homes and Alzheimer’s/dementia care facilities, and outpatient medical, which includes outpatient medical buildings. It invests in seniors housing operators, post-acute providers and health systems to fund real estate and infrastructure. Welltower, a real estate investment trust, owns properties in the United States, Canada and the United Kingdom.

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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 $23,043,339,162 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.32 Pass
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 5.99% Fail
6. Moderate PEmg Ratio PEmg < 20 35.67 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.53 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 2.32 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 13.19 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 $1.76
MG Growth Estimate 8.67%
MG Value $45.48
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $25.52
MG Value based on 0% Growth $14.96
Market Implied Growth Rate 13.59%
Current Price $62.78
% of Intrinsic Value 138.04%

Welltower Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings 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 Overvalued after growing its EPSmg (normalized earnings) from $1.12 in 2012 to an estimated $1.76 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.59% 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 Welltower Inc revealed the company was trading above its Graham Number of $43.68. The company pays a dividend of $3.41 per share, for a yield of 5.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 35.67, which was above the industry average of 34.03. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-36.78.

Welltower 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) -$36.78
Graham Number $43.68
PEmg 35.67
Current Ratio 2.32
PB Ratio 1.53
Current Dividend $3.41
Dividend Yield 5.42%
Number of Consecutive Years of Dividend Growth 9


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $1,780,491,000
Total Current Liabilities $767,683,000
Long-Term Debt $13,356,518,000
Total Assets $29,856,339,000
Intangible Assets $68,321,000
Total Liabilities $15,066,494,000
Shares Outstanding (Diluted Average) 361,237,000

Earnings Per Share History

Next Fiscal Year Estimate $2.23
Dec2015 $2.34
Dec2014 $1.45
Dec2013 $0.28
Dec2012 $0.98
Dec2011 $0.90
Dec2010 $0.83
Dec2009 $1.49
Dec2008 $2.76
Dec2007 $1.43
Dec2006 $1.31
Dec2005 $1.15
Dec2004 $1.39
Dec2003 $1.60
Dec2002 $1.48
Dec2001 $1.52
Dec2000 $1.91
Dec1999 $2.21
Dec1998 $2.24
Dec1997 $2.12
Dec1996 $2.18

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.76
Dec2015 $1.41
Dec2014 $0.93
Dec2013 $0.74
Dec2012 $1.12
Dec2011 $1.28
Dec2010 $1.50
Dec2009 $1.77
Dec2008 $1.81
Dec2007 $1.35
Dec2006 $1.33
Dec2005 $1.37
Dec2004 $1.52
Dec2003 $1.63
Dec2002 $1.72
Dec2001 $1.90
Dec2000 $2.10

Recommended Reading:

Other ModernGraham posts about the company

Welltower Inc. Valuation – November 2015 Update $HCN
Health Care REIT Inc. Analysis – August 2015 Update $HCN
47 Companies in the Spotlight This Week – 5/16/15
Health Care REIT Inc. Quarterly Valuation – May 2015 $HCN
15 Companies in the Spotlight This Week – 5/3/2014

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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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