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 10 Stocks for Using A Benjamin Graham Value Investing Strategy – MarchÂ 2017.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 stock analysis showing a specific look at how LaSalle Hotel Properties (LHO)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): LaSalle Hotel Properties is a self-administered and self-managed real estate investment trust. The Company primarily buys, owns, redevelops and leases upscale and luxury full-service hotels located in convention, resort and urban business markets. As of December 31, 2016, the Company owned interests in 46 hotels with approximately 11,450 guest rooms located in nine states of the United States and the District of Columbia (DC). As of December 31, 2016, the Company’s properties included Hotel Amarano Burbank; Hilton San Diego Gaslamp Quarter; Hotel Solamar; San Diego Paradise Point Resort and Spa; The Hilton San Diego Resort and Spa; Harbor Court Hotel; The Marker San Francisco; Chamberlain West Hollywood; Le Montrose Suite Hotel; The Grafton on Sunset; Hotel George; Hotel Rouge; Mason & Rook Hotel; The Donovan; The Liaison Capitol Hill; The Marker Waterfront Resort; Hotel Chicago; Onyx Hotel; Park Central Hotel New York; The Heathman Hotel; Westin Philadelphia, and Lansdowne Resort.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of LHO – March 2017
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 all 6 of the following tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$3,329,000,041||Pass|
|2. Earnings Stability||Positive EPS for 10 years prior||Fail|
|3. Dividend Record||Dividend Payments for 10 years prior||Fail|
|4. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-988.89%||Fail|
|5. Moderate PEmg Ratio||PEmg < 20||21.82||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.30||Pass|
|Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.|
|1. Earnings Stability||Positive EPS for 5 years prior||Pass|
|2. Dividend Record||Currently Pays Dividend||Pass|
|3. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$19.57|
|MG Value based on 0% Growth||$11.47|
|Market Implied Growth Rate||6.66%|
|% of Intrinsic Value||56.67%|
LaSalle Hotel Properties is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has no initial concerns. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.34 in 2013 to an estimated $1.35 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.66% 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 above the price.
At the time of valuation, further research into LaSalle Hotel Properties revealed the company was trading above its Graham Number of $5.83. The company pays a dividend of $3.01 per share, for a yield of 10.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.82, which was below the industry average of 31.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
LaSalle Hotel Properties receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||1|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2016|
|Long-Term Debt & Capital Lease Obligation||$1,118,707,000|
|Shares Outstanding (Diluted Average)||113,165,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.84|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.35|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
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