REIT Stocks

Taubman Centers Inc Valuation – Initial Coverage $TCO

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 – March 2017.  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 Taubman Centers Inc (TCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Taubman Centers, Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company’s segment is focused on owning, developing and managing regional shopping centers. The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is majority-owned partnership subsidiary of the Company that owns direct or indirect interests in all of its real estate properties. The Company owns, leases, acquires, disposes of, develops, expands and manages regional and super-regional shopping centers and interests therein. Its owned portfolio of operating centers as of December 31, 2016 consisted of 23 urban and suburban shopping centers operating in 11 the United States states, Puerto Rico, South Korea, and China. The consolidated businesses consist of shopping centers and entities that are controlled by ownership or contractual agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its subsidiaries (Taubman Asia).

TCO Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TCO – April 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 $3,954,692,652 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -301.91% Fail
5. Moderate PEmg Ratio PEmg < 20 21.97 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 54.94 Fail
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

EPSmg $2.96
MG Growth Estimate 13.34%
MG Value $104.29
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $42.98
MG Value based on 0% Growth $25.19
Market Implied Growth Rate 6.74%
Current Price $65.13
% of Intrinsic Value 62.45%

Taubman Centers, Inc. 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, and the high PEmg and PB ratios. 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 $1.57 in 2013 to an estimated $2.96 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.74% 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 Taubman Centers, Inc. revealed the company was trading above its Graham Number of $4.3. The company pays a dividend of $2.38 per share, for a yield of 3.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.97, which was below the industry average of 51.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Taubman Centers, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Graham Number $4.30
PEmg 21.97
PB Ratio 54.94
Dividend Yield 3.65%
TTM Dividend $2.38
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $3,255,512,000
Total Assets $4,010,912,000
Intangible Assets $0
Total Liabilities $3,938,832,000
Shares Outstanding (Diluted Average) 60,799,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.69
Dec2016 $1.77
Dec2015 $1.76
Dec2014 $13.47
Dec2013 $1.71
Dec2012 $1.37
Dec2011 $3.03
Dec2010 $0.86
Dec2009 -$1.31
Dec2008 -$1.64
Dec2007 $0.90
Dec2006 $0.40
Dec2005 $0.87
Dec2004 -$0.10
Dec2003 $0.41
Dec2002 -$0.05
Dec2001 -$0.18
Dec2000 $1.64
Dec1999 $0.16
Dec1998 -$0.06
Dec1997 $0.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.96
Dec2016 $4.07
Dec2015 $4.91
Dec2014 $5.68
Dec2013 $1.57
Dec2012 $1.15
Dec2011 $0.82
Dec2010 -$0.24
Dec2009 -$0.58
Dec2008 -$0.12
Dec2007 $0.59
Dec2006 $0.40
Dec2005 $0.33
Dec2004 $0.15
Dec2003 $0.32
Dec2002 $0.28
Dec2001 $0.43

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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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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