REIT Stocks

Starwood Property Trust Inc Valuation – April 2017 $STWD

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 Starwood Property Trust Inc (STWD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Starwood Property Trust, Inc. is a real estate investment trust. The Company operates through three business segments: Real estate lending (the Lending Segment), which engages primarily in originating, acquiring, financing and managing commercial first mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), residential mortgage-backed securities, and other real estate and real estate-related debt investments; Real estate investing and servicing (the Investing and Servicing Segment), which includes a servicing business in the United States that manages and works out problem assets; an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, and a mortgage loan business, and Real estate property (the Property Segment), which engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties.

STWD Chart

STWD data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of STWD – 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 $5,936,504,324 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 401.85% Pass
5. Moderate PEmg Ratio PEmg < 20 12.17 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.22 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

EPSmg $1.87
MG Growth Estimate 3.72%
MG Value $29.84
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $27.14
MG Value based on 0% Growth $15.91
Market Implied Growth Rate 1.84%
Current Price $22.79
% of Intrinsic Value 76.37%

Starwood Property Trust, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.5 in 2013 to an estimated $1.87 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 1.84% 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.

At the time of valuation, further research into Starwood Property Trust, Inc. revealed the company was trading below its Graham Number of $29.28. The company pays a dividend of $1.92 per share, for a yield of 8.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.17, 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.

Starwood Property Trust, Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Graham Number $29.28
PEmg 12.17
PB Ratio 1.22
Dividend Yield 8.42%
TTM Dividend $1.92
Number of Consecutive Years of Dividend Growth 0

 

[/not-level-free]

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 12/1/2016
Long-Term Debt & Capital Lease Obligation $2,011,544,000
Total Assets $77,256,266,000
Intangible Assets $359,685,000
Total Liabilities $72,733,992,000
Shares Outstanding (Diluted Average) 241,794,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.01
Dec2016 $1.50
Dec2015 $1.91
Dec2014 $2.24
Dec2013 $1.82
Dec2012 $1.76
Dec2011 $1.38
Dec2010 $1.14
Dec2009 -$0.06

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.87
Dec2016 $1.82
Dec2015 $1.92
Dec2014 $1.84
Dec2013 $1.50
Dec2012 $1.17
Dec2011 $0.75
Dec2010 $0.36
Dec2009 -$0.02

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Enterprising Investor – April 2017
10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017
10 Best Dividend Paying Stocks for the Enterprising Investor – February 2017
10 Low PE Stock Picks for the Enterprising Investor – February 2017
5 Undervalued Companies for Value Investors with a Low Beta – January 2017

Other ModernGraham posts about related companies

Corecivic Inc Valuation – Initial Coverage $CXW
Kimco Realty Corp Valuation – March 2017 $KIM
LaSalle Hotel Properties Valuation – Initial Coverage $LHO
Cousins Properties Inc Valuation – Initial Coverage $CUZ
Cominar Real Estate Investment Trust – Initial Coverage $TSE:CUF.UN
Essex Property Trust Inc Valuation – March 2017 $ESS
Caretrust REIT Inc Valuation – Initial Coverage $CTRE
Federal Realty Investment Trust Valuation – Initial Coverage $FRT
Extra Space Storage Inc Valuation – Initial Coverage $EXR
UDR Inc Valuation – Initial Coverage $UDR

Disclaimer:

The author held a long position in Starwood Property Trust Inc (STWD) but did not hold a position in any other 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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top