REIT Stocks

LTC Properties Inc Valuation – Initial Coverage $LTC

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 LTC Properties Inc (LTC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): LTC Properties Inc. is a healthcare real estate investment trust (REIT). The Company invests in senior housing and healthcare properties through sale-leaseback transactions, mortgage financing and structured finance solutions, including mezzanine lending. It invests in various properties, including Skilled nursing facilities (SNF), Assisted living facilities (ALF), Independent living facilities (ILF), Memory care facilities (MC) and Range of care facilities (ROC). SNF provides restorative, rehabilitative and nursing care. Many skilled nursing facilities provide ancillary services that include occupational, speech, physical, respiratory and IV therapies, as well as sub-acute care services, which are paid either by the patient, the patient’s family, private health insurance, or through the federal Medicare or state Medicaid programs. ALF serves people requiring assistance with activities of daily living, but do not require the constant supervision skilled nursing facilities provide.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LTC – June 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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,053,852,837 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.99 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 71.24% Pass
6. Moderate PEmg Ratio PEmg < 20 24.54 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.70 Fail
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 2.99 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 7.40 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 $2.09
MG Growth Estimate 6.20%
MG Value $43.69
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $30.32
MG Value based on 0% Growth $17.78
Market Implied Growth Rate 8.03%
Current Price $51.35
% of Intrinsic Value 117.53%

LTC Properties Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  high PEmg and PB ratios. 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 $1.48 in 2013 to an estimated $2.09 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.03% 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 LTC Properties Inc revealed the company was trading above its Graham Number of $30.7.  The company pays a dividend of $2.19 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 24.55, 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.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.05.

LTC Properties 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) -$13.05
Graham Number $30.70
PEmg 24.55
Current Ratio 2.99
PB Ratio 2.70
Current Dividend $2.19
Dividend Yield 4.26%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $121,391,000
Total Current Liabilities $40,577,000
Long-Term Debt $597,873,000
Total Assets $1,391,590,000
Intangible Assets $0
Total Liabilities $638,450,000
Shares Outstanding (Diluted Average) 39,612,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.22
Dec2016 $2.21
Dec2015 $1.94
Dec2014 $1.99
Dec2013 $1.63
Dec2012 $1.57
Dec2011 $1.36
Dec2010 $1.21
Dec2009 $1.27
Dec2008 $1.24
Dec2007 $1.31
Dec2006 $2.51
Dec2005 $1.56
Dec2004 $0.77
Dec2003 $0.36
Dec2002 $0.91
Dec2001 -$0.75
Dec2000 $0.63
Dec1999 $0.61
Dec1998 $1.39
Dec1997 $1.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.09
Dec2016 $1.97
Dec2015 $1.80
Dec2014 $1.67
Dec2013 $1.48
Dec2012 $1.38
Dec2011 $1.28
Dec2010 $1.33
Dec2009 $1.45
Dec2008 $1.52
Dec2007 $1.54
Dec2006 $1.52
Dec2005 $0.87
Dec2004 $0.48
Dec2003 $0.34
Dec2002 $0.40
Dec2001 $0.31

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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