REIT Stocks

American Campus Communities Inc Valuation – September 2017 $ACC

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 Undervalued Stocks for the Enterprising Investor – August 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 American Campus Communities Inc (ACC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Campus Communities, Inc. is a self-managed and self-administered equity real estate investment trust (REIT). The Company’s segments include Wholly-Owned Properties, On-Campus Participating Properties, Development Services, and Property Management Services. It is engaged in the acquisition, design, financing, development, construction management, leasing and management of student housing properties. The Wholly-Owned Properties segment consists of off-campus properties, which are located in close proximity to the school campus. The On-Campus Participating Properties segment includes on-campus properties that are operated under long-term ground/facility leases with three university systems. The Development Services segment consists of development and construction management services that it provides through one of its taxable REIT subsidiaries for third-party owners. The Property Management Services segment includes revenues generated from third-party management contracts.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ACC – September 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 $6,574,392,992 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.98 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -763.16% Fail
6. Moderate PEmg Ratio PEmg < 20 60.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.83 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 0.98 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -1,808.46 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 $0.80
MG Growth Estimate 2.68%
MG Value $11.04
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $11.55
MG Value based on 0% Growth $6.77
Market Implied Growth Rate 25.99%
Current Price $48.19
% of Intrinsic Value 436.59%

American Campus Communities, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.68 in 2013 to an estimated $0.8 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 25.99% 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 American Campus Communities, Inc. revealed the company was trading above its Graham Number of $20.97.  The company pays a dividend of $1.66 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 60.49, which was above the industry average of 51.63.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.39.

American Campus Communities, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.39
Graham Number $20.97
PEmg 60.49
Current Ratio 0.98
PB Ratio 1.83
Current Dividend $1.66
Dividend Yield 3.44%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $61,242,000
Total Current Liabilities $62,547,000
Long-Term Debt $2,360,034,000
Total Assets $6,224,973,000
Intangible Assets $0
Total Liabilities $2,670,973,000
Shares Outstanding (Diluted Average) 134,614,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.75
Dec2016 $0.75
Dec2015 $1.02
Dec2014 $0.58
Dec2013 $0.98
Dec2012 $0.65
Dec2011 $0.80
Dec2010 $0.26
Dec2009 -$0.28
Dec2008 -$0.36
Dec2007 -$0.07
Dec2006 $1.17
Dec2005 $0.65
Dec2004 $0.15
Dec2003 -$1.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.80
Dec2016 $0.81
Dec2015 $0.83
Dec2014 $0.71
Dec2013 $0.68
Dec2012 $0.42
Dec2011 $0.23
Dec2010 $0.01
Dec2009 $0.00
Dec2008 $0.19
Dec2007 $0.37
Dec2006 $0.46
Dec2005 $0.06
Dec2004 -$0.22
Dec2003 -$0.33

Recommended Reading:

Other ModernGraham posts about the company

American Campus Communities Valuation – November 2016 $ACC
American Campus Communities Inc. Analysis – Initial Coverage $ACC

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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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