REIT Stocks

Education Realty Trust Inc Valuation – Initial Coverage $EDR

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 Education Realty Trust Inc (EDR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Education Realty Trust, Inc. (EdR) is a self-managed and self-advised real estate investment trust (REIT). The Trust is engaged in developing, acquiring, owning and managing collegiate housing communities located near university campuses. The Trust operates through three segments: collegiate housing leasing, development consulting services and management services. The Trust develops collegiate housing communities for its own account and also provides third-party development consulting services on collegiate housing development projects for universities and other third parties. As of December 31, 2016, the Trust owned 64 collegiate housing communities located in 22 states containing 32,729 beds in 12,294 apartment units on or near 38 university campuses. As of December 31, 2016, the Trust provided third-party management services for 22 collegiate housing communities located in 11 states containing 11,767 beds in 4,214 apartment units on or near 17 university campuses.

EDR Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EDR – 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 $2,850,356,287 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.18 Pass
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 -145.22% Fail
6. Moderate PEmg Ratio PEmg < 20 65.88 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.64 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 3.18 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.11 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 $0.59
MG Growth Estimate 15.00%
MG Value $22.87
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $8.61
MG Value based on 0% Growth $5.05
Market Implied Growth Rate 28.69%
Current Price $39.14
% of Intrinsic Value 171.11%

Education Realty 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 or growth over the last ten years, and the high PEmg ratio. 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 $-0.31 in 2013 to an estimated $0.59 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 28.69% 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 Education Realty Trust, Inc. revealed the company was trading above its Graham Number of $17.69.  The company pays a dividend of $1.5 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 65.88, which was above the industry average of 51.63.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-6.48.

Education Realty Trust, 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) -$6.48
Graham Number $17.69
PEmg 65.88
Current Ratio 3.18
PB Ratio 1.64
Current Dividend $1.50
Dividend Yield 3.83%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $558,580,000
Total Current Liabilities $175,379,000
Long-Term Debt $809,205,000
Total Assets $2,802,943,000
Intangible Assets $0
Total Liabilities $1,037,111,000
Shares Outstanding (Diluted Average) 73,841,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.56
Dec2016 $0.65
Dec2015 $0.40
Dec2014 $1.09
Dec2013 $0.11
Dec2012 $0.25
Dec2011 -$0.42
Dec2010 -$2.19
Dec2009 -$0.54
Dec2008 -$0.84
Dec2007 -$0.60
Dec2006 -$1.38
Dec2005 -$2.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.59
Dec2016 $0.57
Dec2015 $0.45
Dec2014 $0.24
Dec2013 -$0.31
Dec2012 -$0.59
Dec2011 -$0.98
Dec2010 -$1.21
Dec2009 -$0.84
Dec2008 -$0.98
Dec2007 -$0.97
Dec2006 -$1.00
Dec2005 -$0.67

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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