Alexandria Real Estate Equities Inc Valuation – February 2018 $ARE

Company Profile (obtained from Marketwatch): Alexandria Real Estate Equities, Inc. operates as a real estate investment trust, which engages in the development through ownership, operation, management, selective acquisition, development, and redevelopment of properties containing life science laboratory space. It also provides real estate, technical infrastructure, and services to the diverse life science industry. The company was founded by Joel S. Marcus and Jerry M. Sudarsky in June 1994 and is headquartered in Pasadena, CA.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ARE – February 2018

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 $12,233,702,988 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 -76.36% Fail
5. Moderate PEmg Ratio PEmg < 20 124.83 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.95 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 Fail
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $0.97
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $14.04
MG Value based on 0% Growth $8.23
Market Implied Growth Rate 58.17%
Current Price $120.84
% of Intrinsic Value N/A

Alexandria Real Estate Equities Inc does not satisfy the requirements of either the Enterprising Investor or 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 has concerns regarding the lack of earnings stability or growth over the last five years. 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 seeing its EPSmg (normalized earnings) decline from $1.36 in 2014 to an estimated $0.97 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 58.17% 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 below the price.

At the time of valuation, further research into Alexandria Real Estate Equities Inc revealed the company was trading above its Graham Number of $52.1. The company pays a dividend of $3.45 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 124.83, which was above the industry average of 51.63.

Alexandria Real Estate Equities Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $52.10
PEmg 124.83
PB Ratio 1.95
Dividend Yield 2.86%
TTM Dividend $3.45
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $1,319,003,000
Total Assets $12,103,953,000
Intangible Assets $0
Total Liabilities $6,154,287,000
Shares Outstanding (Diluted Average) 95,954,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.98
Dec2017 $1.58
Dec2016 -$1.99
Dec2015 $1.63
Dec2014 $1.01
Dec2013 $1.60
Dec2012 $1.09
Dec2011 $1.73
Dec2010 $2.19
Dec2009 $2.72
Dec2008 $2.86
Dec2007 $2.63
Dec2006 $2.25
Dec2005 $2.22
Dec2004 $2.33
Dec2003 $3.10
Dec2002 $1.76
Dec2001 $1.64
Dec2000 $1.77
Dec1999 $1.46
Dec1998 $1.58

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.97
Dec2017 $0.56
Dec2016 $0.26
Dec2015 $1.39
Dec2014 $1.36
Dec2013 $1.64
Dec2012 $1.82
Dec2011 $2.26
Dec2010 $2.53
Dec2009 $2.64
Dec2008 $2.56
Dec2007 $2.44
Dec2006 $2.34
Dec2005 $2.33
Dec2004 $2.29
Dec2003 $2.16
Dec2002 $1.68

Recommended Reading:

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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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