Welltower Inc Valuation – March 2018 $WELL

Company Profile (obtained from Marketwatch): Welltower, Inc. is a real estate investment trust. The company invests with seniors housing operators, post acute providers and health systems to fund the real estate infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. It owns properties in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. The company operates through the following segments: Triple-net, Seniors Housing Operating, and Outpatient Medical. The Triple-net properties segment include long-term/post-acute care facilities, assisted living facilities, independent living/continuing care retirement communities, care homes (United Kingdom), independent support living facilities (Canada), care homes with nursing (United Kingdom) and combinations thereof. The Seniors Housing Operating properties segment includes the seniors housing communities. The Outpatient Medical properties segment includes outpatient medical buildings. The company was founded by Bruce G. Thompson and Fritz Wolfe in 1970 and is headquartered in Toledo, OH.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of WELL – March 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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,577,058,560 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.38 Fail
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 64.91% Pass
6. Moderate PEmg Ratio PEmg < 20 30.73 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.36 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 1.38 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 33.54 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 $1.72
MG Growth Estimate 12.76%
MG Value $58.52
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $24.94
MG Value based on 0% Growth $14.62
Market Implied Growth Rate 11.12%
Current Price $52.86
% of Intrinsic Value 90.33%

Welltower 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, 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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.93 in 2014 to an estimated $1.72 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 11.12% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Welltower Inc revealed the company was trading above its Graham Number of $32.07. The company pays a dividend of $3.48 per share, for a yield of 6.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 30.73, which was below the industry average of 42.02, 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 $-32.93.

Welltower 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) -$32.93
Graham Number $32.07
PEmg 30.73
Current Ratio 1.38
PB Ratio 1.36
Current Dividend $3.48
Dividend Yield 6.58%
Number of Consecutive Years of Dividend Growth 10

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $1,259,462,000
Total Current Liabilities $911,863,000
Long-Term Debt $11,659,698,000
Total Assets $27,944,445,000
Intangible Assets $68,321,000
Total Liabilities $13,521,298,000
Shares Outstanding (Diluted Average) 372,322,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.24
Dec2017 $1.26
Dec2016 $2.81
Dec2015 $2.34
Dec2014 $1.45
Dec2013 $0.28
Dec2012 $0.98
Dec2011 $0.90
Dec2010 $0.83
Dec2009 $1.49
Dec2008 $2.76
Dec2007 $1.43
Dec2006 $1.31
Dec2005 $1.15
Dec2004 $1.39
Dec2003 $1.60
Dec2002 $1.48
Dec2001 $1.52
Dec2000 $1.91
Dec1999 $2.21
Dec1998 $2.24

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.72
Dec2017 $1.85
Dec2016 $1.95
Dec2015 $1.41
Dec2014 $0.93
Dec2013 $0.74
Dec2012 $1.12
Dec2011 $1.28
Dec2010 $1.50
Dec2009 $1.77
Dec2008 $1.81
Dec2007 $1.35
Dec2006 $1.33
Dec2005 $1.37
Dec2004 $1.52
Dec2003 $1.63
Dec2002 $1.72

Recommended Reading:

Other ModernGraham posts about the company

Welltower Inc Valuation – November 2016 $HCN
HCP Inc Valuation – July 2016 $HCP
5 Undervalued Companies with a Low Beta – May 2016
10 Companies Benjamin Graham Would Invest In Today – May 2016
6 Best Stocks For Value Investors This Week – 5/14/16

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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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