REIT Stocks

Vornado Realty Trust Valuation – April 2018 $VNO

Company Profile (excerpt from Reuters): Vornado Realty Trust, incorporated on March 29, 1993, is a real estate investment trust (REIT). The Company conducts its business through Vornado Realty L.P. (the Operating Partnership). The Company operates through two segments: New York and Washington, DC. The Company’s interests in properties are held by the Operating Partnership. As of December 31, 2016, the Company owned the 3.7 million square foot Mart (theMart) in Chicago. As of December 31, 2016, the Company had controlling interest in a three-building office complex containing 1.8 million square feet, known as the Bank of America Center, located at California and Montgomery Streets, in San Francisco’s financial district (555 California Street).

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Downloadable PDF version of this valuation:

ModernGraham Valuation of VNO – April 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 $12,785,910,589 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
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 -9.04% Fail
5. Moderate PEmg Ratio PEmg < 20 31.06 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.97 Fail
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 Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.17
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $31.42
MG Value based on 0% Growth $18.42
Market Implied Growth Rate 11.28%
Current Price $67.30
% of Intrinsic Value N/A

Vornado Realty Trust 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 growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings 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 $3.18 in 2014 to an estimated $2.17 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.28% 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 Vornado Realty Trust revealed the company was trading above its Graham Number of $19.69. The company pays a dividend of $2.62 per share, for a yield of 3.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.06, which was below the industry average of 44.79, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Vornado Realty Trust scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Graham Number $19.69
PEmg 31.06
PB Ratio 2.97
Dividend Yield 3.89%
TTM Dividend $2.62
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $9,729,487,000
Total Assets $17,397,934,000
Intangible Assets $159,260,000
Total Liabilities $13,060,282,000
Shares Outstanding (Diluted Average) 191,261,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.95
Dec2017 $0.85
Dec2016 $4.34
Dec2015 $3.59
Dec2014 $4.15
Dec2013 $2.09
Dec2012 $2.94
Dec2011 $3.23
Dec2010 $3.24
Dec2009 $0.28
Dec2008 $2.10
Dec2007 $3.17
Dec2006 $3.34
Dec2005 $3.49
Dec2004 $4.33
Dec2003 $3.73
Dec2002 $1.87
Dec2001 $2.42
Dec2000 $2.16
Dec1999 $1.90
Dec1998 $1.56

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.17
Dec2017 $2.85
Dec2016 $3.71
Dec2015 $3.33
Dec2014 $3.18
Dec2013 $2.58
Dec2012 $2.67
Dec2011 $2.49
Dec2010 $2.22
Dec2009 $1.96
Dec2008 $2.96
Dec2007 $3.47
Dec2006 $3.53
Dec2005 $3.47
Dec2004 $3.28
Dec2003 $2.64
Dec2002 $2.06

Recommended Reading:

Other ModernGraham posts about the company

Vornado Realty Trust Valuation – July 2016 $VNO
30 Companies in the Spotlight This Week – 5/23/15
Vornado Realty Trust Annual Valuation – 2015 $VNO
16 Companies in the Spotlight This Week – 5/24/14
Vornado Realty Trust 2014 Annual Valuation $VNO

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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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