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).
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 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
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
Other ModernGraham posts about related companies
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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