Chesapeake Lodging Trust Valuation – July 2018 $CHSP

Company Profile (excerpt from Reuters): Chesapeake Lodging Trust, incorporated on June 12, 2009, is a real estate investment trust. The Company is focused on investments primarily in upper-upscale hotels in various business and convention markets and, on a selective basis, select-service hotels in urban settings or other locations in the United States. The Company operates through the hotel ownership segment. The Company conducts its operations primarily though Chesapeake Lodging, L.P., its operating partnership (the Operating Partnership).

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CHSP – July 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 $1,889,031,633 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.29 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 1352.17% Pass
6. Moderate PEmg Ratio PEmg < 20 28.62 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.80 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 1.29 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 43.13 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 $1.09
MG Growth Estimate 8.28%
MG Value $27.24
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $15.77
MG Value based on 0% Growth $9.24
Market Implied Growth Rate 10.06%
Current Price $31.12
% of Intrinsic Value 114.23%

Chesapeake Lodging Trust does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the 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 Overvalued after growing its EPSmg (normalized earnings) from $0.7 in 2014 to an estimated $1.09 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.06% 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 Chesapeake Lodging Trust revealed the company was trading above its Graham Number of $20.81. The company pays a dividend of $1.6 per share, for a yield of 5.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 28.62, which was below the industry average of 49.54, 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 $-14.13.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$14.13
Graham Number $20.81
PEmg 28.62
Current Ratio 1.29
PB Ratio 1.80
Current Dividend $1.60
Dividend Yield 5.14%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $85,249,000
Total Current Liabilities $65,968,000
Long-Term Debt $831,684,000
Total Assets $1,964,199,000
Intangible Assets $35,112,000
Total Liabilities $929,090,000
Shares Outstanding (Diluted Average) 59,719,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.10
Dec2017 $1.11
Dec2016 $1.13
Dec2015 $0.99
Dec2014 $1.00
Dec2013 $0.75
Dec2012 $0.66
Dec2011 $0.30
Dec2010 -$0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.09
Dec2017 $1.05
Dec2016 $0.98
Dec2015 $0.85
Dec2014 $0.70
Dec2013 $0.48
Dec2012 $0.29
Dec2011 $0.08
Dec2010 -$0.02

Recommended Reading:

Other ModernGraham posts about the company

10 Best Dividend Paying Stocks for the Enterprising Investor – February 2017
10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017
10 Best Dividend Paying Stocks for the Enterprising Investor – January 2017
8 Best Stocks for Value Investors This Week – 12/27/16
Chesapeake Lodging Trust Valuation – December 2016 $CHSP

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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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