REIT Stocks

CareTrust REIT Inc Valuation – August 2018 $CTRE

Company Profile (excerpt from Reuters): CareTrust REIT, Inc., incorporated on October 29, 2013, is a self-administered, self-managed real estate investment trust (REIT). The Company is primarily engaged in the ownership, acquisition and leasing of healthcare-related properties. It makes investments in healthcare-related real estate assets. As of December 31, 2016, the Company’s real estate portfolio consisted of 154 skilled nursing facilities (SNFs), SNF Campuses, assisted living facilities (ALFs) and independent living facilities (ILFs). As of December 31, 2016, the 93 facilities leased to The Ensign Group, Inc. (Ensign) had a total of 9,916 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington; the 16 facilities leased to affiliates of Pristine Senior Living, LLC (Pristine) had a total of 1,488 beds and units and are located in Ohio; and the 42 remaining leased properties had a total of 3,515 beds and units and are located in California, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Maryland, Michigan, Minnesota, North Carolina, Texas, Virginia, Washington and Wisconsin.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CTRE – August 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 $1,476,340,335 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.89 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 5133.33% Pass
6. Moderate PEmg Ratio PEmg < 20 41.78 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.20 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 0.89 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -169.63 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.44
MG Growth Estimate 15.00%
MG Value $16.99
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $6.40
MG Value based on 0% Growth $3.75
Market Implied Growth Rate 16.64%
Current Price $18.44
% of Intrinsic Value 108.53%

Caretrust REIT Inc 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, and the lack of earnings stability 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 Fairly Valued after growing its EPSmg (normalized earnings) from $-0.12 in 2014 to an estimated $0.44 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 16.64% 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 Caretrust REIT Inc revealed the company was trading above its Graham Number of $11.14. The company pays a dividend of $0.74 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 41.78, which was below the industry average of 47.15, 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 $-7.17.

Caretrust REIT 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) -$7.17
Graham Number $11.14
PEmg 41.78
Current Ratio 0.89
PB Ratio 2.20
Current Dividend $0.74
Dividend Yield 4.01%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $25,555,000
Total Current Liabilities $28,764,000
Long-Term Debt $544,338,000
Total Assets $1,211,840,000
Intangible Assets $0
Total Liabilities $573,102,000
Shares Outstanding (Diluted Average) 76,374,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.70
Dec2017 $0.35
Dec2016 $0.52
Dec2015 $0.26
Dec2014 -$0.36
Dec2013 -$0.02
Dec2012 $0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.44
Dec2017 $0.26
Dec2016 $0.17
Dec2015 -$0.01
Dec2014 -$0.12
Dec2013 -$0.01

Recommended Reading:

Other ModernGraham posts about the company

Caretrust REIT Inc Valuation – Initial Coverage $CTRE

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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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