Vornado Realty Trust Valuation – January 2019 $VNO
Company ProfileÂ (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 – January 2019
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||$13,188,708,333||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||4.64||Pass|
|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||-13.85%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||27.41||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.22||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||4.64||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||6.48||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
|MG Growth Estimate||0.25%|
|MG Value based on 3% Growth||$36.67|
|MG Value based on 0% Growth||$21.49|
|Market Implied Growth Rate||9.45%|
|% of Intrinsic Value||304.69%|
Vornado Realty Trust is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.49 in 2011 to an estimated $2.53 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.45% 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 Vornado Realty Trust revealed the company was trading above its Graham Number of $30.1. The company pays a dividend of $2.62 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 27.41, which was below the industry average of 70.5, 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 $-45.94.
Vornado Realty Trust receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$45.94|
|Number of Consecutive Years of Dividend Growth||1|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2018|
|Total Current Assets||$1,926,900,000|
|Total Current Liabilities||$415,531,000|
|Shares Outstanding (Diluted Average)||191,327,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.22|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.53|
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.