Ventas Inc Valuation – February 2019 $VTR

Company Profile (excerpt from Reuters): Ventas, Inc., incorporated on June 22, 1987, is a real estate investment trust (REIT) with its properties located throughout the United States, Canada and the United Kingdom. The Company operates through three segments: triple-net leased properties, senior living operations and office operations. Under its triple-net leased properties segment, the Company acquires and owns seniors housing and healthcare properties throughout the United States and the United Kingdom and leases those properties to healthcare operating companies under triple-net or absolute-net leases that obligate the tenants to pay all property-related expenses. In its senior living operations segment, the Company invests in seniors housing communities throughout the United States and Canada and engages independent operators to manage those communities. In its office operations segment, the Company primarily acquires, owns, develops, leases and manages medical office buildings (MOBs) and life science and innovation centers throughout the United States.


Downloadable PDF version of this valuation:

ModernGraham Valuation of VTR – February 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 $23,220,325,302 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.28 Fail
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 40.27% Pass
6. Moderate PEmg Ratio PEmg < 20 36.30 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.28 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 0.28 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -12.51 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 $1.79
MG Growth Estimate 3.95%
MG Value $29.43
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $26.02
MG Value based on 0% Growth $15.25
Market Implied Growth Rate 13.90%
Current Price $65.14
% of Intrinsic Value 221.35%

Ventas, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, 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 $1.42 in 2015 to an estimated $1.79 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.9% 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 Ventas, Inc. revealed the company was trading above its Graham Number of $27.93. The company pays a dividend of $3.16 per share, for a yield of 4.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 36.3, which was below the industry average of 81.61, 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 $-33.29.

Ventas, Inc. 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) -$33.29
Graham Number $27.93
PEmg 36.30
Current Ratio 0.28
PB Ratio 2.28
Current Dividend $3.16
Dividend Yield 4.86%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $327,754,000
Total Current Liabilities $1,185,902,000
Long-Term Debt $10,733,699,000
Total Assets $22,584,555,000
Intangible Assets $2,559,126,000
Total Liabilities $12,312,961,000
Shares Outstanding (Diluted Average) 360,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.21
Dec2018 $1.14
Dec2017 $3.78
Dec2016 $1.86
Dec2015 $1.25
Dec2014 $1.60
Dec2013 $1.54
Dec2012 $1.23
Dec2011 $1.58
Dec2010 $1.56
Dec2009 $1.74
Dec2008 $1.59
Dec2007 $2.25
Dec2006 $1.25
Dec2005 $1.36
Dec2004 $1.43
Dec2003 $2.03
Dec2002 $0.93
Dec2001 $0.73
Dec2000 -$0.96
Dec1999 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.79
Dec2018 $2.03
Dec2017 $2.32
Dec2016 $1.56
Dec2015 $1.42
Dec2014 $1.50
Dec2013 $1.48
Dec2012 $1.48
Dec2011 $1.65
Dec2010 $1.69
Dec2009 $1.71
Dec2008 $1.66
Dec2007 $1.68
Dec2006 $1.40
Dec2005 $1.41
Dec2004 $1.24
Dec2003 $0.98

Recommended Reading:

Other ModernGraham posts about the company

Ventas Inc Valuation – April 2018 $VTR
Ventas Inc Valuation – August 2016 $VTR
Ventas Inc. Analysis – 2015 Update $VTR
19 Companies in the Spotlight This Week – 7/26/14
Ventas Inc. Annual Valuation – 2014 $VTR

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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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