REIT Stocks

Duke Realty Corp Valuation – March 2019 $DRE

Company Profile (excerpt from Reuters): Duke Realty Corporation, incorporated on March 12, 1992, is a self-managed real estate investment trust (REIT). The Company and Duke Realty Limited Partnership (Partnership) collectively specialize in the ownership, management and development of bulk distribution (industrial) and medical office real estate. It operates through three segments, the first two of which consist of the ownership and rental of industrial and medical office real estate investments. The operations of its industrial and medical office properties, as well as its rental operations, are collectively referred to as Rental Operations. The third segment consists of various real estate services, such as property management, asset management, maintenance, leasing, development, general contracting and construction management to third-party property owners and joint ventures, and is collectively referred to as Service Operations. Its Service Operations segment also includes its taxable REIT subsidiary (TRS), through which certain of the segment’s operations are conducted. The Company maintains a Baa1 rating from Moody’s Investor Service, Inc. and a BBB+ rating from Standard & Poor’s Financial Services LLC.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DRE – March 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 $10,579,736,074 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.51 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -1477.27% Fail
6. Moderate PEmg Ratio PEmg < 20 18.69 Pass
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 2.51 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.68 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 $1.58
MG Growth Estimate 15.00%
MG Value $60.68
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $22.85
MG Value based on 0% Growth $13.40
Market Implied Growth Rate 5.09%
Current Price $29.45
% of Intrinsic Value 48.54%

Duke Realty Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.79 in 2015 to an estimated $1.58 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.09% 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 above the price.

At the time of valuation, further research into Duke Realty Corp revealed the company was trading above its Graham Number of $11.21. The company pays a dividend of $0.82 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.69, which was below the industry average of 61.92, 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 $-7.22.

Duke Realty Corp performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.22
Graham Number $11.21
PEmg 18.69
Current Ratio 2.51
PB Ratio 2.28
Current Dividend $0.82
Dividend Yield 2.77%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $456,336,000
Total Current Liabilities $181,799,000
Long-Term Debt $2,658,501,000
Total Assets $7,804,024,000
Intangible Assets $107,716,000
Total Liabilities $3,090,781,000
Shares Outstanding (Diluted Average) 364,953,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.43
Dec2018 $1.07
Dec2017 $4.56
Dec2016 $0.88
Dec2015 $1.77
Dec2014 $0.60
Dec2013 $0.47
Dec2012 -$0.48
Dec2011 $0.11
Dec2010 -$0.07
Dec2009 -$1.67
Dec2008 $0.33
Dec2007 $1.55
Dec2006 $1.07
Dec2005 $2.17
Dec2004 $1.06
Dec2003 $1.19
Dec2002 $1.14
Dec2001 $1.74
Dec2000 $1.66
Dec1999 $1.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.58
Dec2018 $2.02
Dec2017 $2.22
Dec2016 $0.92
Dec2015 $0.79
Dec2014 $0.24
Dec2013 -$0.07
Dec2012 -$0.35
Dec2011 -$0.17
Dec2010 -$0.12
Dec2009 $0.13
Dec2008 $1.10
Dec2007 $1.46
Dec2006 $1.38
Dec2005 $1.51
Dec2004 $1.24
Dec2003 $1.36

Recommended Reading:

Other ModernGraham posts about the company

10 Best Dividend Paying Stocks for the Enterprising Investor – May 2018
Duke Realty Corp Valuation – Initial Coverage $DRE

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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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