Boston Properties Inc ($BXP) – Valuation May 2023

Company Profile (excerpt from Wikipedia):

Boston Properties, Inc. is a publicly traded real estate investment trust that invests in premier workplaces in Boston, Los Angeles, New York City, San Francisco, Seattle, and Washington, D.C. As of June 30, 2022, the company owned or had interests in 193 commercial real estate properties, aggregating approximately 53.7 million square feet.

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	Current Market Cap	$7,774,340,000.00	PASS
2. Sufficiently Strong Financial Condition	Current Ratio > 2	Current Assets	$2,439,220,000.00
		Current Liabilities	$683,630,000.00
		Current Ratio	3.57	PASS
3. Earnings Stability	Positive EPS for 10 years prior	Year	EPS
		2022-12	$5.40
		2021-12	$3.17
		2020-12	$5.54
		2019-12	$3.30
		2018-12	$3.70
		2017-12	$2.93
		2016-12	$3.26
		2015-12	$3.72
		2014-12	$2.83
		2013-12	$4.86
		Years Positive	10	PASS
4. Dividend Record	Dividend Payments for 10 years prior	Year	Dividend
		2022-12	$3.92
		2021-12	$3.92
		2020-12	$3.92
		2019-12	$3.83
		2018-12	$3.50
		2017-12	$3.05
		2016-12	$2.70
		2015-12	$2.60
		2014-12	$2.60
		2013-12	$2.60
		Years With Payments	10	PASS
5. Earnings Growth	Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end
		Beginning Average	$3.80
		End Average	$4.70
		Growth	23.66%	FAIL
6. Moderate PEmg Ratio	PEmg < 20	Price	$48.82
		EPSmg	$4.22
		PEmg	11.58	PASS
7. Moderate Price to Assets	PB Ratio < 2.5 OR PB*PEmg < 50	Price	$48.82
		Book Value	$38.66
		PB Ratio	1.26
		PB*PEmg	14.62	PASS
	Total Score	6
	Suitable for Defensive Investors?	YES

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	Current Assets	$2,439,220,000.00
		Current Liabilities	$683,630,000.00
		Current Ratio	3.57	PASS
2. Sufficiently Strong Financial Condition	Debt to NCA < 1.1	Total Debt	$14,709,440,000.00
		Current Assets	$2,439,220,000.00
		Current Liabilities	$683,630,000.00
		Net Current Assets	$1,755,590,000.00
		Debt to NCA	8.38	FAIL
3. Earnings Stability	Positive EPS for 5 years prior	Year	EPS
		2022-12	$5.40
		2021-12	$3.17
		2020-12	$5.54
		2019-12	$3.30
		2018-12	$3.70
		Years Positive	5	PASS
4. Dividend Record	Currently Pays Dividend	Dividend	$3.92	PASS
5. Earnings Growth	EPSmg greater than 5 years ago	EPSmg – Current	$4.44
		EPSmg – Prior	$3.35
		Growth	32.48%	PASS
	Total Score	4
	Suitable?	YES

Stage 2: Determination of Intrinsic Value

MG Value Formula

Value = EPSmg * (8.5+2g)

Estimating Growth
Current EPSmg	$4.22
5 years prior EPSmg	$3.36
Total Growth	25.65%
Average Growth	5.13%
Safety Margin 0.75	3.85%
Growth Estimate	3.85%

MG Opinion
Current Price	$48.82
% of Intrinsic Value	71.49%
Opinion	Undervalued

MG Grade
Factor	Score
Investor Suitability	2.0
Good Price to Value?	1.0
Trading Below Graham Number?	1.0
Long-term Dividend Growth?	0.0
Dividend Yield Above 2%?	0.5
PEmg Below Industry Average?	0.5
Trading Below NCAV?	0.0
Total Score	5.0
MG Grade	A

Boston Properties Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the low earnings growth over the past ten years, but that is not enough to disqualify the company from the Defensive Investor’s requirements. The Enterprising Investor is concerned with the high debt to net current assets; however, because the company is suitable for the Defensive Investor it is by default also suitable for the Enterprising Investor. As a result, all value 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 $3.36 in 2019 to an estimated $4.22 for 2023. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.54% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into the company revealed the company was trading just below its Graham Number of $55.57. The company pays a dividend yield of 8.08%, which is among the highest dividend yields in the MG Universe. Its PEmg (price over earnings per share – ModernGraham) was 11.58, which was below the industry average of 49.50, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Boston Properties Inc fares extremely well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Other Useful Information
Current Ratio	3.57
PB Ratio	1.26
Dividend Yield	8.08%
Number of Consecutive Years of Dividend Growth	1
10-Year Share Buy-back Ratio	-0.3
5-Year Share Buy-back Ratio	-0.4
1-Year Share Buy-back Ratio	-0.1
Insider buys – past 3 months	1

Most Recent Balance Sheet Figures

Balance Sheet	Date
Total Current Assets	$2,439,220,000.00
Total Current Liabilities	$683,630,000.00
Long Term Debt	$14,709,440,000.00
Total Assets	$24,377,380,000.00
Intangible Assets	$0.00
Total Liabilities	$16,065,300,000.00
Shares Outstanding (diluted)	157,040,000.00

Earnings Per Share History

Earnings
Year	EPS (diluted)	EPSmg
Estimated-Next FY	$3.55	$4.22
2022-12	$5.40	$4.44
2021-12	$3.17	$3.88
2020-12	$5.54	$4.07
2019-12	$3.30	$3.36
2018-12	$3.70	$3.35
2017-12	$2.93	$3.29
2016-12	$3.26	$3.42
2015-12	$3.72	$3.35
2014-12	$2.83	$2.95
2013-12	$4.86	$2.77
2012-12	$1.92	$1.66
2011-12	$1.86	$2.12
2010-12	$1.14	$2.98
2009-12	$1.76	$4.26
2008-12	$0.87	$5.39
2007-12	$10.94	$7.00
2006-12	$7.46	$4.82
2005-12	$3.86	$3.46
2004-12	$2.61	$3.17
2003-12	$3.65	$3.24
2002-12	$4.50	$2.82
2001-12	$2.19	$1.88
2000-12	$2.05	$1.56
1999-12	$1.71	$1.16
1998-12	$1.52	$0.75
1997-12	$0.90	$0.30

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. 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.