W.P. Carey Inc (WPC, Financial), a prominent real estate investment trust, has recently experienced a daily loss of 6.25%, with a 3-month loss of 5.65%. Despite these losses, the company maintains an Earnings Per Share (EPS) (EPS) of 3.57. This article aims to answer the question: Is W.P. Carey's stock modestly undervalued? Let's delve into a comprehensive valuation analysis to shed light on this question.
Introduction to W.P. Carey Inc (WPC, Financial)
W.P. Carey Inc is a real estate investment trust primarily involved in the ownership of properties located in the U.S., Western Europe, and Northern Europe. The company's operations are organized into Real Estate and Investment Management segments. The majority of the company's income is derived from its Real Estate division in the form of lease revenue from long-term agreements with companies. The company's real estate portfolio is mainly comprised of single-tenant office, industrial, warehouse, and retail facilities located around the world. Most of the company's revenue comes from properties in the USA. The company's Investment Management unit generates revenue from providing real estate advisory and portfolio management services to other REITs.
Comparing the stock price of $59.96 to the GF Value of $85, W.P. Carey appears to be modestly undervalued. This comparison provides an initial perspective on the company's value, paving the way for a more profound exploration.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
W.P. Carey's stock appears to be modestly undervalued based on the GF Value. The company's market cap stands at $12.80 billion, reinforcing the notion of under-valuation. Because W.P. Carey is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a company's financial strength must be carefully reviewed before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. W.P. Carey has a cash-to-debt ratio of 0.02, which ranks worse than 76.45% of 726 companies in the REITs industry. Based on this, GuruFocus ranks W.P. Carey's financial strength as 4 out of 10, suggesting poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. W.P. Carey has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and Earnings Per Share (EPS) of $3.57. Its operating margin is 46.19%, which ranks worse than 59.91% of 686 companies in the REITs industry. Overall, the profitability of W.P. Carey is ranked 7 out of 10, which indicates fair profitability.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of W.P. Carey is 0.8%, which ranks worse than 50.87% of 633 companies in the REITs industry. The 3-year average EBITDA growth is 2.7%, which ranks better than 53.56% of 534 companies in the REITs industry.
ROIC vs WACC
An effective way to evaluate a company's profitability is to compare its return on invested capital (ROIC) with its weighted average cost of capital (WACC). W.P. Carey's ROIC is 4.14, and its WACC is 7. Ideally, the ROIC should be higher than the WACC for a company to generate cash flow relative to the capital it has invested in its business.
Conclusion
In conclusion, the stock of W.P. Carey appears to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks better than 53.56% of 534 companies in the REITs industry. To learn more about W.P. Carey stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
