CIF Stock Recommendation Report (Fall 2012)

Transcription

1 Date: November 15, 2012 Analyst Name: Jun Mei CIF Stock Recommendation Report (Fall 2012) Company Name and Ticker: Simon Property Group (SPG) Section (A) Summary Recommendation Buy: Yes No Target Price: Stop-Loss Price: Sector: Financial Current Price: Morningstar (MS) Fair Value Est.: $136 EPS (TTM): Next Fiscal Yr. End Year : 2012 Month : 12 Forward P/E: % Inst. Ownership: Industry: Real Estate 52 WK Hi: MS FV Uncertainty: High EPS (FY1): 7.83 Last Fiscal Qtr. End: Less Than 8 WK: Y N Mean LT Growth: 8.90% Inst. Ownership- Net Buy: Y N Market Cap (in Billions): WK Low: MS Consider Buying: $81.60 EPS (FY2): 8.37 If Less Than 8 WK, next Earnings Ann. Date: PEG: 2.04 Short Interest Ratio: 2.90 Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM) # of Shrs. O/S (in Millions): EBO Valuation: $81.38 MS Consider Selling: $ MS Star Rating: 3 Stars Analyst Consensus Recommendation: 7 Buy, 7 Hold, 7 Outperform Beta: 1.47 Short as % of Float: 1.10% 1

2 Investment Thesis As of right now, I recommend CIF to buy this stock for the following reasons. From the EBO valuation, it's indicated that the stock is overvalued. Might reached its max growth potential in the United States. Competitive market with the uprising of online shoppers. Fiscal Cliff uncertainty More institutions are moving away from the stock. Ratios are not as attractive compared to its competitors. Pros about the company: Expanding operations internationally. Positive historical surprises on revenues and earnings Large market shares in the United States High ROE and ROA Sales have been increasing in recent years Positive trend on short interest ratios. Summary Provide brief summary of your analysis in each section that follows Company Profile: Fundamental Valuation: I chose a 4 year abnormal growth period because the implied price matches Morning Stars buy value. With the implied prices revolving the $50-$80 range, the EBO valuation showed that current stock is overvalued. Relative Valuation: The forward p/e generated in the relative valuation showed that SPG has the highest at compared to its competitors. The PEG is the second highest compared to its competitors. This two ratio could indicate that SPG is currently overvalued. The P/S ratio is also alarming, being the highest of its competitors. Revenue and Earnings Estimates: Throughout the past 5 quarters, SPG's actual revenue has the its estimated by an average of million. The quarter ending in March 2012 had the biggest surprise by million while Dec-2011 had the least surprise by million. Earnings per share is reflected the same way. Analyst Recommendations: Currently, analysts recommendation on buy, outperform and hold are split evenly with 7 each, while one believe the stock will underperform. Institutional Ownership: Institutions hold 74.99% of SPG's total shares outstanding, with Vanguard Group holding 10.8% and Cohen & Steers at 7.2%. Short Interest: In the one year period, short interest ratio had been relatively high (5.92) during the end of last year and beginning of But as the year went, trends showed the ratio had been decreasing and its currently at

3 This indicator that investors are shifting from bearish to bullish on the stock as the year went back. Stock Price Chart: In the 3 months stock price chart, SPG had underperformed both the XLF and the market. However, looking at the one year and 5 year charts, SPG had outperformed the sector and S&P 500 by huge margins. With what the charts showed, investors with long term horizon might benefit from this stock. 3

4 Section (B) Company Profile (two pages maximum) Company Summary Simon Property Group Inc. (SPG) is the largest real estate company in the world. "Simon Property owns, develops and manages retail real estate properties, which consist primarily of regional malls, Premium Outlets, The Mills, and community/lifestyle centers"(reuters.com). Currently the company owns 326 properties in the United States and 12 joint venture premium outlets in Japan (8) and South Korea (2), Mexico (1), and Malaysia (1). In United Kingdom, the company has direct investments in two real estate companies, Capital Shopping Centres Group (CSCG), and Capital & Counties Properties PLC (CAPC). (reuters.com) In the United States, SPG's main operating income comes from Florida (14%), Texas (11%), and California (11%). But overall, SPG's properties are widely spread through the 50 states, including Puerto Rico. (Morningstar.com) International operations account for 5.4% of the company's operational income. (Seekingalpha.com) Business Model, Competition, Environment and Strategy SPG compete mainly in the retail property leasing. In the United States, the company owns 62.7% of all regional malls, 15.2% of Premium Outlets, 16.2% of Mills, and 5.1% of community/lifestyle properties. (Wikinvest.com) Their major competitors are General Growth Properties (GGP) and Vornado Realty Trust, with market capitalization billion and billion respectively. SPG's market cap is roughly 3 times larger than its primary competitors with 47 billion. (Reuters) With SPG owning majority of the retail mall properties, they can easily accommodate to customers' need of locations where their competitors might have a hard time doing. The environment that SPG competes in is very cyclical. The performance of the firm is greatly depended on how big retail companies are doing (Macy's, Sears, JC Penny, ect) because they account for more than 80% of their leasing. With retail companies, they're depended on consumers spending and confidence in the economy. With that be said, economic growth is what drives the profit forward for SPG. Revenue and Earnings History This information is available in Reuters.com, Financials tab. Copy/paste the quarterly revenue and earnings per share numbers for the most recent three years. Add the numbers over four fiscal quarters to get annual revenue and earnings. For the current fiscal year, go ahead add up as many quarters as are available. NOTE: revenue numbers are in millions. Discuss any pattern in revenue and earnings (e.g., increasing year over year; seasonal; etc.) REVENUE 4

5 Periods March June September December Note: Units in Millions of U.S. Dollars EARNINGS PER SHARE Periods March June September December Note: Units in U.S. Dollars Revenue has increased every quarter for the past 3 years. This is due to the increase in sales, rent and occupancy of the units. In 2011, the occupancy percentage is 93.8%. Currently it's at 94.6%, which is 80 basis points higher from last year. Also the average rent per square foot have also increased by 3.8%, averaging $40.33 per square foot. (Reuters) This also reflect in earnings per share. The company sees the most revenue coming in the 4th quarter, which shows the company is seasonal. The 4th quarter is the holiday season, where businesses might rent out more space to meet consumers' demand. Therefore, it reflects on the SPG leasing out more units. 5

6 Section (C) Fundamental Valuation (EBO) Include the following here: Copy/paste completed Fundamental Valuation (EBO) Spreadsheet SPG PARAMETERS FY1 FY2 Ltg EPS Fore casts % Mode l 1: 12-ye ar fore casting horiz on (T=12). Book value /share (last fye ) and a 7-ye ar growth pe riod. Discount Rate 12.86% Divide nd Payout Ratio (POR 80.83% Please download and save this template to your own storage device Ne xt Fsc Ye ar e nd 2012 You only ne e d to input value s to ce lls highlighte d in "ye llow" Curre nt Fsc Mth (1 to 12) 11 The re st of the spre adshe e t is calculate d automatically Targe t ROE (industry avg.) 4.19% Ple ase re ad "Guide line s_for_fundame ntalvaluation_profle e _Spre adshe e t" file care fully Ye ar Long-term EPS Growth Rate (Ltg) Forecasted EPS Beg. of year BV/Shr Implied ROE ROE (Beg. ROE, from EPS forecasts) Abnormal ROE (ROE-k) growth rate for B (1-POR)*(ROEt-1) Compounded growth growth*aroe required rate (k) Compound discount rate div. payout rate (k) Add to P/B PV(growth*AROE) Cum P/B Add: Perpetuity beyond current yr (Assume this yr's AROE forever) Total P/B (P/B if we stop est. this period) Implie d price Che ck: Beg. BV/Shr Implied EPS Implied EPS growth Inputs (provide below input values used in your analysis) EPS forecasts (FY1 & FY2): 7.83 and 8.37 Long-term growth rate: 8.90% Book value /share (along with book value and number of shares outstanding): Book value: 4, million # of shares outstanding: million Book value / share: Dividend payout ratio: 80.83% Next fiscal year end: 2013 Current fiscal month: 11 Target ROE: 4.19% 6

7 Output Above normal growth period chosen: 2016, 4 years growth EBO valuation (Implied price from the spreadsheet): $81.38 Sensitivity Analysis EBO valuation would be (you can include more than one scenario in each of the following): $87.87 if changing above normal growth period to 2018 $ if changing growth rate from mean (consensus) to the highest estimate FY1=7.92, FY2=8.67, Ltg=21% $72.20 if changing growth rate from mean (consensus) to the lowest estimate FY1=7.67, FY2=8.07, Ltg=5% $ if changing discount rate to 8% $81.38 if changing target ROE to (SPG's 5 yr average) I chose a 4 year abnormal growth period because the implied price matches Morning Stars buy value. With the implied prices revolving the $50-$80 range, the EBO valuation showed that current stock is overvalued. However, the EBO valuation also showed that the stock is very sensitive to changes in growth rate. When entered the consensus high for FY1, FY2, and Ltg, the price indicated is close to what is stock is trading at right now. Section (D) Relative Valuation Copy/paste your completed relative valuation spreadsheet here 7

8 Cougar Investment Fund Relative Valuation Template Please download and save this template to your own storage device You only need to input values to cells highlighted in "yellow" The rest of the spreadsheet is calculated automatically Please read "Stock Recommendation Guidelines" document carefully SPG Mean FY2 Earnings Estimate Forward Mean LT PEG P/B ROE Value P/S P/CF Ticker Name Mkt Cap Current Price (next fiscal year) P/E Growth Rate (MRQ) 5 yr ave Ratio TTM TTM 1 VNO Vornado Realty Trust $ 14, $ $ % % WRI Weingarten Realty Investors $ 3, $ $ % % KIM Kimco Realty Corp $ 7, $ $ % % MAC Macerich Co $ 7, $ $ % % SPG Simon Property Group $ 47, $ $ % % Implied Price based on: P/E PEG P/B Value P/S P/CF 1 VNO Vornado Realty Trust $ $ $47.61 $ $77.60 $ WRI Weingarten Realty Investors $ $34.07 $37.48 $ $99.81 $ KIM Kimco Realty Corp $ $ $28.49 $ $ $ MAC Macerich Co $ $ $48.73 $ $ $ High $ $ $48.73 $ $ $ Low $ $34.07 $28.49 $ $77.60 $ Median $ $ $42.55 $ $ $ The forward p/e generated in the relative valuation showed that SPG has the highest at compared to its competitors. The PEG is the second highest compared to its competitors. This two ratio could indicate that SPG is currently overvalued. The P/S ratio is also alarming, being the highest of its competitors. P/CF is the second lowest from its competitors, which shows that SPG is better at generating more cash to support than its competitors. From implied prices generated from the valuation, the P/S does the best job of indicating the company's 52 week low price with the mean $133.28, while the forward P/E is the closest in indicating it's 52 week high with the mean of $ Section (E) Revenue and Earnings Estimates HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Sep-12 1, ,

9 Quarter Ending Jun-12 1, , Quarter Ending Mar-12 1, , Quarter Ending Dec-11 1, , Quarter Ending Sep-11 1, , Earnings (per share) Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Quarter Ending Sep Throughout the past 5 quarters, SPG's actual revenue has the its estimated by an average of million. The quarter ending in March 2012 had the biggest surprise by million while Dec-2011 had the least surprise by million. Earnings per share is reflected the same way, where it showed positive surprises throughout the past 5 quarter. Looking at the price chart on Reuters, there have been positive spikes in stock price when each quarter earnings were released. The only time stock price didn't get up during earnings release was the 3rd quarter of this year. CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) # of Estimates Mean High Low 1 Year Ago SALES (in millions) 9

10 Quarter Ending Dec , , , , Quarter Ending Mar , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Quarter Ending Dec Quarter Ending Mar Year Ending Dec Year Ending Dec LT Growth Rate (%) Sales (million) # of estimates mean high low % Difference in High Estimates % Difference in low estimates Quarter Ending Dec % -6% Quarter Ending Mar % -3% Year Ending Dec % -2% Year Ending Dec % -4% Quarter Ending Dec % -8% Quarter Ending Mar % -3% Year Ending Dec % -2% Year Ending Dec % -4% LT Growth Rate (%) % -44% The divergent is more notable for the current quarter ending Dec-12, with 4% differences from the high estimated and -6% difference from the low estimates. That goes the same for earnings per share. 10

11 For LT Growth Rate, 6 analysts participated and their estimates are widely spread out from each other. The high was 21%, which was 136% difference from the mean. The low also had a -44% difference from the mean. This showed inconsistency in the estimates, where some analysts felt very bullish about the stock, while some felt bearish. CONSENSUS ESTIMATES TREND Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Current 1 Week Ago 1 Month Ago 2 Month Ago 1 Year Ago SALES (in millions) Quarter Ending Dec-12 1, , , , , Quarter Ending Mar-13 1, , , , , Year Ending Dec-12 4, , , , , Year Ending Dec-13 5, , , , , Earnings (per share) Quarter Ending Dec Quarter Ending Mar Quarter Ending Dec Quarter Ending Dec

12 The consensus estimates trend for SPG's sales and EPS have been increasing on almost all of the quarters and fiscal years. The current estimates are the highest from what it was 1 weeks, 1 month, 2months, and 1 year ago. ESTIMATES REVISIONS SUMMARY Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Dec Quarter Ending Mar Year Ending Dec Year Ending Dec Earnings Quarter Ending Dec Quarter Ending Mar Year Ending Dec Year Ending Dec For earnings, in the last 4 weeks, there are no downs for quarter ending dec-12 and year ending dec-12. Quarter ending Mar-13 has 3 downs but 6 ups, will year ending dec-13 has 2 downs compared to 11 ups. Overall, ups outnumbered the downs by a huge margin. 12

13 For sales, quarter ending dec-12 is balanced with 2 downs and 2 ups. The downs might feel the hurricane sandy and the fiscal cliff might hurt the sales of SPG. While the ups might feel that holiday season can generate a lot the revenue for the company. The year ending dec-12 is split 2 ups and 2 downs also. Other than that, there are 2 more ups than downs for quarter ending mar-13 and year ending dec-12. Personally, I don't think SPG can beat it's 4th quarter estimates with the anxiety of the fiscal cliff. But going forward, I believe the company has a good chance of beating estimates for 2014 because they're expanding their operations internationally. SPG is joint venturing with similar firms in China, Canada, and Brazil on opening outlets mall. Construction for Brazil and China is set to start in the next days, with expectation to finish early (Reuters) 13

14 Section (F) Analysts Recommendations Copy/paste the Analyst Recommendations and Revisions Table from Reuters.com, Analysts tab. NOTE: Make sure you copy the entire table including the Mean Rating at the bottom of the table. ANALYST RECOMMENDATIONS AND REVISIONS 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating Currently, analysts recommendation on buy, outperform and hold are split evenly with 7 each, while one believe the stock will underperform. As for the change, its mainly coming from the outperform section, where analysts are shifting their vote to buy or hold. According to Morningstar analysts: Bulls say: "Simon's diverse and broad retail platform offers efficiencies to tenants, which may want to place stores in specific retail formats, geographic areas, or demographic areas (Morningstar). 14

15 "Simon's solid balance sheet and access to capital markets position it to take advantage of any attractive acquisition opportunities that become available, including opportunities overseas" (Morningstar). Bears say: In a "new normal" macro environment, weak consumer spending could weigh on Simon's results for years to come" (Morningstar). If online commerce continues to win share of the consumer wallet, traditional bricks and mortar malls could suffer" (Morningstar). Section (G) Institutional Ownership 15

16 Cougar Investment Fund Institutional Ownership Template Please download and save this template to your own storage device You only ne e d to input value s to ce lls highlighte d in "ye llow" The re st of the spre adshe e t is calculate d automatically Ple ase re ad "Stock Re comme ndation Guide line s" docume nt care fully SPG Ownership Activity # of Holders % Beg. Holders Shares % Shares Shares Outstanding 303,000, % # of Holders/Tot Shares Held % 292,882, % # New Positions % # Closed Positions % # Increased Positions % # Decreased Positions % Beg. Total Inst. Positions % 292,882, % # Net Buyers/3 Mo. Net Chg % % Ownership Information % Outstanding Top 10 Institutions % Ownership 33.30% Mutual Fund % Ownership 1.54% Float % 99.06% > 5% Ownership Holder Name % Outstanding Report Date Vanguard Group, Inc /30/2012 Cohen & Steers Capital Management, Inc /30/2012 BlackRock Institutional Trust Company 5.30% 16 06/30/12

17 Institutions hold 74.99% of SPG's total shares outstanding, with Vanguard Group holding 10.8% and Cohen & Steers at 7.2%. In the past 3 months, increased institutional positions were 270 while decreased positions were 329, netting a loss of 59 positions. This suggests that more institutions are lending towards the bearish side of the stock. Section (H) Short Interest (two pages) From (NASDAQ s website) Copy/paste or enter the data in the following table. You also need to copy/paste the chart to the right. Copy/paste or type the information from short interest table. You will start from the most recent release date, and go back for a year (some stocks may not have data go back for a year) Copy/paste the chart to the right of the short interest table, immediately follow the table below NOTE: You are encouraged to look at the short interest information for two of the companies closest competitors. This will help gauge whether the sentiment indicated in the short interest statistics is company specific or industry-wide. Settlement Date Short Interest Average Daily Shares Volume # of Days to cover SPG Short Interest Settlement Date Short Interest Avg Daily Share Volume Days To Cover 10/31/2012 3,151,661 1,186, /15/2012 3,363,356 1,029, /28/2012 3,830,598 1,846,

18 9/14/2012 4,484,138 1,259, /31/2012 4,664,323 1,228, /15/2012 4,575, , /31/2012 5,134,389 1,170, /13/2012 5,545,888 1,007, /29/2012 5,250,704 1,223, /15/2012 5,490,607 1,398, /31/2012 5,472,602 1,408, /15/2012 5,869,081 1,295, /30/2012 5,834,739 1,486, /13/2012 5,625,143 1,195, /30/2012 5,830,452 1,791, /15/2012 5,805,365 1,904, /29/2012 5,939,545 1,119, /15/2012 6,329,783 1,219, /31/2012 6,604,544 1,597, /13/2012 6,619,984 1,527, /30/2011 6,955,411 1,485, /15/2011 8,137,311 1,468,

19 11/30/2011 9,402,118 1,589, /15/2011 9,730,809 1,832, Avg Vol Avg Vol Shares (3 month) (10 day) Outstanding Float 1,270,270 1,193, M M Shares Short Short Ratio Short % of Float Shares Short (Most recent date) (Most recent date) (Most recent date) (2 weeks prior) 3.15M % 3.36M In the one year period, short interest ratio had been relatively high (5.92) during the end of last year and beginning of But as the year went, trends showed the ratio had been decreasing and its currently at This indicator that investors are shifting from bearish to bullish on the stock as the year went back. 19

20 Section (I) Stock Charts A three months price chart Copy/paste the 3 Mos. stock chart here A one year price chart Copy/paste the 1 Yr stock chart here 20

21 A five year price chart Copy/paste the 5 Yrs. stock chart here In the 3 months stock price chart, SPG had underperformed both the XLF and the market. However, looking at the one year and 5 year charts, SPG had outperformed the sector and S&P 500 by huge margins. With what the charts showed, investors with long term horizon might benefit from this stock. 21

22 Sources: Reuters.com Morningstar.com finance.yahoo.com Simon.com money.msn.com/investing 22