Easterly Government Properties Stock Is Believed To Be Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of Easterly Government Properties (NYSE:DEA, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $20.84 per share and the market cap of $1.7 billion, Easterly Government Properties stock is believed to be fairly valued. GF Value for Easterly Government Properties is shown in the chart below.


Easterly Government Properties Stock Is Believed To Be Fairly Valued
Easterly Government Properties Stock Is Believed To Be Fairly Valued

Because Easterly Government Properties is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.

Link: These companies may deliever higher future returns at reduced risk.

Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether 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. Easterly Government Properties has a cash-to-debt ratio of 0.01, which ranks worse than 89% of the companies in REITs industry. Based on this, GuruFocus ranks Easterly Government Properties's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Easterly Government Properties over the past years:

Easterly Government Properties Stock Is Believed To Be Fairly Valued
Easterly Government Properties Stock Is Believed To Be Fairly Valued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Easterly Government Properties has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $245.1 million and earnings of $0.15 a share. Its operating margin is 22.48%, which ranks worse than 75% of the companies in REITs industry. Overall, the profitability of Easterly Government Properties is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Easterly Government Properties over the past years:

Easterly Government Properties Stock Is Believed To Be Fairly Valued
Easterly Government Properties Stock Is Believed To Be Fairly Valued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Easterly Government Properties is -0.4%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is -0.9%, which ranks in the middle range of the companies in REITs industry.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Easterly Government Properties's return on invested capital is 2.41, and its cost of capital is 4.07. The historical ROIC vs WACC comparison of Easterly Government Properties is shown below:

Easterly Government Properties Stock Is Believed To Be Fairly Valued
Easterly Government Properties Stock Is Believed To Be Fairly Valued

In summary, The stock of Easterly Government Properties (NYSE:DEA, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Easterly Government Properties stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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