- By GF Value
The stock of Kilroy Realty (NYSE:KRC, 30-year Financials) is estimated to be modestly undervalued, 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 $66.75 per share and the market cap of $7.8 billion, Kilroy Realty stock is believed to be modestly undervalued. GF Value for Kilroy Realty is shown in the chart below.
Because Kilroy Realty is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 2.7% over the past three years and is estimated to grow 6.08% annually over the next three to five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Kilroy Realty has a cash-to-debt ratio of 0.17, which which ranks better than 76% of the companies in REITs industry. The overall financial strength of Kilroy Realty is 4 out of 10, which indicates that the financial strength of Kilroy Realty is poor. This is the debt and cash of Kilroy Realty over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Kilroy Realty has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $912.7 million and earnings of $5.52 a share. Its operating margin is 27.08%, which ranks worse than 70% of the companies in REITs industry. Overall, GuruFocus ranks the profitability of Kilroy Realty at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Kilroy Realty over the past years:
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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Kilroy Realty is 2.7%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is 0.6%, which ranks in the middle range of the companies in REITs industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Kilroy Realty's ROIC was 2.82, while its WACC came in at 5.36. The historical ROIC vs WACC comparison of Kilroy Realty is shown below:
In summary, The stock of Kilroy Realty (NYSE:KRC, 30-year Financials) gives every indication of being modestly undervalued. 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 Kilroy Realty stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.