Wednesday, August 31, 2011

Brookfield Office Properties 2

I do not own this stock (TSX-BPO, NYSE:BPO). In my first section, the question to be answered is, do I want to own this stock? It does not matter exactly how old this section is, you should be still able to decide if the stock is one you would want to own.

In this second section, the question to be answered is, is this stock currently trading at a reasonable price. The age of the second section matters. Stocks prices are always changing. From this section you should be able to get the ratios that will show if a price is good.

First I look at the Price/Earnings Ratio. For this stock I get a 5 year low median P/E Ratio of 7.63. The 5 year high median P/E ratio is 17.86. The median P/E ratio is 12.74. There are some problems with the P/E ratios as they were very high between 2004 and 2007 and then they really dropped. The P/E ratios before 2004 were somewhere between the recent P/E Ratios and the ones between 2004 and 2007.

However, the current P/E ratios in CDN$ terms is just 9.49 and this is towards the low end of the above P/E Ratios and would suggest a current good stock price. My current P/E ratio is sometimes called Forward P/E as I am using the one for estimated earnings in 2011.

I get a Graham Price for 2011 of $26.10. The current stock price of $16.25 is some 61% lower. This suggests a good stock price. Also, the 10 year median difference between the Graham Price and the low annual stock price is a stock price 11% lower than the Graham Price. Testing the Stock price against the Graham Price again shows a good stock price.

I get a 10 year median Price/Book Value Ratio of 1.90. The current P/B Ratio is 0.94. This means that the stock is selling below the book value and this in itself shows a good stock price. Also, the current P/B Ratio is only 49% of the 10 year median P/B Ratio and any time the current P/B ratio is 80% or lower than the 10 year median P/B Ratio shows a good current stock price.

The only site that I know of that gives a current P/B Ratio is Reuters. For this stock, go to Reuter and on the Financials tab, look for Price to Book. On this site MRQ is most recent quarter and TTM means Trailing Twelve Months. All TSX stocks have TO after the symbol, so this stock would be, for this site, “BPO.TO”.

The last thing to look at is the dividend yield. The 5 year median dividend yield is 3.57%. The current dividend yield is 3.44%. What would show a good stock price is a current higher dividend yield. This is the only measure that shows a rather high stock price. I would like to point out a couple of things. First, the dividend yield on this stock has been unusually high lately. The 10 year median high dividend yield is lower at 2.61. The other thing is that this stock has not raised dividends since 2008.

As you can see, trying to get a fix on where the current stock price is relatively is not necessarily straight forward. However, it would seem that the current price is reasonable.

One thing I look at is the Insider Trading report. For this stock, over the past year there is insider selling of $10.7M. This looks like a lot, but it is way less than 1% of the $8B market cap of this company. Insiders seem to be selling off options. There is minimal amount of insider buying. Except for the directors, insiders have way more stock options than shares.

Another interesting thing about this stock is that some 97% of the shares are held by 314 institutions. Over the past 3 months, they have marginally increased their ownership.

When I look at analysts’ recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus recommendation is a Hold. One buy recommendation came with a 12 month stock price of $20.00. One analyst like the fact that they have been investing in Australian properties. One thought that they had good quality assets in North America.

This stock would be comparable to REITs and I have enough REITs at present to consider investing in this company. I would also like to see this company grow their revenues and not just their earnings. One problems is the dividends are payable in US$ and therefore can fluctuate for Canadians. Since our currency has already moved up big time against the US$, I do not expect high currency loses on this stock going forward.

Brookfield Properties is a leading North American commercial real estate company that invests in premier-quality office properties in high-growth markets driven by financial service, government, and energy tenants. The portfolio is composed of office properties in 12 top U.S. and Canadian markets. Its web site is here Brookfield Office. See my spreadsheet at bpo.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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