Wednesday, December 12, 2012

FirstService Corp 2

On my other blog I am today writing about My Own Advisor blog Part 3. My Own Advisor has been blogging for a couple of years and has a lot to share with novice investors. This is a third part of my review of this blogger... continue...

I do not own this stock of FirstService Corp (TSX-FSV, NASDAQ-FSRV), but I used to. It is a real estate company and I originally bought it for capital gains. I kept it longer than I intended to originally because the company issued dividend paying preferred shares to shareholders in 2007. However, I did sell in 2010 as it was not really a dividend paying stock and at that time, because I had stopped working, I preferred dividend paying stock.

When I look at insider trading over the past year, I see $9.9M of insider selling and 2.5M of insider buying, with net insider selling at 7.4M. There is some $7.1M of insider selling by officers and most of this was done when the stock was at a peak in the early part of this year. Most of the buying was when the stock hit a low in June of 2012.

There are a lot of options outstanding with the CFO and officers having more options than shares. However, there is also a lot of insider ownership. For example, the CEO has some $74M of shares, plus 100% of the multiple voting shares worth around $24M. He has no outstanding options. The CEO has $5M of shares and $9M of options. One officer has $18M in shares and $9M in options. One director has $14M in shares and a small amount of options.

Reuters says that 98.5% of the outstanding shares are held by institutions and that over the past 3 months they have decreased their shares by 10%. (By the number of shares listed as owned by institutions, I get 94.6% rather than 98.5% owned by institutions.)

I get 5 year low, median and high median Price/Earnings Ratios of 11.47, 14.65 and 17.84. The current P/E is 16.30 using 2012 EPS of 1.72 and stock price of $27.72. This high P/E ratio shows that the stock price is relatively on the high side.

It is hard to know if the EPS for 2012 is the regular EPS or the Adjusted EPS. If we look at the 5 year low, median and high median P/E Ratios for Adjusted EPS, they are 12.43, 15.58 and 18.72. The current P/E is still showing that the stock price is to the high side but still reasonable.

I get a current Graham Price of $10.98 using Adj. EPS. Using the Adj. EPS in the formula, I get 10 year low, median and high median Price/Graham Price Ratios of 1.48, 1.84 and 2.32. The current P/GP Ratio is 2.39. This shows that the stock price is relatively high.

Probably the best test for the stock price is using Price/Cash Flow per Share Ratios. (There are problems in using the Price/Book Value per share and there really is no dividend yield.) I am using the cash flow for the 12 months period to September 2012. The 5 year low, median and high median P/CF Ratios are 6.66, 8.34 and 10.02. The P/CF Ratio based on current price and last 12 month CF is 10.32. This shows that the stock price is on the high side.

When I look at the analysts' recommendations I find Strong Buy, Buy and Hold. The consensus recommendation is a Buy. The 12 months stock price is $32.33. This implies a total return of 16.63% in capital gains.

One analyst with a Hold recommendation gives a 12 month stock price of $30, which is 8.23% total return in capital gains. He felt that the stock was fully valued. (This is what my analysis of the stock price also shows.) However, recent analyst's earnings estimates have been revised with the 2012 moving up from $1.54 to $1.72 and the 2013 earnings from 2.06 to 2.01.

A couple of analysts thought that this stock was undervalued. However, they also think that it is long term buy and that the company will turn around in the next few years.

I am not interested in this stock because it does not pay dividends. However, I must admit that their issuing Preferred shares to shareholders was an interesting idea. Things are looking up for this company; at least analysts think so, because they revised the EPS for 2012 up by around 12%. One negative I see is that I have a hard time valuating the company, especially after the issuance of the Preferred shares.

This company is a global diversified leader in the rapidly growing real estate services sector, providing services in the following three areas: commercial real estate, residential property management, and property services. This is an international company, having business in North and South America, Europe, Asia, Australia and New Zealand. Its web site is here FirstService. See my spreadsheet at fsv.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 or StockTwits.

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