Intrinsic value of Stratus Properties - STRS

Previous Close

$29.10

  Intrinsic Value

$36.30

stock screener

  Rating & Target

buy

+25%

  Value-price divergence*

-48%

Previous close

$29.10

 
Intrinsic value

$36.30

 
Up/down potential

+25%

 
Rating

buy

 
Value-price divergence*

-48%

Our model is not good at valuating stocks of financial companies, such as STRS.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of STRS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -1.23
  10.50
  9.95
  9.45
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.36
  5.32
  5.29
  5.26
Revenue, $m
  80
  88
  97
  106
  116
  126
  136
  147
  158
  170
  182
  195
  208
  221
  236
  250
  266
  282
  298
  316
  334
  353
  373
  393
  415
  437
  461
  486
  512
  539
  567
Variable operating expenses, $m
 
  60
  66
  72
  78
  85
  92
  99
  107
  115
  123
  131
  140
  150
  159
  169
  179
  190
  201
  213
  225
  238
  252
  265
  280
  295
  311
  328
  345
  364
  383
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  80
  60
  66
  72
  78
  85
  92
  99
  107
  115
  123
  131
  140
  150
  159
  169
  179
  190
  201
  213
  225
  238
  252
  265
  280
  295
  311
  328
  345
  364
  383
Operating income, $m
  0
  29
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  68
  72
  77
  81
  86
  92
  97
  103
  109
  115
  121
  128
  135
  142
  150
  158
  166
  175
  184
EBITDA, $m
  8
  29
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  68
  72
  77
  81
  86
  92
  97
  103
  109
  115
  121
  128
  135
  142
  150
  158
  166
  175
  184
Interest expense (income), $m
  0
  10
  11
  13
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  60
  64
  67
  71
  74
Earnings before tax, $m
  -9
  19
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  49
  52
  55
  59
  62
  65
  69
  73
  77
  81
  85
  90
  94
  99
  104
  110
Tax expense, $m
  -3
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
Net income, $m
  -6
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  14
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  452
  483
  531
  581
  634
  688
  745
  804
  865
  929
  995
  1,064
  1,136
  1,210
  1,288
  1,368
  1,452
  1,540
  1,631
  1,726
  1,825
  1,928
  2,036
  2,149
  2,267
  2,390
  2,519
  2,654
  2,796
  2,943
  3,098
Adjusted assets (=assets-cash), $m
  438
  483
  531
  581
  634
  688
  745
  804
  865
  929
  995
  1,064
  1,136
  1,210
  1,288
  1,368
  1,452
  1,540
  1,631
  1,726
  1,825
  1,928
  2,036
  2,149
  2,267
  2,390
  2,519
  2,654
  2,796
  2,943
  3,098
Revenue / Adjusted assets
  0.183
  0.182
  0.183
  0.182
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
Average production assets, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Working capital, $m
  0
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
Total debt, $m
  291
  324
  359
  396
  435
  475
  516
  559
  604
  651
  700
  750
  803
  857
  914
  973
  1,035
  1,099
  1,165
  1,235
  1,308
  1,383
  1,463
  1,545
  1,632
  1,722
  1,817
  1,916
  2,019
  2,128
  2,241
Total liabilities, $m
  321
  354
  389
  426
  465
  505
  546
  589
  634
  681
  730
  780
  833
  887
  944
  1,003
  1,065
  1,129
  1,195
  1,265
  1,338
  1,413
  1,493
  1,575
  1,662
  1,752
  1,847
  1,946
  2,049
  2,158
  2,271
Total equity, $m
  131
  129
  142
  155
  169
  184
  199
  215
  231
  248
  266
  284
  303
  323
  344
  365
  388
  411
  435
  461
  487
  515
  544
  574
  605
  638
  673
  709
  746
  786
  827
Total liabilities and equity, $m
  452
  483
  531
  581
  634
  689
  745
  804
  865
  929
  996
  1,064
  1,136
  1,210
  1,288
  1,368
  1,453
  1,540
  1,630
  1,726
  1,825
  1,928
  2,037
  2,149
  2,267
  2,390
  2,520
  2,655
  2,795
  2,944
  3,098
Debt-to-equity ratio
  2.221
  2.510
  2.530
  2.550
  2.570
  2.580
  2.590
  2.610
  2.620
  2.620
  2.630
  2.640
  2.650
  2.650
  2.660
  2.660
  2.670
  2.670
  2.680
  2.680
  2.680
  2.690
  2.690
  2.690
  2.700
  2.700
  2.700
  2.700
  2.710
  2.710
  2.710
Adjusted equity ratio
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -6
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
Depreciation, amort., depletion, $m
  8
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Funds from operations, $m
  -27
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
Change in working capital, $m
  -23
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
Cash from operations, $m
  -4
  14
  16
  17
  18
  20
  21
  23
  24
  26
  28
  30
  31
  33
  35
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
New CAPEX, $m
  -28
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from investing activities, $m
  -28
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Free cash flow, $m
  -32
  14
  16
  17
  18
  20
  21
  23
  24
  26
  28
  30
  31
  33
  35
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
Issuance/(repayment) of debt, $m
  30
  33
  35
  37
  38
  40
  42
  43
  45
  47
  49
  50
  52
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  95
  99
  104
  108
  113
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  29
  33
  35
  37
  38
  40
  42
  43
  45
  47
  49
  50
  52
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  95
  99
  104
  108
  113
Total cash flow (excl. dividends), $m
  -3
  47
  51
  54
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
  92
  97
  101
  106
  111
  117
  122
  128
  134
  141
  148
  155
  162
  170
  179
  187
  196
Retained Cash Flow (-), $m
  6
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
Prev. year cash balance distribution, $m
 
  14
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  49
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  96
  100
  105
  111
  116
  122
  128
  134
  141
  148
  155
Discount rate, %
 
  10.80
  11.34
  11.91
  12.50
  13.13
  13.78
  14.47
  15.20
  15.96
  16.75
  17.59
  18.47
  19.40
  20.37
  21.38
  22.45
  23.58
  24.75
  25.99
  27.29
  28.66
  30.09
  31.59
  33.17
  34.83
  36.57
  38.40
  40.32
  42.34
  44.45
PV of cash for distribution, $m
 
  45
  31
  29
  27
  24
  22
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Stratus Properties Inc., a real estate company, engages in the acquisition, entitlement, development, management, operation, and sale of commercial, hotel, entertainment, and multi-and single-family residential real estate properties primarily in Austin, Texas. The company operates through four segments: Hotel, Entertainment, Real Estate Operations, and Commercial Leasing. It primarily operates The W Austin Hotel & Residences project located on a two-acre city block in downtown Austin that comprises a 251-room luxury hotel; and 159 residential condominium units, as well as office, retail, and entertainment space. Stratus Properties Inc. was founded in 1992 and is headquartered in Austin, Texas.

FINANCIAL RATIOS  of  Stratus Properties (STRS)

Valuation Ratios
P/E Ratio -39.3
Price to Sales 2.9
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow -58.9
Price to Free Cash Flow -7.4
Growth Rates
Sales Growth Rate -1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -49.1%
Cap. Spend. - 3 Yr. Gr. Rate 69.5%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 222.1%
Total Debt to Equity 222.1%
Interest Coverage 0
Management Effectiveness
Return On Assets -1.4%
Ret/ On Assets - 3 Yr. Avg. 1.7%
Return On Total Capital -1.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2%
Return On Equity -4.5%
Return On Equity - 3 Yr. Avg. 4.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 16.3%
Gross Margin - 3 Yr. Avg. 16.4%
EBITDA Margin -1.3%
EBITDA Margin - 3 Yr. Avg. 17.2%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 14.2%
Pre-Tax Margin -11.3%
Pre-Tax Margin - 3 Yr. Avg. 7%
Net Profit Margin -7.5%
Net Profit Margin - 3 Yr. Avg. 7%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. -31.3%
Payout Ratio 0%

STRS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STRS stock intrinsic value calculation we used $80 million for the last fiscal year's total revenue generated by Stratus Properties. The default revenue input number comes from 2016 income statement of Stratus Properties. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our STRS stock valuation model: a) initial revenue growth rate of 10.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.8%, whose default value for STRS is calculated based on our internal credit rating of Stratus Properties, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Stratus Properties.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of STRS stock the variable cost ratio is equal to 67.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for STRS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Stratus Properties.

Corporate tax rate of 27% is the nominal tax rate for Stratus Properties. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the STRS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for STRS are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Stratus Properties operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for STRS is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $131 million for Stratus Properties - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 7.887 million for Stratus Properties is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Stratus Properties at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Stratus Properties reports 2Q loss   [Aug-09-17 01:36PM  Associated Press]
▶ Stratus Properties reports 1Q loss   [May-10-17 08:49AM  Associated Press]
▶ $114M sale of Oaks at Lakeway completed, after all   [Feb-22-17 09:25AM  at bizjournals.com]
▶ $114M sale of Oaks at Lakeway completed, after all   [09:25AM  American City Business Journals]
▶ Stratus sells HEB-anchored retail center in $114M deal   [Oct-11-16 01:45PM  at bizjournals.com]
▶ Fun Fun None: Music fest canceled in 2016   [Sep-15-16 12:40PM  at bizjournals.com]
▶ [$$] When a Billionaire Activist Is Rebuffed   [Sep-13-16 06:09AM  at Barrons.com]
▶ Promoter's departure shakes up Austin entertainment industry   [May-17-16 03:50PM  at bizjournals.com]
▶ Stratus shareholders to vote on proposal to explore sale, merger   [Apr-14-16 03:37PM  at bizjournals.com]
▶ Stratus considers sale, among other future options   [Apr-08-16 09:25AM  at bizjournals.com]
▶ Stratus receives $435M bid from California company   [Jan-28-16 08:30PM  at bizjournals.com]
▶ 5 big stories you may have missed over the holiday break   [Jan-04-16 08:45AM  at bizjournals.com]
Stock chart of STRS Financial statements of STRS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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