Intrinsic value of Gladstone Commercial - GOOD

Previous Close

$20.11

  Intrinsic Value

$184.20

stock screener

  Rating & Target

str. buy

+816%

Previous close

$20.11

 
Intrinsic value

$184.20

 
Up/down potential

+816%

 
Rating

str. buy

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

We calculate the intrinsic value of GOOD 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 2017), $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 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
Revenue, $m
  104
  114
  124
  135
  146
  157
  169
  181
  194
  207
  221
  236
  251
  266
  282
  299
  317
  335
  355
  375
  396
  417
  440
  464
  489
  515
  543
  571
  601
  633
Variable operating expenses, $m
  67
  73
  80
  86
  93
  100
  108
  116
  124
  132
  140
  149
  159
  168
  179
  189
  201
  212
  224
  237
  250
  264
  278
  294
  309
  326
  343
  361
  380
  400
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
  67
  73
  80
  86
  93
  100
  108
  116
  124
  132
  140
  149
  159
  168
  179
  189
  201
  212
  224
  237
  250
  264
  278
  294
  309
  326
  343
  361
  380
  400
Operating income, $m
  37
  41
  45
  49
  53
  57
  61
  66
  70
  75
  81
  87
  92
  98
  104
  110
  117
  123
  130
  138
  145
  153
  162
  171
  180
  189
  199
  210
  221
  233
EBITDA, $m
  137
  150
  163
  177
  192
  207
  222
  239
  255
  273
  291
  310
  330
  350
  372
  394
  417
  441
  467
  493
  520
  549
  579
  611
  644
  678
  714
  752
  791
  832
Interest expense (income), $m
  25
  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
Earnings before tax, $m
  37
  41
  45
  49
  53
  57
  61
  66
  70
  75
  81
  87
  92
  98
  104
  110
  117
  123
  130
  138
  145
  153
  162
  171
  180
  189
  199
  210
  221
  233
Tax expense, $m
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
Net income, $m
  27
  30
  33
  35
  38
  41
  45
  48
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  101
  106
  112
  118
  125
  131
  138
  146
  153
  161
  170

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  -295
  -322
  -351
  -381
  -412
  -444
  -477
  -512
  -548
  -586
  -625
  -666
  -708
  -752
  -798
  -846
  -896
  -947
  -1,002
  -1,058
  -1,117
  -1,179
  -1,244
  -1,311
  -1,382
  -1,456
  -1,533
  -1,614
  -1,698
  -1,787
Adjusted assets (=assets-cash), $m
  -295
  -322
  -351
  -381
  -412
  -444
  -477
  -512
  -548
  -586
  -625
  -666
  -708
  -752
  -798
  -846
  -896
  -947
  -1,002
  -1,058
  -1,117
  -1,179
  -1,244
  -1,311
  -1,382
  -1,456
  -1,533
  -1,614
  -1,698
  -1,787
Revenue / Adjusted assets
  -0.353
  -0.354
  -0.353
  -0.354
  -0.354
  -0.354
  -0.354
  -0.354
  -0.354
  -0.353
  -0.354
  -0.354
  -0.355
  -0.354
  -0.353
  -0.353
  -0.354
  -0.354
  -0.354
  -0.354
  -0.355
  -0.354
  -0.354
  -0.354
  -0.354
  -0.354
  -0.354
  -0.354
  -0.354
  -0.354
Average production assets, $m
  989
  1,081
  1,177
  1,277
  1,382
  1,490
  1,602
  1,719
  1,841
  1,967
  2,098
  2,235
  2,377
  2,525
  2,678
  2,839
  3,006
  3,180
  3,362
  3,552
  3,751
  3,958
  4,174
  4,401
  4,638
  4,886
  5,145
  5,417
  5,701
  5,999
Working capital, $m
  -505
  -552
  -602
  -653
  -706
  -761
  -819
  -878
  -940
  -1,005
  -1,072
  -1,142
  -1,214
  -1,290
  -1,369
  -1,451
  -1,536
  -1,625
  -1,718
  -1,815
  -1,916
  -2,022
  -2,133
  -2,249
  -2,370
  -2,496
  -2,629
  -2,768
  -2,913
  -3,065
Total debt, $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 liabilities, $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 equity, $m
  -295
  -322
  -351
  -381
  -412
  -444
  -477
  -512
  -548
  -586
  -625
  -666
  -708
  -752
  -798
  -846
  -896
  -947
  -1,002
  -1,058
  -1,117
  -1,179
  -1,244
  -1,311
  -1,382
  -1,456
  -1,533
  -1,614
  -1,698
  -1,787
Total liabilities and equity, $m
  -295
  -322
  -351
  -381
  -412
  -444
  -477
  -512
  -548
  -586
  -625
  -666
  -708
  -752
  -798
  -846
  -896
  -947
  -1,002
  -1,058
  -1,117
  -1,179
  -1,244
  -1,311
  -1,382
  -1,456
  -1,533
  -1,614
  -1,698
  -1,787
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  30
  33
  35
  38
  41
  45
  48
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  101
  106
  112
  118
  125
  131
  138
  146
  153
  161
  170
Depreciation, amort., depletion, $m
  100
  109
  119
  129
  139
  150
  161
  173
  185
  198
  210
  223
  238
  252
  268
  284
  301
  318
  336
  355
  375
  396
  417
  440
  464
  489
  515
  542
  570
  600
Funds from operations, $m
  127
  139
  151
  164
  178
  191
  206
  221
  236
  253
  269
  287
  305
  324
  344
  364
  386
  408
  431
  456
  481
  508
  536
  565
  595
  627
  660
  695
  731
  770
Change in working capital, $m
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -93
  -97
  -101
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -145
  -152
Cash from operations, $m
  172
  186
  200
  215
  231
  247
  263
  281
  298
  317
  336
  356
  377
  399
  422
  446
  471
  497
  524
  553
  583
  614
  646
  680
  716
  753
  793
  834
  877
  922
Maintenance CAPEX, $m
  -90
  -99
  -108
  -118
  -128
  -138
  -149
  -160
  -172
  -184
  -197
  -210
  -223
  -238
  -252
  -268
  -284
  -301
  -318
  -336
  -355
  -375
  -396
  -417
  -440
  -464
  -489
  -515
  -542
  -570
New CAPEX, $m
  -90
  -92
  -96
  -100
  -104
  -108
  -112
  -117
  -121
  -126
  -131
  -137
  -142
  -148
  -154
  -160
  -167
  -174
  -182
  -190
  -198
  -207
  -217
  -226
  -237
  -248
  -259
  -272
  -284
  -298
Cash from investing activities, $m
  -180
  -191
  -204
  -218
  -232
  -246
  -261
  -277
  -293
  -310
  -328
  -347
  -365
  -386
  -406
  -428
  -451
  -475
  -500
  -526
  -553
  -582
  -613
  -643
  -677
  -712
  -748
  -787
  -826
  -868
Free cash flow, $m
  -8
  -5
  -4
  -3
  -1
  0
  2
  3
  5
  7
  8
  10
  12
  14
  16
  18
  20
  22
  24
  27
  29
  31
  34
  36
  39
  42
  45
  48
  51
  54
Issuance/(repayment) of debt, $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
Issuance/(repurchase) of shares, $m
  -27
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -67
  -71
  -74
  -77
  -81
  -85
  -89
Cash from financing (excl. dividends), $m  
  -27
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -67
  -71
  -74
  -77
  -81
  -85
  -89
Total cash flow (excl. dividends), $m
  -34
  -32
  -32
  -32
  -32
  -32
  -32
  -31
  -31
  -31
  -31
  -31
  -30
  -30
  -30
  -30
  -30
  -30
  -30
  -30
  -30
  -30
  -31
  -31
  -32
  -32
  -33
  -33
  -34
  -35
Retained Cash Flow (-), $m
  27
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  67
  71
  74
  77
  81
  85
  89
Prev. year cash balance distribution, $m
  268
  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
  260
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  67
  71
  74
  77
  81
  85
  89
Discount rate, %
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
PV of cash for distribution, $m
  260
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
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  50
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  54
  57
  59
  62
  65
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  77
  81
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  89
Current shareholders' claim on cash, %
  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

Gladstone Commercial Corporation is a real estate investment trust. The Company focuses on acquiring, owning and managing primarily office and industrial properties. The Company also makes long-term industrial and commercial mortgage loans. As of February 15, 2017, the Company owned 95 properties totaling 10.9 million square feet in 24 states. As of December 31, 2016, the Company's properties were located in various states of the United States, such as Ohio, Pennsylvania, North Carolina, Georgia, South Carolina, Michigan, Minnesota, Colorado and New Jersey. The Company's properties have tenants from various industries, such as telecommunications; healthcare; automobile; electronics; information technology; chemicals, plastics and rubber; containers, packaging and glass; personal and non-durable consumer products; machinery; banking; childcare; buildings and real estate; beverage, food and tobacco; printing and publishing; education; home and office furnishings, and oil and gas.

FINANCIAL RATIOS  of  Gladstone Commercial (GOOD)

Valuation Ratios
P/E Ratio 129.9
Price to Sales 6
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 12.7
Price to Free Cash Flow -16.8
Growth Rates
Sales Growth Rate 2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.3%
Cap. Spend. - 3 Yr. Gr. Rate -11.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 163.7%
Total Debt to Equity 163.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 0.1%
Return On Equity 1.5%
Return On Equity - 3 Yr. Avg. 0.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 89.5%
Gross Margin - 3 Yr. Avg. 89.3%
EBITDA Margin 77.9%
EBITDA Margin - 3 Yr. Avg. 75.9%
Operating Margin 34.9%
Oper. Margin - 3 Yr. Avg. 34.6%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 0.4%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 1050%

GOOD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GOOD stock intrinsic value calculation we used $95 million for the last fiscal year's total revenue generated by Gladstone Commercial. The default revenue input number comes from 2017 income statement of Gladstone Commercial. 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 GOOD stock valuation model: a) initial revenue growth rate of 9.8% 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 0%, whose default value for GOOD is calculated based on our internal credit rating of Gladstone Commercial, 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 Gladstone Commercial.
    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 GOOD stock the variable cost ratio is equal to 64.3%.

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 GOOD 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 5.4% for Gladstone Commercial.

Corporate tax rate of 27% is the nominal tax rate for Gladstone Commercial. 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 GOOD 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 GOOD are equal to 948.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Gladstone Commercial 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 GOOD is equal to -484.5%. 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 - $0 million for Gladstone Commercial - 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 26 million for Gladstone Commercial 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 Gladstone Commercial at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Gladstone Commercial Corporation to Host Earnings Call   [Jul-31-18 06:30AM  ACCESSWIRE]
▶ 5 Ultra-Safe Stocks to Counter Fresh Trade War Threats   [Jul-17-18 12:28PM  InvestorPlace]
▶ Gladstone Commercial: 1Q Earnings Snapshot   [May-01-18 06:15PM  Associated Press]
▶ Gladstone Commercial Corporation to Host Earnings Call   [Feb-15-18 06:40AM  ACCESSWIRE]
▶ Gladstone Commercial reports 4Q results   [Feb-14-18 05:46PM  Associated Press]
▶ Gladstone Commercial reports 3Q results   [Oct-31-17 06:10PM  Associated Press]
▶ Thoughts on the Gladstone Companies   [Sep-20-17 05:08PM  GuruFocus.com]
▶ Gladstone Commercial reports 2Q results   [Jul-31-17 10:46PM  Associated Press]
▶ Gladstone Commercial reports 1Q results   [May-02-17 06:53PM  Associated Press]
▶ Gladstone Commercial reports 4Q results   [Feb-15-17 06:04PM  Associated Press]
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