Company: STORE Capital Corporation
Ticker: STOR Previous Close: $30.41 (1/12) Industry: Real Estate
Short-term: Buy
Middle-term: Buy
Long-term: Buy
ANALYSIS:
Economic Moat
Free Cashflow
STORE Capital Corporation (STOR):
Free Cashflow: $458,334,000
Revenue ( = Sales): $665,714,000
Free Cashflow / Revenue (>5%) = 68.84% ➤ This is a good percentage rate that ensures a more secure dividend paid out to shareholders.
Net Margins (> 15%)
STORE Capital Corporation (STOR):
Net Income (consolidated) : $284,572,000
Funds From Operations (FFO): $548,720,000 (Why Funds From Operations (FFO): This is a better measure of net income for a real estate investment trust (REIT) due to the manner in which costs are reported.
Revenue : $665,714,000
Net margin = Net income / Revenue = 42.75% ➤ This is a very good percentage rate, especially when factoring in the FFO.
ROE (> 15%)
STORE Capital Corporation (STOR):
Return On Equity (ROE) = Net Income/Shareholder's Equity
ROE = 6.21% ➤This percentage rate is not particularly high; however, as STOR is a real estate investment trust this is a good percentage due to the way such companies are structured and have to record earnings as a REIT. Moreover, when using FFO this percentage rate increases to 10.19% which is great and even better than the industry standard.
ROA (> 6%)
STORE Capital Corporation (STOR):
Return on Assets (ROA) = Net Income / Assets
ROA = 2.91% ➤Once more, such a low percentage cannot be considered particularly good when analyzing traditional stocks; yet, as it relates to real estate investment trusts this percentage is good due to the way that their earnings are recorded. Additionally, when calculating the FFO for STOR the output is 5.51% which is actually very good.
Economic Moat Conclusion
STORE Capital Corporation (STOR): Altogether, this company has very good free cashflows and net margins which help to ensure a healthy dividend is paid to shareholders and that they maintain a strong market share. STOR has surprisingly low ROE and ROA but this is of no alarm as it stems from the manner in which they have to report earnings as a REIT. As this is the case, when the FFO for the firm is analyzed instead of earnings, these factors are actually very positive for the company. Each of these aspects combined and considered for their worth, it can be concluded that STORE Capital Corporation indeed has an economic moat.
Valuation
STORE Capital Corporation:
In gauging the valuation for STOR, their current free cashflow of $458,334,000 should be considered. In the past, their cashflow had a good, stable, and consistently increasing. Based on recent figures, it can be assumed that the company had an average yearly growth of 15% in the first five years and 9% after that given period. Due to their strong economic moat, I assumed a discount rate of 8.5% and by using the aforementioned variables as well, I have come to fairly valuate the company at a per-share price of $62.56.
Current Price: $30.20
Estimated Fair Value: $62.56
➤51.73% Margin of Safety, this is a very good and healthy percentage for a company with such strong cashflows.
20 Point Analysis
1. CEO
STORE Capital Corporation: Christopher H. Volk, the current Chief Executive Officer, has a lot of experience in the industry and he is the co-founder of STOR. This is certainly a positive aspect when considering that the leader of the company has been there from the genesis meaning he is extremely loyal and very likely to see the continued success of the firm until the end.
2. Is the company innovative?
STORE Capital Corporation: This company is not as innovative as other firms in the sector, but this is not their inherent goal. They do talk about their innovative lease solutions; however, as I have come to be extremely familiar with the REIT sector and related companies but this does not appear to be real “innovation” to me. Their business model seems as though it is dissimilar from other companies in the sector and novel, which is great, just not particularly innovative. Where this company succeeds at is growing their business at a good, sustainable, and consistent pace. Lastly, STOR has been steadily growing income streams which again helps to provide the dividend paid out to the shareholders.
3. Can the company grow?
STORE Capital Corporation: They focus particularly on what they call “STORE properties” which stands for Single Tenant Operational Real Estate. More specifically, they target middle-market and larger companies. This overall combination is the most interesting according and looking at their current cashflows and business strategy, it is highly probable that there will be continued room for growth.
4. How does the company grow?
STORE Capital Corporation: This company grows both internally and externally. Internally STOR grows by raising rents and redirecting cash. Externally, STOR grows through equity issuances and borrowed capital. Both of these growth actors contribute to healthy and sustainable growth.
5. Is the company a market leader?
STORE Capital Corporation: They have a market-leading platform for acquisition, management, and investment in STORE properties. It should be noted that this is more of a sub-segment of the real estate market, but here they do have quite a strong position making them a market leader in that regard.
6. Is the market leadership safe?
STORE Capital Corporation: They have a good economic moat due to their strong cashflows and earnings as previously discussed. This aids in ensuring protection against setbacks and competition. Still, STOR is in a competitive space where other players are also looking for acquisitions and investments. They seem to have very strong management and competitive advantages in how they conduct business. Altogether, this means that their position is strong, but of course not guaranteed.
7. Is there foreign exchange risk or commodities risk?
STORE Capital Corporation: STOR is not particularly influenced by either of these risks. There is a risk in the fluctuation of real estate prices though which is something to keep in mind over the long-term growth of this company.
8. How are their profit margins?
STORE Capital Corporation: They have net margins of 42.75%. This is very good percentage when considering this is only net profits and an even better percentage when analyzing this using the FFO formula.
9. How much capital does the company need?
STORE Capital Corporation: STOR needs a generous amount of capital for acquisitions but they have good cashflows which help in funding this. They also have sources for external capital to help with said growth.
10. Does the company have loyal customers?
STORE Capital Corporation: They work with long-term lease contracts which ensures fairly certain cashflows and earnings meaning that they do, in fact, have a very loyal customer base.
11. How much cash does the company produce?
STORE Capital Corporation: They have very high free cashflows relative to revenue. This is a great factor when considered which means they have a good amount of cash on hand and being produced from their operations.
12. Value creation over the past ten years?
STORE Capital Corporation: STOR has only publicly listed since 2014. Over a period of 6 years, the stock price has increased 25.88%. This is not the best, but it is still decent given this percentage was heavily influenced by the COVID-19 pandemic and subsequent black swan event that crashed the markets in March of 2020.
13. Can the company pay its bills?
STORE Capital Corporation: They have a quick ratio of 3.45 and a current ratio of 2.68. This means they can certainly pay back their current short-term debt which is very good.
14. How does the company finance itself?
STORE Capital Corporation: STOR finances its operations using their cashflow and debt.
15. How much debt do they have?
STORE Capital Corporation: Long term debt: $3.599B Shareholders equity: $4.909B ➤ debt to equity ratio: 0.73 ➤This is a good debt to equity ratio
16. What is their Piotroski F-Score?
STORE Capital Corporation: 5/9 ➤This is relatively low and could be higher meaning that their financial strength could be much higher.
17. What is the P/E Ratio?
STORE Capital Corporation: 35.68 ➤This is seemingly high, but this is only due to the way in which they report earnings as a real estate investment trust. Instead, as investors, we should look at their FFO which is 16.53 and a very good number at that.
18. What is the P/B-ratio?
STORE Capital Corporation: 1.69 ➤This is a good ratio for the company.
19. What with the EV/EBITDA ratio?
STORE Capital Corporation: 18.87 ➤ This number is quite high, in turn, meaning the company is a bit expensive according to this ratio.
20. WACC?
STORE Capital Corporation: 7.32% ➤ This is a relatively low percentage leading to a higher estimate of their valuation.
Total Score
STORE Capital Corporation: 15/20 ➤ This is good given the sector and in general for how STOR operates altogether. This firm has a solid dividend and they seem well priced meaning there is excellent long-term value with this company. Lastly, STOR has a good free cashflow and their high earnings are also a plus which should be enticing to any investor that is looking for stable, consistent, long-term growth stocks for their portfolio.
All the information provided is personal opinion and not directly applicable financial advice. I have no ties to the above company and am not being compensated on their behalf. You should make your own decisions based upon evidence and what you believe is best for you i.e., conducting your own due diligence.