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Weekly Stock Analysis

Updated: Jan 30, 2021




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.