On July 19, 2023, Boston Properties Inc (BXP, Financial) recorded a stock price change of 3.6%, with its shares trading at $64.42. This real estate investment trust, with a market cap of $10.1 billion and sales of $3.2 billion, owns over 190 properties, translating to approximately 54 million rentable square feet of space. The portfolio, which is predominantly composed of office buildings, spans key cities like New York, Boston, San Francisco, Los Angeles, Seattle, and the Washington, D.C., region. Boston Properties also has a limited number of retail, hotel, and residential properties.
The GF Value of Boston Properties, as calculated by GuruFocus, stands at $103.24. This unique indicator of a stock's intrinsic worth is based on historical trading multiples, an adjustment factor from GuruFocus, and estimates of future business performance. When the stock price significantly surpasses the GF Value Line, the stock is considered overvalued, potentially leading to poor future returns. Conversely, if the stock price is considerably below the GF Value Line, higher future returns are expected. In the case of Boston Properties (BXP, Financial), the stock shows signs of being a possible value trap, warranting a second thought before investing.
Why Boston Properties Might Be a Value Trap
The financial health of Boston Properties raises concerns, as indicated by its Altman Z-score of 0.75. This score places the company in the distressed zone, suggesting a higher risk of bankruptcy. Ideally, an Altman Z-score above 2.99 would indicate safer financial conditions. To understand more about how the Z-score measures the financial risk of a company, click here.
Financial Strength and Profitability
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, it's crucial to review a company's financial strength before buying shares. Boston Properties has a cash-to-debt ratio of 0.06, which ranks worse than 51.8% of companies in the REITs industry. This suggests a poor balance sheet, earning Boston Properties a financial strength rank of 3 out of 10 by GuruFocus.
On the profitability front, Boston Properties has been profitable for 10 years over the past decade. With revenues of $3.2 billion and EPS of $4.99 in the past 12 months, its operating margin of 33.02% ranks worse than 70.46% of companies in the REITs industry. Despite this, GuruFocus ranks Boston Properties's profitability as strong.
Growth and ROIC vs WACC
Growth is a crucial factor in company valuation. A company's growth is closely correlated with the long-term performance of its stock. If a company's business is growing, it usually creates value for its shareholders. Boston Properties’s 3-year average revenue growth rate is better than 52.52% of companies in the REITs industry, and its 3-year average EBITDA growth rate is 7.7%, ranking better than 64% of companies in the REITs industry.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Over the past 12 months, Boston Properties’s ROIC was 4.65, while its WACC came in at 6.19. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders.
Conclusion
In summary, Boston Properties (BXP, Financial) shows signs of being a possible value trap. While the company's financial condition is poor, its profitability is strong, and its growth ranks better than 64% of companies in the REITs industry. For a more detailed look at Boston Properties stock, check out its 30-Year Financials here.
To find out high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
