Why Don't More Analysts Think W. P. Carey (WPC) Is a Buy?

Shares of W. P. Carey fell -4.5% Friday, vindicating the analysts who have given the stock an average rating of hold. But could they be wrong? Some factors show that W. P. Carey may actually be undervalued at today's prices, giving long term investors a potentially interesting opportunity.

Let's start our value analysis with the price to book (P/B) ratio. This is perhaps the most basic measure of a company's valuation, which is its market value divided by its book value. Book value refers to the sum of all of the company's tangible assets minus its liabilities -- you can also think of it as the company's equity value.

Traditionally, value investors would look for companies with a ratio of less than 1 (meaning that the market value was smaller than the company's book value), but such opportunities are very rare these days. So we tend to look for company's whose valuations are less than their sector and market average. The P/B ratio for W. P. Carey is 1.6, compared to its sector average of 2.24 and the S&P500's average P/B of 2.95.

The most common metric for valuing a company is its Price to Earnings (P/E) ratio. It's simply today's stock price of 68.13 divided by either its trailing or forward earnings, which for W. P. Carey are $3.56 and $4.36 respectively. Based on these values, the company's trailing P/E ratio is 19.1 and its forward P/E ratio is 15.6. By way of comparison, the average P/E ratio of the Real Estate sector is 24.81 and the average P/E ratio of the S&P 500 is 15.97.

When we had up all the inflows and outflows of cash, including payments to creditors, we obtain W. P. Carey's levered free cash flow of $2.02 Billion. This represents the money left over from the company's operations that is available for reinvestment in the business, or for paying out to equity investors in the form of a dividend. Despite its positive cash flows, W. P. Carey does not currently pay a dividend.

The market may be punishing W. P. Carey today, but many investors will be seeing this as an opportunity to pick up shares at a discount. Despite the lack of enthusiasm from analysts, this stock may hold some potential for patient investors.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.