Current Portfolio Holdings Valuation Update
In this post I analyze British American Tobacco, Alico, Simon Property Group, Capital One, Seneca Foods
Periodically I like to go through my current holdings and update my fair value estimates. The following are the largest 5 holdings in my portfolio. Some of these stocks are trading near fair value, while a couple are still undervalued so I may add to my positions.
British American Tobacco (BTI)
In evaluating British American Tobacco's stock, I employ the earnings power method. By projecting a revenue of $35.1 billion for 2024 and applying a 40% operating margin, I estimate an operating income of $14 billion. Utilizing a 25% tax rate, the after-tax income amounts to $10.5 billion. Estimating BTI's cost of debt and equity, I determine a discount rate of 7.2%, leading to an enterprise value of $146.2 billion. Adjusting for the $5.8 billion in cash and $49.6 billion in debt, the estimated equity value stands at $102.3 billion, equivalent to $45.90 per share. With a 9% dividend yield and the stock seemingly trading at a discount, I may consider increasing my holdings.
Alico (ALCO)
Alico is a microcap stock specializing in owning orange groves in Florida. For this company, I will value based on its assets, particularly its land, utilizing a replacement cost method. On the balance sheet, the valuation reveals that citrus trees, buildings, and equipment, net of depreciation, amount to $248.6 million, while total current assets stand at $71.6 million. Recently, the company has divested all ranch land, meaning its land consists of 54,000 acres of citrus land. In valuing the citrus land, I will use $9,000 per acre as an estimate, producing up to a fair value of $486 million for the land. Combined with the remaining assets, the total estimated assets amount to $806.3 million. However, liabilities, encompassing working capital needs, long-term debt, and deferred taxes, total $133 million. Therefore, the net asset value is calculated at $673.2 million, which comes out to $88 per share.
This valuation appears particularly high and would likely only materialize in the event of Alico being acquired. A more conservative valuation approach is to value the company at 1.5 times its book value, a level historically seen as typical. With the current book value per share at $38.40, the fair value is computed to be $57.60 per share. This fair value estimate is still quite a bit higher than the current market price of $27, so I might buy some more shares.
Simon Property Group (SPG)
Given Simon Property Group's status as a REIT, my valuation approach involves estimating its Net Operating Income (NOI), applying a capitalization rate to determine the fair value of its properties, and then integrating this into the balance sheet to derive an estimated Net Asset Value (NAV). With an estimated NOI of $4.1 billion based on 2023 figures, applying an 8% cap rate yields a property value of $50.9 billion. Combining this with the company's other assets, totaling $63.6 billion, and deducting liabilities of $30.6 billion, results in an estimated NAV of $33.5 billion, equivalent to $102 per share. This suggests that SPG may be quite overvalued. While Morningstar values the company using a 6% cap rate, producing a fair value of $151, my approach is more conservative. Despite the potential overvaluation, I will likely hold onto my shares due to the approximately 10% dividend yield on my cost basis.
Capital One (COF)
To determine the fair value of Capital One, I opt for the earnings power valuation method. Estimating a revenue of $36.8 billion for the year 2024, I project a provision for losses of $11 billion and non-interest expenses totaling $20.3 billion. This yields a pre-tax income of $5.4 billion, amounting to approximately $4.3 billion after taxes. Dividing this figure by the shares outstanding, I arrive at an estimated earnings per share of $11.40. Applying an 8% discount rate, I get a fair value of $143 per share. Despite COF trading at around $138 per share and having realized a substantial capital gain, I am inclined to retain the stock, even though it is currently considered fairly valued.
Seneca Foods (SENEA)
Seneca Foods, a microcap company specializing in canned vegetables. The company is currently trading below its book value, prompting me to value it based on its assets. One thing to consider with Seneca is its use of LIFO inventory accounting, so I make an adjustment to its balance sheet. Current assets amount to $1,078 million, of which $968 million represents inventory. I factor in the after-tax LIFO inventory reserve of $241.5 million by adding it back to the current assets, bringing the current assets up to $1,319.5M. Subtracting total liabilities of $896.1 million from the adjusted current assets yields a Net Current Asset Value (NCAV) of $422.3 million, translating to $60.70 per share. Given that my shares of SENEA have appreciated by approximately 50%, I may opt to sell if the stock approaches my estimated NCAV.