Rating Update: Stock Rating A-Highest (12/2/19)-Consolidated Tomoka-Land Co. (CTO).

out_altlogo2#05619.jpg

BUSINESS

Consolidated-Tomoka Land Co., together with its subsidiaries, operates as a diversified real estate operating company in the United States. The company operates through four segments: Income Properties, Commercial Loan Investments, Real Estate Operations, and Golf Operations. It owns and manages commercial real estate properties.
out_plist#05619.jpg

INVESTMENT RATING

out_map1#05619.jpg

With future capital returns forecasted to exceed the cost of capital, CTO is expected to continue to be a modest Value Builder.

Con Tomoka-Land has a current Value Trend Rating of A (Highest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. Con Tomoka-Land has a good Power Rating of 75 and a good Appreciation Score of 84, leading to the Highest Value Trend Rating.

Con Tomoka-Land’s stock is selling well below targeted value. The current stock price of $62.35 compares to targeted value 12 months forward of $133.
Con Tomoka-Land’s high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)
out_pt#05619.jpg

Con Tomoka-Land has a Power Rating of 75. (This good Power Rating indicates that CTO has a better chance of achieving attractive investment performance over the near to intermediate term than all but 25% of companies in the universe.)
Factors contributing to this good Power Rating include: recent price action has been favorable; and is currently in a modestly favorable positi.

INVESTMENT PROFILE

CTO’s financial strength is high. Financial strength rating is 80.
out_pfit1#05619.jpg

Relative to the S&P 500 Composite, Consolidated Tomoka-Land Co. has slightly more Value than Growth characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that CTO is normal risk. High historical growth is a positive for CTO. Relative weaknesses include: high financial leverage, and low expected growth. CTO’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. CTO has unusually low market capitalization.

CURRENT SIGNALS

Con Tomoka-Land’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; and falling tax keep rate.

Con Tomoka-Land’s current technical position is very strong. The stock price is in a 9.1 month up move. The stock has appreciated 35.5% from its prior low. The stock price is above its 200 day moving average which is in an uptrend. The stock has just fallen below its 200 day moving average.

ALERTS

Recent exceptional negative changes in investment behavior have affected Consolidated Tomoka-Land Co. (NYSEAMERICAN: CTO): negative upside/downside volume developed, and the stock fell on very heavy volume.
Consolidated Tomoka-Land Co. (NYSEAMERICAN: CTO) has benefited from small positive changes in fundamentals: the stock’s power rating rose above 70.
The stock is currently rated A.
Consolidated Tomoka-Land Co. (NYSEAMERICAN: CTO) stock enjoyed a major increase of 20.9% on 12/2/19. The shares closed at $0.05. Moreover, trading volume in this advance was exceptionally high at 494% of normal. The stock has been strong relative to the market over the last nine months but has declined -1.9% during the last week.

CASH FLOW

In 2018, Con Tomoka-Land generated a very significant increase in cash of +$8.96 million (+69%). Sources of cash were much larger than uses. Cash generated from 2018 EBITDA totalled +$57.22 million. Non-operating sources contributed +$22.09 million (+39% of EBITDA). Cash taxes consumed -$1.69 million (-3% of EBITDA). Re-investment in the business amounted to -$98.67 million (-172% of EBITDA). On a net basis, debt investors contributed +$41.39 million (+72% of EBITDA) while equity investors pulled out -$11.38 million (-20% of EBITDA).
out_cflow.1#05619.jpg

Con Tomoka-Land’s Non-operating Income, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Consolidated Tomoka-Land Co. Peer Group. In most years, Con Tomoka-Land was in the second quartile and lower quartile. Currently, Con Tomoka-Land is substantially below median at +39% of EBITDA (+$22.09 million).

Con Tomoka-Land’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Consolidated Tomoka-Land Co. Peer Group. In most years, Con Tomoka-Land was in the top quartile and lower quartile. Currently, Con Tomoka-Land is lower quartile at -3% of EBITDA (-$1.69 million).

Con Tomoka-Land’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Consolidated Tomoka-Land Co. Peer Group. (Since 2016 Business Re-investment, %EBITDA has experienced a very sharp decline.) In most years, Con Tomoka-Land was in the third quartile and second quartile. Currently, Con Tomoka-Land is above median at -172% of EBITDA (-$98.67 million).

Con Tomoka-Land’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Consolidated Tomoka-Land Co. Peer Group. (Since 2016 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, Con Tomoka-Land was in the second quartile and top quartile. Currently, Con Tomoka-Land is at median at +72% of EBITDA (+$41.39 million).

Con Tomoka-Land’s Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Consolidated Tomoka-Land Co. Peer Group. (Since 2016 Equity Investors, %EBITDA has acccelerated.) In most years, Con Tomoka-Land was in the third quartile and second quartile. Currently, Con Tomoka-Land is slightly below median at -20% of EBITDA (-$11.38 million).

Con Tomoka-Land’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Consolidated Tomoka-Land Co. Peer Group. In most years, Con Tomoka-Land was in the second quartile and top quartile. Currently, Con Tomoka-Land is at the upper quartile at +16% of EBITDA (+$8.96 million).
out_cflow.2#05619.jpg

Con Tomoka-Land’s Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Consolidated Tomoka-Land Co. Peer Group. In most years, Con Tomoka-Land was in the second quartile and top quartile. Currently, Con Tomoka-Land is upper quartile at +25%.

PROFITABILITY

CTO’s return on equity has improved very significantly since 2009 decelerating very sharply after the 2014 level.
The key to the story for CTO is a very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors.
The productivity of CTO’s assets rose over the full period 2009-2019: asset turnover has enjoyed a very strong overall uptrend even as it experienced a very sharp decline after the 2017 high.
Reinforcing this trend, pretax margin enjoyed a very strong overall uptrend that decelerated very sharply from the 2017 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
out_dpgrfs3#05619.jpg

CTO’s return on equity is upper quartile (15.7%) for the four quarters ended September, 2019.
out_dpgrfs3.2#05619.jpg
Operating performance (pretax return on assets) is upper quartile (7.3%) reflecting asset turnover that is upper quartile (0.13X) and above median pretax margin (55.5%).
Tax “keep” rate (income tax management) is lower quartile (72.9%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is upper quartile (2.93X).

GROWTH RATES

There are no significant differences between Consolidated Tomoka-Land Co’s longer term growth and growth in recent years.
Consolidated Tomoka-Land Co’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.

Annual revenue growth has been 24.8% per year.

Total asset growth has been 16.0% per year.

Annual E.P.S. growth has been 65.2% per year.

Equity growth has been 7.2% per year.
No consensus growth rate forecast is available for Consolidated Tomoka-Land Co.
out_growthgrf#05619.jpg

Relative to the Consolidated Tomoka-Land Co. Peer Group, Con Tomoka-Land’s historical growth measures are generally top quartile. Revenue growth (24.8%) has been upper quartile. Total asset growth (16.0%) has been upper quartile. E.P.S. growth (65.2%) has been upper quartile. Equity growth (7.2%) has been at median.

Consensus growth forecast is unavailable.
out_growthgrf.2#05619.jpg

PRICE HISTORY

Over the full time period, Consolidated Tomoka-Land Co’s stock price performance has been variable and below market. Between February, 2009 and December, 2019, Consolidated Tomoka-Land Co’s stock price rose +176%; relative to the market, this was a -35% loss. Significant price move during the period: 1) September, 2011 – March, 2015: +127%.
out_price#05619.jpg

TOTAL INVESTMENT RETURNS

Current annual total return performance of 11.2% is below median relative to the S&P 500 Composite.
In addition to being below median relative to S&P 500 Composite, current annual total return performance through October, 2019 of 11.2% is substantially below median relative to Consolidated Tomoka-Land Co. Peer Group.

Current 5-year total return performance of 4.5% is substantially below median relative to the S&P 500 Composite.
Through October, 2019, with substantially below median current 5-year total return of 4.5% relative to S&P 500 Composite, Con Tomoka-Land’s total return performance is substantially below median relative to Consolidated Tomoka-Land Co. Peer Group.
out_quartret#05619.jpg

VALUATION BENCHMARKS

Relative to S&P 500 Composite, CTO’s overall valuation is low. The highest factor, the ratio of enterprise value/revenue, is upper quartile. Ratio of enterprise value/assets is near the lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
out_tradv#05619.jpg

Con Tomoka-Land has a major value gap compared to the median. For CTO to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 7.49X to 15.40X. If CTO’s ratio of enterprise value/revenue were to rise to 15.40X, its stock price would be higher by $124 to $186.
For CTO to achieve upper quartile valuation relative to the Consolidated Tomoka-Land Co. Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 7.49X to 17.13X. If CTO’s ratio of enterprise value/revenue were to rise to 17.13X, its stock price would increase by $151 from the current level of $62.

VALUE TARGETS

With future capital returns forecasted to exceed the cost of capital, CTO is expected to continue to be a modest Value Builder.
Consolidated Tomoka-Land Co’s current Price Target of $133 represents a +114% change from the current price of $62.35.
This high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 84, the high Power Rating of 75 contributes to an Value Trend Rating of A.
out_vc#05619.jpg

Consolidated Tomoka-Land Co’s current Price Target is $133 (-51% from the 2018 Target of $274 but +114% from the 12/02/19 price of $62.35). This dramatic fall in the Target is the result of a +33% increase in the equity base and a -64% decrease in the price/equity multiple. The forecasted decline in cost of equity has a slight positive impact on the price/equity multiple and the forecasted increase in growth has a slight positive impact as well. More than offsetting these Drivers, the forecasted decline in return on equity has a very large negative impact.
out_wc.1#05619.jpg
out_wc.2#05619.jpg

PTR’s return on equity forecast is 12.3% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2010 and 2018. The current forecast is well above the 2013 low of 4%.

PTR’s growth forecast is 19.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2010 and 2018. The current forecast is significantly above the 2013 low of 3%.

PTR’s cost of equity forecast is 9.5% — in line with recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2010 and 2018. The current forecast is well above the 2011 low of 4.2%.
out_vc.2#05619.jpg
At Consolidated Tomoka-Land Co’s current price of $62.35, investors are placing a positive value of $22 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 18.0% per year, and a return on equity of 22.5% versus a cost of equity of 9.9%.
PTR’s 2020 Price Target of $133 is based on these forecasts and reflects an estimated value of existing assets of $74 and a value of future investments of $59.

About John Lafferty 54938 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

Be the first to comment

Leave a Reply

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.