CBL & Associates Properties (CBL) has just been dropped from several Russell Value indices, a broad index reset that can affect how index funds treat the stock and may help explain recent shifts in its market profile.

Set against the Russell Value index removals, CBL & Associates Properties has seen mixed short term sentiment. The 1 day share price return is down 3.08% and the 7 day share price return is down 6.15%. However, the 30 day and 90 day share price returns of 8.06% and 21.56% suggest momentum has been building. The 1 year total shareholder return of 114.64% and 3 year total shareholder return of 186.88% point to a much stronger longer term picture as investors respond to both index changes and redevelopment news such as the planned DICK’S House of Sport at CoolSprings Galleria.

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With CBL & Associates Properties trading at a discount to the US$60 analyst price target but carrying an intrinsic value estimate that sits below the current share price, is the market’s recent caution already fair or still too harsh?

Price-to-Earnings of 9.4x: Is it justified?

On the numbers, CBL & Associates Properties is trading on a P/E of 9.4x, which sits well below both the wider US market and the US Retail REITs industry, even though the SWS DCF model currently points to an intrinsic value estimate of $41.14 against the last close of $51.88.

The P/E multiple compares the current share price to earnings per share and is a common way investors weigh how much they are paying for each dollar of profit. For a real estate investment trust like CBL & Associates Properties, this can help you see how the market is pricing its earnings power relative to other income focused stocks.

There are a few cross currents here. The stock is described as good value versus the US market, with a P/E of 9.4x compared to 19.2x, and good value versus both the Retail REITs industry at 26.9x and a peer average of 36.2x. At the same time, the estimated fair P/E of 9.3x is very close to where the stock trades, which suggests the market could be roughly in line with that fair ratio even while the DCF output points to a lower cash flow based value.

For investors comparing valuation anchors, the P/E story is that CBL & Associates Properties screens cheap against sector and peer averages, yet sits only slightly above its estimated fair P/E level. This can be useful when deciding whether the current discount to industry could narrow or simply reflect company specific risks.

Result: Price-to-Earnings of 9.4x (ABOUT RIGHT)

However, there are still clear pressure points, including sharply lower annual net income growth and the risk that any reset in investor expectations around CBL & Associates Properties could weigh on its valuation.

Another View on CBL & Associates Properties: Cash Flows Paint a Different Picture

While CBL & Associates Properties screens as cheap on a 9.4x P/E, the SWS DCF model tells a different story. With an intrinsic value estimate of $41.14 versus the recent $51.88 share price, the stock screens as overvalued on a cash flow basis. This naturally raises the question of which signal you trust more.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CBL & Associates Properties for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mix of caution and optimism around CBL & Associates Properties feels hard to pin down, do not wait to check the numbers and sentiment for yourself. Then weigh up the balance of 2 key rewards and 4 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.