Why EPR Properties (EPR) is on income investors’ radar

EPR Properties (EPR) continues to draw attention as a specialized experiential net lease REIT with approximately US$5.5b in assets and exposure to leisure, recreation, and education focused properties across 43 U.S. states and Canada.

At a recent share price of US$56.16, EPR’s near term trading has softened, with the 7 day share price return down 2.9%. However, the year to date share price return of 10.64% and 5 year total shareholder return of 49.31% indicate momentum that has built over a longer horizon as investors reassess income potential and risk around experiential real estate.

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With EPR trading at US$56.16 and an indicated intrinsic discount of 55.35%, plus a modest 7.23% gap to analyst targets, you have to ask: is this a genuine value opportunity, or is the market already pricing in future growth?

Price-to-Earnings of 17.4x: Is it justified?

EPR looks inexpensive on earnings at a P/E of 17.4x compared with both its peer group on 19.5x and the broader US Specialized REITs industry on 29.8x.

The P/E multiple compares the current share price with earnings per share and is a quick way to see how much investors pay for each dollar of earnings. For a specialized experiential REIT with $720.2m in revenue and $247.6m in net income, this lower multiple suggests the market is assigning a discount to its earnings relative to similar companies.

Against the industry average P/E of 29.8x, EPR’s 17.4x stands out as materially lower. It also sits below the estimated fair P/E of 34.6x that our fair ratio work suggests the market could move towards if sentiment and fundamentals align more closely.

Result: Price-to-Earnings of 17.4x (UNDERVALUED)

However, investors still need to weigh the concentration in experiential and education properties, along with any shift in tenant cash flows that could pressure rental income.

Another View: Cash Flows Paint an Even Cheaper Picture

The P/E comparison already suggests EPR is inexpensive, but the SWS DCF model goes further, putting fair value at $125.78 versus the current $56.16. That gap indicates the stock trades at a significant discount to its modeled future cash flows. This may suggest that sentiment is currently very cautious.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out EPR 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 45 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

Given the mixed signals around valuation, sentiment and risk, it makes sense to review the numbers for yourself and decide how they stack up. To see both sides of the story in one place, start with the 4 key rewards and 3 important warning signs

Looking for more investment ideas?

If you stop at one stock, you could miss some of the most interesting opportunities out there, so put a few more ideas on your radar today.

• Seek potential mispricing by scanning companies that combine quality fundamentals with lower valuations through the 45 high quality undervalued stocks.
• Strengthen your income stream by focusing on companies with higher yields using the 10 dividend fortresses.
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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.