Easterly Government Properties (DEA) recently closed a new five year US$200 million senior unsecured term loan, a financing move that directly affects its balance sheet, debt structure, and potential funding flexibility.

The new term loan comes after a period of strong share price momentum for Easterly Government Properties, with a 90 day share price return of 17.80% and a year to date share price return of 19.85%. However, the 5 year total shareholder return is down 31.29%, indicating a recent recovery in the short term alongside a weaker longer term record.

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With Easterly Government Properties trading at US$25.54 and an indicated intrinsic discount of 47.60%, the key question is whether the stock still offers genuine value or if the market is already pricing in future growth.

Preferred P/E of 112.5x: Is it justified?

On the numbers provided, Easterly Government Properties screens as inexpensive against an estimated cash flow based fair value of $48.74, yet its P/E ratio of 112.5x sends a very different signal when you compare the stock with peers and a fair value multiples model.

The P/E ratio compares the share price with earnings per share, so a higher figure usually means investors are paying more for each dollar of current earnings. For a US$1.31b Office REIT with forecast revenue growth of 4% a year and earnings growth of 5.66% a year, that 112.5x multiple implies the market is attaching a high price to relatively modest growth expectations.

Against other reference points, the gap is clear. The estimated fair P/E for Easterly Government Properties is 36.4x, the peer group average sits at 36.5x, and the global Office REITs industry average is 14.6x. Relative to all three, the current 112.5x multiple looks very rich, and the fair ratio level is a figure the market could move toward if sentiment or expectations shift.

Result: Price-to-Earnings of 112.5x (OVERVALUED)

However, the Easterly Government Properties story still faces risks, including a high P/E that could compress if sentiment cools, and a five-year total return record that remains weak.

Another view on Easterly Government Properties’ value

While the current P/E of 112.5x makes Easterly Government Properties look expensive relative to peers and its own fair ratio, the SWS DCF model presents a different perspective. It suggests the stock is trading at a 47.6% discount to an estimated fair value of $48.74. Which signal should carry more weight for you?

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

Curious whether Easterly Government Properties is being viewed too harshly for its risks or generously for its rewards, given both are clearly in play right now? Take a close look at the figures, weigh the risks against the upside, and then ground your own stance in the 2 key rewards and 3 important warning signs.

Looking for more investment ideas beyond Easterly Government Properties?

If Easterly Government Properties has sharpened your focus on valuation and risk, do not stop here. Broaden your watchlist with a few targeted stock ideas.

• Strengthen your focus on quality by scanning companies with solid finances using the solid balance sheet and fundamentals stocks screener (46 results).
• Hunt for potential mispriced opportunities by reviewing the screener containing 18 high quality undiscovered gems before they sit firmly on everyone else's radar.
• Prioritise staying power and resilience by checking companies featured in the 74 resilient stocks with low risk scores.

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.