Wednesday, November 14, 2007

Stock Analysis: SFI

Linked here is a PDF copy of my detailed analysis of iStar Financial Inc. (SFI). Last week I added to my position in this stock. Below are some highlights from the above linked analysis:

Company Description: iStar Financial, Inc. operates as a finance company focused on the commercial real estate industry. The company, which is taxed as a real estate investment trust (REIT), provides financing to private and corporate owners of real estate.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. SFI hits a home run here. It is trading at a discount to all four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, SFI is trading at a 21.2% discount. SFI gets a Star for being fair valued.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. SFI earned Stars in 3.) and 4.) above.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. SFI earned Stars for 1.) and 2.) above.

Other: SFI, which focuses on commercial real estate industry, may have been unfairly pulled down in the sub-prime meltdown. Its 11.78% yield combined with a solid history of raising dividends makes this stock worth a second look. It is important to note that that the abnormally high payout ratio is due to the company's status as a REIT, which requires it to pay out 90% of its earnings each year.

Conclusion: SFI earned one Star in the Fair Value section, two Stars in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a total of Five Stars which rates it as a 5-Star Strong Buy.

Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

What are your thoughts on SFI?

Full Disclosure: At the time of this writing, Long SFI. See a list of all my income holdings here.

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