Opinions
Dennis Mitchell, CFA
Melcor Developments Ltd
MRD-T
DON'T BUY
Aug 16, 2007
Stock price when the opinion was issued
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He has been short. It is getting to a valuation where he is thinking about covering. Their problem was they were based in Calgary. It is starting to look interesting on a price to book basis. He is not quite sold on it yet. Their earnings are not going to turn around any time yet. He would not buy it, but he is covering shorts.
MRD manages and develops real estate properties in Canada and the US. Recently reported earnings were up 59%. It trades under book value and pays a good yield, backed by a payout ratio under 25%. We like that it is building cash reserves while buying back shares. We recommend placing a stop-loss at $9.50, looking to achieve $14.00 — upside potential of 19%. Yield 5.0%
(Analysts’ price target is $14.00)We reiterate MRD as a TOP PICK. Latest reported earnings met expectations, but were down on the year reflecting reduced confidence in the REIT space with higher interest rates. We liked that cash reserves grew, while debt was retired and shares bought back. It trades at 5x earnings and 1.5x book value. It pays a good yield, supported by a payout ratio under 25%. We continue to recommend a stop-loss at $9.50, looking to achieve $14.00 -- upside potential of 21%. Yield 5.3%
(Analysts’ price target is $14.00)We again reiterate this Western Canadian real estate developer as a TOP PICK. Higher interest rates are challenging in the sector, but the company continues to increase cash reserves, while aggressively reducing debt and buying back shares. It trades at 5x earnings and under book value. The dividend is backed by a payout ratio under 25% of cash flow. We recommend trailing up the stop (from $9.50) to $10.25, looking to achieve $14 -- upside potential of 21%. Yield 5.2%
(Analysts’ price target is $14.00)Following quarterly reported funds from operations increasing 47%, we reiterate Alberta based real estate developer MRD as a TOP PICK. The company is shedding assets to allow it to focus on Alberta projects. Cash reserves are growing, while debt is retired and stock bought back. It pays a good yield, backed by a payout ratio under 25% of cash flow. We recommend trailing up the stop (from $10.25) to $10.75, looking to achieve $14 -- upside potential of 16%. Yield 5.1%
(Analysts’ price target is $14.00)We reiterate MRD as a TOP PICK. Despite a challenging environment with inflation and high interest rates, the company is seeing good development in the Calgary marketplace and in Colorado. Recent quarterly earnings showed cash reserves growing once again, with debt being retired and shares bought back. It trades at 5x earnings and under book value. The dividend is covered by a payout ratio under 25% of cash flow. We continue to recommend a stop at $10.75, looking to achieve $14.00 -- upside potential of 21%. Yield 5.4%
(Analysts’ price target is $14.00)Our PAST TOP PICK with MRD has triggered its stop at $12. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss 4%, when combined with our previous guidance.