Investment firm Barrow, Hanley, Mewhinney & Strauss disclosed it expanded its stake in MGM Growth Properties LLC (MGP, Financial) by 36.63% on Aug. 31.
The Dallas-based firm, which was founded in 1979, says on its website it adheres to “a strict definition of value” that is exhibited in its equity portfolios through “below-market price-to-earnings ratios, below-market price-to-book ratios, and above-market dividend yields, regardless of market conditions.”
According to GuruFocus real-time picks, after establishing the position in the second quarter, the firm invested in an additional 2.4 million shares of MGM Growth Properties for an average price of $30.73 per share. It now holds 8.9 million shares total, representing 0.44% of its equity portfolio.
GuruFocus estimates the firm has gained 1.02% on the investment so far.
The Las Vegas-based real estate investment trust, which takes an interest in large-scale destination entertainment and leisure resorts, has a $7.9 billion market cap; its shares were trading around $29.71 on Tuesday with a price-earnings ratio of 43.04, a price-book ratio of 1.32 and a price-sales ratio of 9.31.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. In addition, GuruFocus indicators warn the price-earnings ratio is near a two-year high of 45.43.
MGM Growth Properties’ financial strength was rated 5 out of 10 by GuruFocus. In addition to having poor interest coverage, the Altman Z-Score of 1.30 indicates the company is at risk of going bankrupt. The company’s debt has ballooned from $3.13 billion in June of 2016 to $3.9 billion in June of 2018.
Over that same period, its revenue has grown from $110.9 million in June 2016 to $220.4 million in June 2018.
The REIT’s profitability and growth fared a bit better, scoring a 7 out of 10 rating. While the company’s operating margin outperforms 53% of competitors, the net margin and returns are underperforming industry peers. MGM is also supported by a moderate Piotroski F-Score of 5, which implies business operations are stable.
With 3.36% of outstanding shares, Barrow, Hanley, Mewhinney & Strauss is the REIT’s largest guru shareholder. Ron Baron (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, NWQ Managers (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) also have positions in the stock.
Portfolio performance
The firm’s $62.07 billion equity portfolio, which is composed of 420 holdings, is heavily invested in the financial services sector, followed by health care and energy. Real estate stocks make up the smallest portion at 1.16%.
Other REITs the firm has positions in are Liberty Property Trust (LPT, Financial), HCP Inc. (HCP, Financial), The GEO Group Inc. (GEO, Financial), Boston Properties Inc. (BXP, Financial) and Simon Property Group Inc. (SPG, Financial).
According to GuruFocus, the firm returned 19.51% in 2017, just shy of the S&P 500’s 21.71% return.
View the firm’s current portfolio.
Disclosure: No positions.
