With its stock down 7.3% in the past month, it’s easy to overlook Duke Realty (NYSE: DRE). But if you pay close attention to it, you might find that its key financial metrics look pretty decent, which could mean the stock could potentially rise in the long term given how markets typically reward long-term fundamentals. more resistant term. Specifically, we have decided to study the ROE of Duke Realty in this article.
Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
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How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, Duke Realty’s ROE is:
9.1% = US $ 501 million ÷ US $ 5.5 billion (based on the last twelve months to June 2021).
The “return” is the amount earned after tax over the past twelve months. This therefore means that for every $ 1 invested by its shareholder, the company generates a profit of $ 0.09.
Why is ROE important for profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of the growth potential of the company. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Duke Realty’s 9.1% profit growth and ROE
At first glance, Duke Realty’s ROE isn’t much to say. However, the fact that its ROE is well above the industry average of 5.6% does not go unnoticed to us. This certainly adds context to Duke Realty’s moderate 7.2% net income growth seen over the past five years. Keep in mind that the company has a moderately low ROE. It’s just that the industry’s ROE is lower. Therefore, profit growth could also be the result of other factors. Such as- high profit retention or belonging to a company in a high growth industry.
Next, comparing Duke Realty’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 8.9% over the same period. .
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or worrisome. What is the DRE worth today? The intrinsic value infographic in our free research report helps to visualize whether DRE is currently poorly valued by the market.
Is Duke Realty Efficiently Using Its Retained Earnings?
Duke Realty has a high three-year median payout ratio of 62%. This means that he only has 38% of his income left to reinvest in his business. However, it is not uncommon to see a REIT with such a high payout ratio, mainly due to legal requirements. Despite this, the company’s profits increased moderately as we saw above.
In addition, Duke Realty has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders. After studying the latest consensus data from analysts, we found that the company is expected to continue to pay out around 58% of its profits over the next three years. Either way, Duke Realty’s ROE is expected to decline to 6.6% despite no expected change in its payout ratio.
Overall, we think Duke Realty certainly has some positive factors to consider. Especially the substantial profit growth supported by a decent ROE. Although the company only reinvested a small portion of its profits, it still managed to increase its profits, which is appreciable. However, according to the latest forecast from industry analysts, the company’s profits are expected to decline in the future. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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