What is QTS's Intrinsic value?

QTS Realty Trust Inc (QTS) Intrinsic Value Analysis

Executive Summary

As of May 29, 2025, QTS Realty Trust Inc's estimated intrinsic value ranges from $7.10 to $41.20 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $41.20 -47.2%
Dividend Discount Model (Stable) $7.10 -90.9%

Is QTS Realty Trust Inc (QTS) undervalued or overvalued?

With the current market price at $77.98, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate QTS Realty Trust Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 4.2% 5.2%
Adjusted beta 0.54 0.62
Cost of equity 5.4% 7.4%
Cost of debt 4.0% 12.6%
Tax rate 19.4% 45.5%
Debt/Equity ratio 0.31 0.31
After-tax WACC 4.9% 7.3%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 1787.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.4%
  • Long-term growth rate: 3.8%
  • Fair value: $41.20 (-47.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.4% (Low) to 5.4% (High)
  • Long-term growth rate: 3.0% (Low) to 4.7% (High)
  • Fair value range: $2 to $12
  • Selected fair value: $7.10 (-90.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $6012M
Enterprise Value $7558M
Trailing P/E 586.54
Forward P/E 310.56
Trailing EV/EBITDA 14.55
Current Dividend Yield 246.76%
Dividend Growth Rate (5Y) 22.18%
Debt-to-Equity Ratio 0.31

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $8.24
Dividend Discount Model (Stable) 43% $1.06
Weighted Average 100% $26.58

Investment Conclusion

Based on our comprehensive valuation analysis, QTS Realty Trust Inc's weighted average intrinsic value is $26.58, which is approximately 65.9% below the current market price of $77.98.

Key investment considerations:

  • Strong projected earnings growth (3% to 8% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 22.18%

Given these factors, we believe QTS Realty Trust Inc is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.