Shimizu (TSE:1803) Expands Into US Multifamily, Is The Stock Still Cheap?

Kennedy Wilson’s partnership with Shimizu (TSE:1803) to develop the $139m Caldwell multifamily project in Sandy Springs, Georgia, brings the Japanese contractor into a US residential market with relatively tight new supply.

The Shimizu share price has seen a 2.76% 1 day share price return and a 3.13% 1 month share price return, yet the share price is down 10.04% year to date. At the same time, the 1 year total shareholder return of 24.36% and the very large 5 year total shareholder return suggest that momentum has been stronger over the longer term than in recent months.

See how Shimizu compares with other construction and infrastructure contractors focused on growth projects by reviewing our curated list of list of solid balance sheet and fundamentals (41 results)

Shimizu has provided long term holders with strong total returns, even though the share price is down year to date. After the recent uptick and the US multifamily push, does the current valuation still reward new risk takers?

Preferred P/E of 9.8x for Shimizu: Is it justified?

On a P/E of 9.8x at a last close of ¥2,454, Shimizu screens as cheaper than peers and the wider market on current earnings.

The P/E multiple compares the current share price with earnings per share. For a construction and infrastructure contractor like Shimizu, it provides a quick sense of how much investors are paying for each unit of current profit.

Shimizu has a track record of earnings growth over the past five years and profit growth over the past year that outpaced the broader Construction industry. In that context, a P/E below the Japan market average of 14.1x suggests the market is paying less for each unit of Shimizu earnings than it pays for the average listed company. The stock is also valued below the peer average P/E of 13x and the Japan Construction industry average of 11.2x.

That gap appears even wider when compared with the estimated fair P/E of 15x. If the multiple were to move closer to that fair level, it would indicate investors assigning a richer value to the company than they are today.

Explore the SWS fair ratio for Shimizu

Result: Price-to-earnings of 9.8x (UNDERVALUED)

However, there are clear risks. Net income has declined 5.5% over the past year, and revenue growth of 2.7% may not support a higher P/E re-rating.

Find out about the key risks to this Shimizu narrative.

Another view on Shimizu using the SWS DCF model

While the P/E of 9.8x makes Shimizu look inexpensive against peers and the broader market, the SWS DCF model points the other way. On this approach, the stock price of ¥2,454 sits above an estimated future cash flow value of ¥2,272.39, which frames Shimizu as overvalued on cash flows.

That kind of gap can matter if you care more about long term cash generation than headline earnings, so it is worth asking which lens fits your own approach to Shimizu.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Shimizu for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 25 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Balancing those risks and rewards for Shimizu comes down to how you read the numbers and newsflow. Review the details now and use the 4 key rewards and 3 important warning signs.

Looking for more investment ideas beyond Shimizu?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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