ASX-listed companies opened their books to investors last month, giving a snapshot of their financial health and guidance on the future. After pouring through the results, Morningstar analysts say 30 Australian companies under coverage are trading below their fair value estimates at 4 or 5 stars.

We’ve picked three names to explore, all of which are trading at double digit discounts to fair value thanks to a combination of fair value increases and share market drops.

Until recently, they had traded in a range Morningstar considered to be fairly valued or overvalued.

Lendlease

Developer Lendlease (ASX: LLC) has bounced between fairly valued and undervalued since the covid crash last March but is now firmly in undervalued territory. It closed Thursday at $12, a 16% discount to the fair value estimate of $14.45.

The business is in the middle of a transformation, jettisoning its engineering business and focusing on its urban development pipeline overseas, with projects from New York to Tokyo.

Morningstar equity analyst Alexander Prineas backs the move, predicting more sales and more overseas sites.

Markets punished the developer when it reported in August after it flagged a $130-170 million charge associated with its restructure. It also pushed back development production by a year to 2024 as covid forced delays in its major overseas markets.

Prineas says these charges are modest relative to the earnings expected when the development business gets into full gear.

“As we said in February, Lendlease was poised to disappoint until 2022,” he says.
“Bad news is unwelcome, but eventually progress should be recognised.”

Boral

As early as June, no-moat Boral (ASX: BLD) was trading at a 15% premium to fair value. But a combination of price falls and a double digit increases in fair value means the stock is now trading at a 19% discount to fair value.

The building materials company has been pursued by Seven Group even as new chief executive Zlatko Todorcevski refocuses on its core Australian business after expensive US acquisitions underperformed.Boral bought US buildings material company Headwaters Inc in 2017 but had to write down assets in fiscal 2020.

Morningstar senior equity analyst Grant Slade raised fair value by 25% in June to $7.40, as Boral released more details about its strategy and Seven Group raised its offer to $7.40 a share.

Shares closed Thursday at $5.97.

Slade supports management’s efforts to refocus the business, which have already seen $2.9 billion flow onto the balance sheet with the sale of Boral’s North American building products business.

Last week Boral reported a full year operating income of $421 million, tracking Slade’s expectations. The company also successfully delivered on its $125 million cost cutting target.

Crown Resorts

Crown Resorts’ (ASX: CWN) share price has steadily since May as hostile Royal Commissions in Melbourne and Perth and ongoing lockdowns sent would-be suitors and investors fleeing.The company is now trading at a discount to fair value for the first time since November 2020.

In July, regulatory scrutiny soured interest from potential suitors at Star Entertainment and private equity group Blackstone, causing Morningstar equity analyst Angus Hewitt to revert to his stand-alone fair value estimate of $11, down from $12.14.

But Hewitt thinks markets have overreacted and he expects the firm to survive its regulatory ordeal and begin operations at its Barangaroo high-roller casino in Sydney next year.

Crown reported double-digit drop in earnings on Tuesday as covid lockdowns kept doors shut and high rollers out. Hewitt expects easing restrictions and vaccinations will deliver a return to normal over the next two years.

Hewitt raised this fair value estimate by 3% to $11.30 due to the time value of money. It closed Thursday at $9.29, a 18% discount to fair value.

“We think current apparent unknowns present an opportunity for investors,” he says.

“Crown Resorts is a high-quality company offering both a defensive earnings quality and an attractive growth profile.”