Feature Stocks Value Investing Weekly

19 Companies in the Spotlight This Week – 3/15/14

image (7)We looked at 19 different companies this week.  Here’s a summary of the ModernGraham Valuations.  For more detailed analysis, click on the name of the company.  To see screens of all of our valuations, be sure to get a copy of this month’s edition of ModernGraham Stocks and Screens!

The Elite (Defensive or Enterprising and Undervalued)

  • 500px-Apple_logo_black.svgApple Inc. (AAPL) – Apple Inc. is an excellent company for Enterprising Investors, having failed only the investor type’s current ratio requirement.  The company does not qualify for the Defensive Investor due to its low current ratio, lack of a long enough dividend record, and high PB ratio.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company and its competitors, including a review of ModernGraham’s valuation of Microsoft (MSFT) and ModernGraham’s valuation of Google (GOOG).  As for a valuation, the company appears to be significantly undervalued.  Apple has grown its EPSmg (normalized earnings) from $9.22 to an estimated $37.86 for 2014, a growth rate that far outpaces the market’s implied estimate of only 2.76% earnings growth.  The ModernGraham valuation model has accordingly returned an estimate of intrinsic value that is much higher than the market price.

 

  • 500px-Freeport_McMoRan.svgFreePort-McMoran (FCX) – FreePort-McMoran is an interesting company in the ModernGraham valuation model.  It does not pass the requirements of the Defensive Investor, as it has not consistently paid dividends over the last ten years, and it has not shown earnings stability over the last ten years.  But it does pass the requirements of the Enterprising Investor, though it has a higher level of debt relative to current assets than the investor type likes to see.  As a result, Enterprising Investors should feel comfortable proceeding with their research, beginning with a review of a Glance at the Dow and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the ModernGraham valuation is affected significantly by the large earnings loss in 2008, which has caused the EPSmg (normalized earnings) figure for 2009 to be very low in relation to 2013.  As it stands, the EPSmg have grown from -$1.67 to $3.48, indicating a high level of growth that would appear to significantly outpace the market’s implied estimate of 0.17% earnings growth.  This has led the model to return an intrinsic value estimate that is well above the market price, and the overall result that the company is undervalued is supported by the valuation based on only 3% growth.

 

The Good (Defensive or Enterprising and Fairly Valued)

  • Accenture PLC (ACN) – Accenture qualifies for the Enterprising Investor after passing all of the investor type’s requirements except for the current ratio requirement.  The company does not qualify for the Defensive Investor, though, because in addition to failing the current ratio requirement, the company also is currently trading at high PEmg and PB ratios.  As a result, Enterprising Investors should feel comfortable putting the company on a watch list while conducting further research, including a review of ModernGraham’s valuation of International Business Machines (IBM) and 5 Outstanding Dow Components.  From a valuation perspective, the company appears fairly valued after growing its EPSmg (normalized earnings) from $1.99 in 2010 to an estimated $3.98 for 2014.  This solid level of growth supports the markets current implied estimate for 6.28% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a safety margin relative to the market price.

 

  • Amgen Inc. (AMGN) – Amgen is suitable for the Enterprising Investor but not the Defensive Investor, having failed the Defensive Investor’s requirement of dividend payments for over ten years, as well as having high PEmg and PB ratios.  The company only fails the Enterprising Investor’s requirement regarding the level of debt relative to the company’s current assets, but that is not enough to turn away the Enterprising Investor.  As a result, Enterprising Investors should feel comfortable proceeding with further research into the company as well as other opportunities, including a review of 5 Undervalued Companies for the Defensive Investor, and a review of ModernGraham’s valuation of Baxter International (BAX).  From a valuation perspective, the company appears to be fairly valued at the current time, after growing EPSmg from $3.63 in 2009 to $5.43 in 2013.  This level of demonstrated growth supports the market’s current implied estimate of 7.08% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is within a margin of safety relative to the market price.

 

  • B&G Foods Inc. (BGS) – B&G Foods is not suitable for the Defensive Investor, having only passed the investor type’s requirements regarding earnings stability and earnings growth.  The Enterprising Investor, being willing to do much more research into the company, does not have such strict requirements, and the company qualifies for further research.  As a result, Enterprising Investors should feel comfortable proceeding with their research.  From a valuation side of things, the company appears to be fairly valued.  EPSmg (normalized earnings) have grown from $0.40 in 2009 to $0.97 for 2013, a level of demonstrated growth that supports the market’s implied estimate of 11.07% earnings growth.  The ModernGraham valuation model has returned an estimate of intrinsic value that falls within a margin of safety in relation to the price.

 

  • The Chubb Corporation (CB) – The Chubb Corporation is a strong company that is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of each investor type, indicating it has strong fundamentals and should present a lower level of risk than many other companies.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, keeping in mind the 7 Key Tips to Value Investing.  From a valuation side of things, the company appears fairly valued, having grown its EPSmg (normalized earnings) from $5.87 in 2009 to $7.00 for 2013.  This level of growth supports the market’s implied estimate of 2% earnings growth, and the ModernGraham valuation model returns an estimate of intrinsic value that falls within a safety margin in relation to the market price.

The Mediocre (Defensive or Enterprising and Overvalued)

  • Abbott Laboratories (ABT) – Abbott Labs is a very strong company at the initial stages of the ModernGraham analysis, having passed all of the requirements of the Defensive Investor.  The company also passes the requirements of the Enterprising Investor, except for the requirement regarding earnings growth.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding further with additional research including a review of ModernGraham’s valuation of Johnson and Johnson (JNJ).  Moving on to the valuation stage, the company does not fare well after exhibiting a lack of earnings growth over the last five years.  EPSmg (normalized earnings) have gone from $2.79 in 2009 to $2.74 for 2014, and this lack of growth clearly does not support the market’s implied estimate of 2.98% earnings growth going forward.  Accordingly, the ModernGraham valuation model has returned an estimate of intrinsic value that falls below a margin of safety relative to the price.

 

  • Adobe Systems Inc. (ADBE) – Adobe Systems is not suitable for the Defensive Investor, due to the lack of a dividend payment, insufficient earnings growth over the ten year period, and high PEmg and PB ratios.  The Enterprising Investor is not quite as picky, though, and the company passes all of the requirements for the investor type other than the dividend payment.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of 5 Undervalued Companies for the Enterprising Investor.  From a valuation standpoint, the company does not appear to be a good value at this time.  The company’s EPSmg (normalized earnings) have only grown from $1.10 in 2009 to $1.20 for 2013, a very low level of growth that does not support the market’s implied estimate of 24.01% earnings growth.  Accordingly, the ModernGraham valuation model returns an estimate of intrinsic value that falls well below the market price.

 

  • Analog Devices Inc. (ADI) – Analog Devices is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is turned away by the company’s high PEmg and PB ratios, while the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of ModernGraham’s valuation of Texas Instruments (TXN) and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation standpoint, the company appears to be overvalued at the current time, after growing its EPSmg (normalized earnings) from $1.66 in 2010 to an estimated $2.25 for 2014.  This is a level of historically demonstrated growth that lags behind the market’s implied estimate of 7.21% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

 

  • Cameron International Corp (CAM) – Cameron International is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is turned away by the company’s lack of dividend payments, high PEmg ratio, and the current ratio is just below the investor type’s requirement.  Since the company only fails the Enterprising Investor’s dividend payment requirement, however, that investor type should feel comfortable researching the company further, including through a review of ModernGraham’s valuation of National Oilwell Varco (NOV).  From a valuation side of things, the company appears to be slightly overvalued, having grown its EPSmg (normalized earnings) from $2.07 in 2009 to only $2.63 for 2013.  This low level of historically demonstrated growth does not support the market’s implied estimate for 7.77% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that falls below the current price.

 

  • Consolidated Edison (ED) – Consolidated Edison is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of the Defensive Investor except for the current ratio requirement, which is fairly expected for utility companies.  The company qualifies for the Enterprising Investor by default despite having a high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.  From a valuation side of things, the company appears overvalued presently.  EPSmg (normalized earnings) have only grown from $3.23 in 2009 to $3.62 for 2013, and this low level of growth does not support the market’s implied estimate of 3.31% earnings growth.  The ModernGraham valuation model returns an estimate of intrinsic value that falls below the market price.

 

  • Occidental Petroleum Inc. (OXY) – Occidental Petroleum is a company that Defensive Investors and Enterprising Investors should all keep on their watch lists.  The company qualifies for the Defensive Investor having passed all of the investor type’s requirements except the current ratio.  The company also qualifies for the Enterprising Investor by default, despite having a high level of debt relative to its current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors, including a review of both ModernGraham’s valuation of Chevron Corporation (CVX) and ModernGraham’s valuation of Exxon Mobil (XOM).  From a valuation perspective, the company appears to be slightly overvalued.  It has grown its EPSmg (normalized earnings) from $5.74 in 2009 to $6.59 for 2013, but this level of growth does not support the market’s implied estimate of 3.12% earnings growth.  The ModernGraham valuation model accordingly returns an estimate of intrinsic value that falls below the market’s current price.

 

  • Pfizer Inc. (PFE) – Pfizer Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  The company has not sufficiently grown its earnings over the last ten years for the Defensive Investor, and it currently trades at high PEmg and PB ratios.  However, it passes all of the requirements for the Enterprising Investor, so that investor type should keep the company on a watch list going forward.  In addition, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into both the company and other opportunities, including a review of ModernGraham’s valuation of Merck & Co. (MRK).  From a valuation perspective, the company appears to be overvalued after only growing its EPSmg (normalized earnings) from $1.23 in 2009 to $1.32 for 2013.  This very low level of historically demonstrated growth does not support the market’s implied estimate for earnings growth of 8.07%, leading the ModernGraham valuation model to return an estimate for intrinsic value that falls well below the market price at this time.

 

  • Texas Instruments (TXN) – Texas Instruments should be on the watch list of any Enterprising Investor, as the company passes all of the requirements of the investor type.  However, the company does not qualify for the Defensive Investor due to insufficient earnings growth over the ten year period, and high PEmg and PB ratios.  As a result, Enterprising Investors should feel comfortable proceeding with further research while Defensive Investors may wish to look into other opportunities.  From a valuation perspective, the company appears to be overvalued at the present time, due to the low earnings growth.  The company has only grown its EPSmg (normalized earnings) from $1.45 in 2009 to $1.87 for 2013, and this level of historically demonstrated growth does not support the market’s implied estimate of 7.98% earnings growth.  This leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

 

  • Tidewater Inc. (TDW) – Tidewater is suitable for the Defensive Investor, having only failed the investor type’s earnings growth requirement.  The company is also suitable for the Enterprising Investor by default, despite having failed both the debt to net current asset requirement and the earnings growth requirement.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should keep Tidewater on a watch list and feel comfortable proceeding with further research.  From a valuation perspective, the company does not perform very well, largely due to the lack of earnings growth over the last 5 years.  The company’s EPSmg (normalized earnings) have dropped from $6.18 in 2010 to an estimated $2.92 for 2014, a change that clearly does not support the market’s implied estimate for 4.20% earnings growth.  As a result, the ModernGraham valuation model finds that any value in the company must come from a source other than the earnings, though it should be noted that if the company can achieve a growth level of 3%, the value would be around $42 based on current EPSmg.

 

  • Wolverine World Wide (WWW) – Wolverine World Wide is suitable for the Enterprising Investor despite having a higher level of long-term debt relative to current assets than the investor type typically likes to see.  However, the company does not qualify for the Defensive Investor due to high PEmg and PB ratios at the current time.  As a result, Enterprising Investors should keep the company on their watch lists, conducting further research into the company’s prospects as well as other opportunities.  As for a valuation, the company has grown its EPSmg (normalized earnings) from $0.77 in 2009 to $0.99 for 2013, a low level of historically demonstrated growth that does not support the market’s implied estimate of 9.53% earnings growth.  Accordingly, the ModernGraham valuation model returns an estimate of intrinsic value that falls well below the market’s current price, indicating the company may be overvalued presently.

 

  • Zimmer Holdings Inc. (ZMH) – Zimmer Holdings Inc. is not suitable for the Defensive Investor due to its lack of a solid dividend history along with its high PEmg and PB ratios.  However, the company passes all of the requirements of the Enterprising Investor, indicating that as long as the value investor is willing to conduct very thorough analysis, this company may present lower risk than some others.  As a result, Enterprising Investors following a ModernGraham approach based on Benjamin Graham’s methods should feel comfortable exploring this company along with other opportunities, such as through a review of ModernGraham’s valuation of Johnson and Johnson (JNJ).  From a valuation perspective, the company appears to be overvalued as even though it has grown its EPSmg (normalized earnings) from $3.40 in 2009 to $4.04 in 2013, this historically demonstrated growth trails behind the market’s implied estimate for earnings growth of 7.87%.  Accordingly, the ModernGraham valuation model has estimated an intrinsic value that is below the market’s current price.

The Bad (Speculative and Undervalued or Fairly Valued)

  • No companies reviewed this week fit this criteria.

The Ugly (Speculative and Overvalued)

Mr. Market

  • Best Buy Company (BBY) – Best Buy Company presents too much risk for either Defensive Investors or Enterprising Investors at this time.  For the Defensive Investor, the company fails the requirements by having a low current ratio, insufficient earnings stability or growth over the ten year period, and a high PEmg ratio.  For the Enterprising Investor, the company does not have a high enough current ratio, and has insufficient earnings stability or growth over the last 5 years.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company’s EPSmg (normalized earnings) have dropped considerably over the last five years, from $2.81 in 2010 to $0.38 for 2014, leading the ModernGraham valuation model to return a figure that significantly trails the market’s implied estimate of 30.35% earnings growth from the $0.38 EPSmg figure.  Until the earnings show continued improvement, the company will continue to appear overvalued.

 

  • Marathon Oil Corp (MRO) – Marathon Oil is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the turn-offs are the lack of earnings growth over the ten year period and the poor current ratio.  For the Enterprising Investor, the failings are in the high level of debt relative to the current assets and the lack of earnings growth over the last 5 years.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities, such as by reviewing ModernGraham’s valuation of Chevron Corporation (CVX).  From a valuation standpoint, the company appears significantly overvalued.  The EPSmg (normalized earnings) have gone from $4.21 in 2009 to $2.41 for 2013, which is the exact opposite that Intelligent Investors want to see.  The market is implying an estimate of 2.54% earnings growth, which is clearly not supported by the recent history of the company.  As a result, the ModernGraham valuation model returns an estimate of intrinsic value that is well below the market price.

Disclaimer:  The author held a long position in Apple Inc. (AAPL) but did not hold a position in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.

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