Feature Value Investing Weekly

17 Companies in the Spotlight This Week – 3/22/14

image (7)We looked at 17 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-John_Deere_logo.svgDeere & Co. (DE) – Deere & Co. is an excellent company that is suitable for either the Defensive Investor or the Enterprising Investor.  The only requirement for either investor type that the company does not meet is the PB ratio.  As a result, value investors following a ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company as well as other opportunities, such as through a review of ModernGraham’s valuation of Caterpillar Inc. (CAT) or 5 Undervalued Companies for the Defensive Investor.  From a valuation perspective, the company appears to be significantly undervalued, having grown its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.62 for 2014.  This demonstrated level of growth more than supports the market’s current implied estimate of 1.47% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • 500px-EMC_Corporation_logo.svgEMC Corporation (EMC) – EMC Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is turned away by the low current ratio, insufficient dividend record, and high PEmg ratio.  The Enterprising Investor remains interested, but it should be noted that the level of debt relative to the current assets is dangerously close to eliminating the company from the Enterprising Investor’s list.  For now, though, the Enterprising Investor following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a look at 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be significantly undervalued.  The EPSmg (normalized earnings) have grown from $0.60 in 2009 to $1.15 for 2013, a level of demonstrated growth that outpaces the market’s implied estimate of 7.74% earnings growth.  As a result, the ModernGraham valuation model returns an estimate of intrinsic value that is well above the market price.

The Good (Defensive or Enterprising and Fairly Valued)

  • Fedex Corp. (FDX) – Fedex Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The company has shown insufficient earnings growth over the ten year period and is trading at PEmg and PB ratios that are too high for the Defensive Investor, but 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 conducting further research into the company and its competitors such as through a review of ModernGraham’s analysis of United Parcel Service (UPS) and a Glance at the Dow.  From a valuation perspective, the company appears to be fairly valued.  The company has grown its EPSmg (normalized earnings) from $3.31 in 2010 to an estimated $5.66 for 2014, a level of demonstrated growth that supports the market’s implied estimate of 8.00% 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.

 

  • Google Inc. (GOOG) – Google has exhibited outstanding growth in earnings, but remains suitable only for the Enterprising Investor.  The company’s lack of a long dividend record as well as high PEmg and PB ratios make it unsuitable for the Defensive Investor at this time.  Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research, including a review of ModernGraham’s valuation of Apple Inc. (AAPL) as well as ModernGraham’s valuation of Microsoft Corp (MSFT).  From a valuation perspective, it is important to look at the growth in the EPSmg (normalized earnings), which have gone from $14.67 in 2009 to $31.75 for 2013.  This solid level of demonstrated historical growth supports the market’s implied estimate of 14.22% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

 

  • Infosys Ltd (INFY) – Infosys is a very strong company that is intriguing to both the Defensive Investor and the Enterprising Investor.  The only requirement the company does not satisfy for either investor type is the Defensive Investor’s PB ratio requirement.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should keep the company on a watch list and feel very comfortable proceeding with further research, including a review of ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Oracle Corp (ORCL).  From a valuation perspective, the company appears to be fairly valued by the market after growing its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $2.92 for 2014.  This level of demonstrated historical growth supports the market’s implied estimate of 5.15% expected earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

 

  • Leggett & Platt Inc. (LEG) – Leggett & Platt Inc. is an interesting company that is not suitable for Defensive Investors due to the insufficient earnings growth over the ten year period, the low current ratio, and the high PEmg and PB ratios.  However, the company does qualify for the Enterprising Investor, though it should be noted that the current ratio is very close to the minimum for that investor as well.  Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company as well as other opportunities.  From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.80 in 2009 to $1.29 for 2013.  This demonstrated level of growth supports the market’s implied estimate of 8.1% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety in relation to the price.

 

  • Mastercard Inc. (MA) – Mastercard Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  In fact, the only requirements of the Defensive Investor that the company satisfies are the market cap level and the earnings growth over the ten year period.  That said, the company passes all of the requirements of the Enterprising Investor, and that investor type should feel comfortable proceeding with further research into the company and its competitors through a review of ModernGraham’s valuation of Visa (V) and 5 Low PEmg Companies for the Defensive Investor.  From a valuation perspective, the company appears to be fairly valued.  The company has shown strong growth, having brought EPSmg (normalized earnings) from $0.50 in 2009 to $2.00 for 2013.  This demonstrated level of growth supports the market’s implied estimate of 15.35% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety in relation to the price.

 

  • Medtronic Inc. (MDT) – Medtronic Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  The company only fails one requirement of either investor, and that is the PB ratio, which is too high in this case.  As a result, value 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 Johnson & Johnson (JNJ) and ModernGraham’s valuation of Abbott Laboratories (ABT).  From a valuation side of things, the company appears to be fairly valued after growing EPSmg (normalized earnings) from $2.30 in 2010 to an estimated $3.38 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 4.59% earnings growth, and the ModernGraham valuation model returns an estimate of intrinsic value that falls within a margin of safety in relation to the price.

 

  • Target Corp. (TGT) – Target Corporation is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only requirement that isn’t met is the current ratio, while the Enterprising Investor is satisfied by default since the company is suitable for the more conservative Defensive Investor.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should keep the company on a watch list and feel very comfortable proceeding with further research, including a review of ModernGraham’s valuation of Walmart Stores Inc. (WMT) as well as ModernGraham’s valuation of Costco Wholesale Corporation (COST).  From a valuation perspective, the company appears to be fairly valued currently after growing its EPSmg (normalized earnings) from $3.14 in 2010 to $3.84.  While this is not a strong level of growth, it does support the market’s implied estimate of 3.52% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that falls within a safety margin in relation to the price.

The Mediocre (Defensive or Enterprising and Overvalued)

  • Graham Holdings Company (GHC) – Graham Holdings Company is suitable for the Enterprising Investor but not the Defensive Investor.  For the Defensive Investor, the company has a current ratio that is too low, a PEmg ratio that is too high, and has shown insufficient earnings growth over the ten year period.  The company passes all requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.  As for the valuation, the company appears significantly overvalued as the earnings have not kept up with the recent rise in price.  EPSmg (normalized earnings) have gone from $17.86 in 2009 to only $18.48, a level of demonstrated growth that does not support the market’s current implied estimate of 15.17% earnings growth.  This leads the ModernGraham valuation model to return an estimate for intrinsic value that is well below the market price at this time.

 

  • Jacobs Engineering Group (JEC) – Jacobs Engineering is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is turned away by the low current ratio, insufficient dividend record, and high PEmg ratio.  The Enterprising Investor is satisfied with the company except for the lack of dividend payments, but that alone is not enough to eliminate the company from potential investment.  As a result, the Enterprising Investor following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.   From a valuation perspective, the company appears to be overvalued presently.  The EPSmg (normalized earnings) have grown from $2.61 in 2010 to only $3.13 estimated for 2014, a level of demonstrated growth that does not support the market’s implied estimate of 5.86% earnings growth.  The ModernGraham valuation model accordingly returns an estimate of intrinsic value that falls well below the market price.

 

  • National Presto Industries (NPK) – National Presto Industries is a strong company that fares well in terms of the ModernGraham requirements for Defensive Investors and Enterprising Investors.  The company only fails the market cap requirement of the Defensive Investor.  As a result, all value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company as well as other opportunities.  From a valuation standpoint, however, the company appears to be overvalued at the current time.  The company has grown EPSmg (normalized earnings) from $6.60 in 2009 to $6.73 in 2013, a very low level of growth that does not support the market’s current implied estimate of 1.73% earnings growth.  The ModernGraham valuation model has accordingly estimated an intrinsic value that falls below a margin of safety in relation to the price

The Bad (Speculative and Undervalued or Fairly Valued)

  • Marriott International (MAR) – Marriott International does not satisfy the requirements of either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the turn offs are the poor current ratio, the lack of earnings stability or growth over the ten year period, and the high PEmg ratio.  For the Enterprising Investor, the failings are found in the high level of debt relative to the current assets and the lack of earnings growth over the five year period.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation perspective, the company appears to be fairly valued, after growing its EPSmg (normalized earnings) from $0.60 in 2009 to $1.35 in 2013.  This level of growth supports the market’s implied estimate of 16.11% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety in relation to the price.

The Ugly (Speculative and Overvalued)

Mr. Market

  • International Game Tech. (IGT) – International Game Tech. is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company fails to qualify for potential investment because of the low current ratio, insufficient earnings growth over the ten year historical period, and the high PB ratio.  The Enterprising Investor is turned away by the high level of debt relative to the current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  In terms of a valuation, the company appears to be overvalued currently.  The company’s EPSmg have only grown from $0.90 in 2010 to an estimated $0.98 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 3.42% earnings growth, leading the ModernGraham valuation model to return an intrinsic value estimate that falls below a margin of safety relative to the current price.

 

  • Kimco Realty Corp. (KIM) – Kimco Realty, like many REITs, does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is turned away by the lack of earnings stability or growth over the ten year historical period as well as the high PEmg ratio.  The Enterprising Investor is turned off by the lack of earnings stability or growth over the 5 year period and the high level of debt relative to the current assets.  Value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore opportunities.  As for a valuation, the company appears to be significantly overvalued after seeing a drop in EPSmg (normalized earnings) from $0.67 in 2009 to $0.30 in 2013.  This historical performance does not support the market’s current implied estimate of 33.01% earnings growth, and leads the ModernGraham valuation model to return an intrinsic value that is well below the market price.

 

  • Public Storage Inc. (PSA) – Public Storage does not qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the turn offs are the low current ratio and the high PEmg and PB ratios.  For the Enterprising Investor, the issue is the high level of debt relative to the current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore opportunities.  From a valuation perspective, the company appears to be overvalued after only growing its EPSmg (normalized earnings) from $2.70 in 2009 to $3.85 for 2013.  This demonstrated level of growth does not support the market’s implied estimate of 17.61% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the price.

Disclaimer:  The author held a long position in Deere & Co. (DE) and 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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top