Feature Value Investing Weekly

14 Companies in the Spotlight This Week – 4/12/14

image (7)We looked at 14 different companies this week.  Here’s a summary of the ModernGraham Valuations.  For more detailed analysis, click on the name of the company.  Yesterday we also screened all 240 companies in the database to find 5 Undervalued Companies for the Defensive Investor.  To see more screens of the valuations, be sure to sign up to be a premium subscriber of ModernGraham Stocks and Screens!

The Elite (Defensive or Enterprising and Undervalued)

  • 500px-Capital_One_Financial_logo.svgCapital One Financial (COF) – Capital One Financial is a great company for Enterprising Investors to look at in more detail, but it does not quite qualify for the Defensive Investor because it has not shown sufficient growth in its earnings over the ten year historical period.  That said, the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to competitors through a review of ModernGraham’s valuation of JP Morgan Chase (JPM) and ModernGraham’s valuation of Wells Fargo Inc. (WFC).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $3.14 in 2009 to $6.56 for 2013.  This solid level of demonstrated growth surpasses the market’s implied estimate of 1.39% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • 200px-Cigna_logo.svgCigna Corporation (CI) – Cigna Corp is an interesting company for both Defensive Investors and Enterprising Investors.  The company passes all of the requirements of either investor type, though it should be noted that the dividend rate is extremely low.  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 and comparing the company to other opportunities such as through a review of ModernGraham’s valuation of UnitedHealth Group (UNH) and 5 Low PEmg Companies for the Defensive Investor.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.31 in 2009 to $5.18 in 2013.  This demonstrated level of growth outpaces the market’s implied estimate of 3.55% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • DR_Horton_LogoD.R. Horton Inc. (DHI) – D.R. Horton is an interesting company for the Enterprising Investor, but is not suitable for the Defensive Investor.  The company has shown insufficient earnings stability or growth over the ten year historical period for the Defensive Investor.  The company company does pass all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company as well as other opportunities through a review of 5 Low PEmg Companies for the Enterprising Investor and 5 Undervalued Companies for the Enterprising Investor.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from -$1.91 in 2010 to an estimated $1.47 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.18% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • KLA_logolockup_RGBKLA-Tencor (KLAC) – KLA-Tencor is a very intriguing company for the Enterprising Investor, but is not suitable for the Defensive Investor.  The company has shown insufficient earnings stability and trades at a PB ratio too high for the Defensive Investor; however, the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company as well as other opportunities.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.45 in 2010 to an estimated $3.65 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.06% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • Lennar_corporation_logoLennar Corp (LEN) – Lennar Corp is an interesting company for the Enterprising Investor, but is not suitable for the Defensive Investor.  The company has shown insufficient earnings stability or growth over the ten year historical period and trades at a high PEmg ratio for the Defensive Investor.  The company company does pass all of the Enterprising Investor’s requirements except the earnings stability requirement.  As a result, Enterprising Investors should feel comfortable proceeding with further research into the company as well as other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from -$4.05 in 2009 to $1.55 for 2013.  This level of demonstrated growth outpaces the market’s implied estimate of 8.56% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

The Good (Defensive or Enterprising and Fairly Valued)

  • Allstate Corporaion (ALL) – Allstate Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The company has shown insufficient earnings stability and growth over the ten year historical period for the Defensive Investor.  As a result, Enterprising Investors following 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 ModernGraham’s valuation of Travelers Companies (TRV) and ModernGraham’s valuation of Unum Group (UNM).  From a valuation standpoint, the company appears to be fairly valued.  The company has grown its EPSmg (normalized earnings) from $2.50 in 2009 to $3.49 in 2013, a level of demonstrated growth that supports the market’s implied estimate of 3.84% earnings growth.  Based on the demonstrated growth, the ModernGraham valuation model has returned an estimate of intrinsic value that falls within a margin of safety relative to the price.

 

  • Estee-Lauder (EL) – Estee Lauder is suitable for the Enterprising Investor but not the Defensive Investor.  The company currently trades at PEmg and PB ratios that are too high for the Defensive Investor.  The Enterprising Investor is very satisfied, though, because the company passes all of the investor type’s requirements.  Therefore, the Enterprising Investor following the ModernGraham approach based on Benjamin Graham’s methods will feel comfortable conducting further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of International Flavors & Fragrances (IFF) and a Glance at the Dow.  From a valuation perspective, the company appears to be fairly valued, having demonstrated growth in EPSmg from $0.98 in 2010 to an estimated $2.37 for 2014.  This level of historical growth supports the market’s implied estimate of 10.49% earnings growth and leads the ModernGraham valuation model to estimate an intrinsic value that is within a margin of safety relative to the price.

 

  • Intuit Inc. (INTU) – Intuit Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  The company’s current ratio is too low, the dividend record too short, and the PEmg and PB ratios too high for the Defensive Investor.  The Enterprising Investor’s only gripe with the company is the low current ratio, but the overall debt level remains acceptable.  As a result, the Enterprising Investor following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company through a comparison to ModernGraham’s valuation of Automatic Data Processing (ADP).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.62 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 10.46% 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.

 

  • Juniper Networks (JNPR) – Juniper Networks is suitable for the Enterprising Investor but not the Defensive Investor.  For the Defensive Investor, the company has shown insufficient earnings stability or growth over the ten year historical period, does not pay dividends, and is trading at a high PEmg ratio.  For the Enterprising Investor, the only qualm is the lack of dividend payments.  As a result, Enterprising Investors should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Cisco (CSCO) and ModernGraham’s valuation of International Business Machines (IBM).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.25 in 2009 to $0.71 in 2013.  This demonstrated level of growth supports the market’s implied estimate of 13.75% 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 market price.

The Mediocre (Defensive or Enterprising and Overvalued)

  • Alliance Data Systems (ADS) – Alliance Data Systems qualifies for the Enterprising Investor but not the Defensive Investor, due to the lack of a dividend payment and the high PEmg and PB ratios.  For the Enterprising Investor, the only requirement the company doesn’t meet is 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 into the company and comparing it to some competitors through a review of ModernGraham’s valuation of American Express (AXP) and a look at 5 Outstanding Dow Components.  As for a valuation, the company appears to be overvalued despite growing its EPSmg (normalized earnings) from $2.73 in 2009 to a whopping $5.99 for 2013.  While this level of demonstrated growth is outstanding, the market’s implied estimate is of 17.68% earnings growth, which is above ModernGraham’s margin of safety when it comes to estimating a growth rate.  As a result, the ModernGraham valuation model returns an estimate of intrinsic value that falls below the current price.

The Bad (Speculative and Undervalued or Fairly Valued)

  • General Mills (GIS) – General Mills is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low and the PB ratio is too high.  For the Enterprising Investor, the company holds too much debt relative to its current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg normalized earnings) from $1.94 in 2010 to an estimated $2.66 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 5.39% 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.

The Ugly (Speculative and Overvalued)

Mr. Market

  • Carnival Corporation (CCL) – Carnival Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The company holds a high level of debt, has not sufficiently grown earnings over the ten year or even the five year historical period, and it trades at a high PEmg ratio.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation standpoint, the company has shown a drop in EPSmg (normalized earnings) from $2.56 in 2010 to an estimated $1.72 for 2014.  This does not support the market’s implied estimate of 6.79% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the market price.

 

  • Hudson City Bancorp (HCBK) – Hudson City Bancorp does not qualify for either the Defensive Investor or the Enterprising Investor.  The company has not shown sufficient earnings stability or growth over the ten year period and has a PEmg ratio that is too high for the Defensive Investor.  For the Enterprising Investor, the company’s insufficient earnings growth and stability over the five year period are the determining factors.  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 significantly overvalued after seeing a drop in its EPSmg (normalized earnings) from $0.82 in 2009 to $0.18 for 2013.  This drop in earnings leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the market’s price, largely due to the market implying an estimate of 23.56% which is clearly not supported by the historically demonstrated level of growth.

 

  • Masco Corporation (MAS) – Masco Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The company has shown terrible earnings in recent history, has not shown sufficient growth, and has a high level of debt relative to current assets.  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 does not fare well in the ModernGraham valuation model due to the negative EPSmg (normalized earnings).  Any valuation must come from an area other than the earnings, and the balance sheet does not look promising either.  Therefore, the company appears to be significantly overvalued and any investor seeking to speculate here should be extremely cautious.

Disclaimer:  The author did not hold a position in any of the 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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