Feature Value Investing Weekly

17 Companies in the Spotlight This Week – June 21, 2014

image (7)We evaluated 17 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research.  We also put each company through the ModernGraham valuation model based on Benjamin Graham’s value investing formulas in order to determine an intrinsic value for each.  Here’s a summary of the ModernGraham Valuations.  To see a listing and screenings of all the valuations, be sure to sign up to be a premium subscriber!

The Elite (Defensive or Enterprising and Undervalued)

Amgen Inc. (AMGN)

500px-Amgen.svgAmgen Inc. is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor has concerns with the lack of a long enough dividend record and the high PB ratio.  The Enterprising Investor’s only concern is with the high level of debt relative to the net current assets.  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 other opportunities through a review of ModernGraham’s valuation of Johnson & Johnson (JNJ) and ModernGraham’s valuation of Pfizer Inc. (PFE).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.12 in 2010 to an estimated $6.40 for 2014.  This level of demonstrated growth more than supports the market’s implied estimate of 4.82% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s value investing formula, to return an estimate of intrinsic value above the price.  (See the full valuation)

Deere & Co.

500px-John_Deere_logo.svgDeere & Co. is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is with the high PB ratio while the Enterprising Investor has no significant concerns.  As a result, value 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 other opportunities through a review of ModernGraham’s valuation of Caterpillar Inc. (CAT).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.77.  This strong level of demonstrated growth is greater than the market’s implied estimate of 1.57% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s methods, to return an estimate of intrinsic value that is well above the market price at this time.  (See the full valuation)

EMC Corp (EMC)

500px-EMC_Corporation_logo.svgEMC Corp qualifies for the Enterprising Investor but not the Defensive Investor, who is concerned with the company’s low current ratio and the short dividend history.  The Enterprising Investor does not have many initial concerns with the company, though, as it passes all of the investor type’s requirements.  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 other opportunities through a review of ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Hewlett-Packard Co. (HPQ).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.70 in 2010 to an estimated $1.33 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.72% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is well above the current price.  (See the full valuation)

Fifth Third Bancorp (FITB)

220px-Fifth_Third_Bank.svgFifth Third Bancorp is suitable for Enterprising Investors but not for Defensive Investors, who are concerned with the lack of earnings stability over the last ten years and the lack of earnings growth over the same period.  The company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham’s valuation of JP Morgan Chase (JPM) and ModernGraham’s valuation of Wells Fargo (WFC).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.02 in 2010 to an estimated $1.59 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.43% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the market price.  (See the full valuation)

Harley-Davidson (HOG)

186px-Harley-Davidson.svgHarley-Davidson is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s low current ratio, insufficient earnings growth over the last ten years, and high PEmg and PB ratios.  The Enterprising Investor’s only initial concern is the level of debt relative to the net current assets.  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 other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.77 in 2010 to an estimated $3.09 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 7.07% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is below the current price.  (See the full valuation)

W.W. Grainger Inc. (GWW)

Grainger_logoW.W. Grainger qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’s requirements.  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 other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.04 in 2010 to an estimated $10.77 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 7.64% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is well above the market price.  (See the full valuation)

The Good (Defensive or Enterprising and Fairly Valued)

Fedex Corp (FDX)

Fedex Corp qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s low current ratio, insufficient earnings growth over the last ten years, and high PEmg and PB ratios.  The Enterprising Investor does not have many initial concerns with the company, though, as it passes all of the investor type’s requirements.  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 other opportunities through a review of ModernGraham’s valuation of United Parcel Service (UPS).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.31 in 2010 to an estimated $5.66 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.91% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is within a margin of safety relative to the current price.  (See the full valuation)

Google Inc. (GOOG)

Google Inc. qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the lack of dividend payments and the high PEmg and PB ratios, while the Enterprising Investor is concerned about the lack of dividends.  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 other opportunities through a review of ModernGraham’s valuation of Microsoft Corp (MSFT) and ModernGraham’s valuation of Apple (AAPL).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $9.15 in 2010 to an estimated $17.90.  This level of demonstrated growth supports the market’s implied estimate of 1.57% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s methods, to return an estimate of intrinsic value that is within a margin of safety relative to the market price at this time. (See the full valuation)

Illinois Tool Works (ITW)

Illinois Tool Works is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s low current ratio, and high PEmg and PB ratios.  The Enterprising Investor has no major issues as the company passed all of the investor type’s requirements.  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 other opportunities through a review of ModernGraham’s valuation of Dover Corp (DOV) and ModernGraham’s valuation of 3M Corp (MMM).  From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.77 in 2010 to an estimated $4.25 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.20% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is within a margin of safety relative to the current price.  (See the full valuation)

Infosys Limited (INFY)

Infosys Limited qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is with the high PB ratio, while the company passes all of the Enterprising Investor’s requirements.  As a result, value 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 other opportunities through a review of ModernGraham’s valuation of Oracle Corp. (ORCL).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.03 in 2010 to $2.93 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.90% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that falls within a margin of safety relative to the current price.  (See the full valuation)

Leggett & Platt (LEG)

Leggett & Platt qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s low current ratio, and high PEmg and PB ratios.  The Enterprising Investor’s only initial concern is the level of debt relative to the net current assets.  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 other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.87 in 2010 to an estimated $1.46 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.39% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is within a margin of safety relative to the current price.  (See the full valuation)

Mastercard Inc. (MA)

Mastercard is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s low current ratio, short dividend history and high PEmg and PB ratios.  The Enterprising Investor has no major issues as the company passed all of the investor type’s requirements.  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 other opportunities through a review of ModernGraham’s valuation of Visa Inc. (V) and ModernGraham’s valuation of Capital One Financial (COF).  From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.84 in 2010 to an estimated $2.39 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.31% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is within a margin of safety relative to the current price.  (See the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

Graham Holdings Company (GHC)

Graham Holdings Company is suitable for Enterprising Investors but does not qualify for Defensive Investors.  The Defensive Investor has concerns about the low current ratio, the lack of sufficient earnings growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor’s only concern is the lack of earnings growth over the last five years.  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 other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $21.71 in 2010 to an estimated $21.66 for 2014.  This lack of earnings growth does not support the market’s implied estimate of 11.89% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s methods, to return an estimate of intrinsic value that is well above the market price at this time. (See the full valuation)

Jacobs Engineering Group (JEC)

Jacobs Engineering is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s low current ratio and lack of dividend payments.  The Enterprising Investor’s only initial concern is the lack of dividend payments.  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 other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.61 in 2010 to only an estimated $2.86 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 5.33% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is below the current price.  (See the full valuation)

The Bad (Speculative and Undervalued or Fairly Valued)

No companies fit this criteria this week.

The Ugly (Speculative and Overvalued)

Mr. Market

Delphi Automotive (DLPH)

Delphi Automotive is not suitable for either the Defensive Investor or the Enterprising Investor, in large part due to its short operating history post-bankruptcy.  In time, it may demonstrate sufficient financials to warrant interest from Intelligent Investors, but for now value investors have too many concerns.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities.  From a valuation perspective, the company appears to be overvalued.  The ModernGraham valuation model, based on Benjamin Graham’s formulas, returns an estimate of intrinsic value below the market price at this time.  (See the full valuation)

Equity Residential (EQR)

Equity Residential is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has major issues with the low current ratio, lack of earnings stability, and high PEmg ratio while the Enterprising Investor is concerned with the level of debt relative to current assets and the lack of earnings stability.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears overvalued after growing its EPSmg (normalized earnings) from $0.04 in 2010 to an estimated $1.09 for 2014.  While this is an impressive level of demonstrated growth, it does not support the market’s implied estimate of 23.82% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s methods, to return an estimate of intrinsic value that is below the current market price.  (See the full valuation)

Target Corp (TGT)

Target Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company has a current ratio too low and has not shown sufficient earnings growth over the last ten years.  The Enterprising Investor has concerns with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.45 in 2011 to only an estimated $3.76 for 2015.  This low level of demonstrated growth does not support the market’s implied estimate of 3.51% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is well below the market price.  (See the full valuation)

Disclaimer:  The author held a long position in Apple Inc. (AAPL), Deere & Co. (DE), and Dover Corp (DOV), 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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