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Feature Value Investing Weekly

10 Companies in the Spotlight This Week – 7/12/14

image (7)We evaluated 15 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)

500px-Allstate.svgAllstate Corporation (ALL)

Allstate Corp 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 Travelers Companies (TRV). As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.95 in 2010 to an estimated $3.98 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.15% 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)

200px-Cigna_logo.svgCigna Corporation (CI)

Cigna is an intriguing company for either Defensive Investors or Enterprising Investors.  The company passes all of the requirements of each investor type, an impressive accomplishment.  As a result, value investors 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 Aetna Inc. (AET) and ModernGraham’s valuation of UnitedHealth (UNH).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $3.85 in 2010 to an estimated $5.86 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 3.72% 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)

D&R Horton Inc. (DHI)

DR_Horton_LogoD&R Horton is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings growth or stability over the last ten years. The Enterprising Investor has no major concerns at this time. 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 a loss of $1.91 in 2010 to an estimated gain of $1.51 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 3.74% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)

KLA_logolockup_RGBKLA-Tencor (KLAC)

KLA-Tencor qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings stability over the last ten years as well as the high PEmg and PB ratios. The Enterprising Investor has no major concerns at this time. 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 $0.45 in 2010 to an estimated $3.65 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 5.97% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)

The Good (Defensive or Enterprising and Fairly Valued)

Alliance Data Systems (ADS)

Alliance Data Systems qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the lack of dividend payments and the high PEmg and PB ratios. The Enterprising Investor’s only 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 fairly valued after growing its EPSmg (normalized earnings) from $3.07 in 2010 to an estimated $8.11 for 2014. This strong level of demonstrated growth supports the market’s implied estimate of 13.31% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Estee-Lauder (EL)

Estee-Lauder is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the high PEmg and PB ratios. The Enterprising Investor has no major concerns at this time. 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 $0.98 in 2010 to an estimated $2.44 for 2014. This level of demonstrated growth supports the market’s implied estimate of 11.03% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Intuit Inc. (INTU)

Intuit qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the lack of dividend payments and the high PEmg and PB ratios. The Enterprising Investor has no major concerns at this time. 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 such as through a review of ModernGraham’s valuation of Automatic Data Processing (ADP) and ModernGraham’s valuation of Paychex Inc. (PAYX). 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 $2.63 for 2014. This level of demonstrated growth supports the market’s implied estimate of 11.06% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

EQT Corporation (EQT)

EQT Corporation qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio, the lack of sufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor’s only concern is with 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 overvalued after growing its EPSmg (normalized earnings) from $1.64 in 2010 to only an estimated $2.49 for 2014. This low level of demonstrated growth does not support the market’s implied estimate of 16.79% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.  (See the full valuation)

Juniper Networks (JNPR)

Juniper Networks is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings growth or stability over the last ten years, lack of dividend payments and the high PEmg ratio. The Enterprising Investor is concerned only by 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 such as through a review of ModernGraham’s valuation of Cisco Systems (CSCO). From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.59 in 2010 to an estimated $0.87 for 2014. This level of demonstrated growth supports the market’s implied estimate of 9.68% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation)

The Bad (Speculative and Undervalued or Fairly Valued)

Dun & Bradstreet (DNB)

Dun & Bradstreet does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor has concerns with the low current ratio and the short dividend history while the Enterprising Investor is concerned with the 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 explore other opportunities such as through a review of ModernGraham’s valuation of Equifax Inc. (EFX) and ModernGraham’s valuation of Moody’s Corporation (MCO). From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $5.27 in 2010 to an estimated $6.53 for 2014. This level of demonstrated growth supports the market’s implied estimate of 4.35% and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

The Ugly (Speculative and Overvalued)

No companies fit this criteria this week.

Mr. Market

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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