Feature Value Investing Weekly

17 Companies in the Spotlight This Week – 9/20/2014

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)

CF Industries Holding Co. (CF)

CfindustrieslogoCF Industries is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the lack of earnings stability over the last ten years.  The Enterprising Investor’s only concern is the high level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $7.11 in 2010 to an estimated $21.63 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.54% 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)

Deere & Company (DE)

500px-John_Deere_logo.svgDeere & Company is suitable for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.85 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 0.98% 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)

Fifth Third Bancorp (FITB)

220px-Fifth_Third_Bank.svgFifth Third Bancorp qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability or growth over the last ten years while 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 undervalued after growing its EPSmg (normalized earnings) from $0.02 in 2010 to an estimated $1.61 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.16% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

Harley Davidson Inc. (HOG)

186px-Harley-Davidson.svgHarley Davidson is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the 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 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 $1.77 in 2010 to an estimated $3.03 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.10% 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)

PulteGroup Inc. (PHM)

logo (1)PulteGroup qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the lack of earnings stability or growth over the last ten years.  The Enterprising Investor is concerned by the lack of earnings stability 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.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $4.20 in 2010 to an estimated gain of $2.03 for 2014.  This level of earnings growth outpaces the market’s implied estimate of 0.56% 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)

Tyson Foods Inc. (TSN)

220px-Tyson_Foods_logo.svgTyson Foods Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the lack of earnings stability over the last ten years while the Enterprising Investor has no initial concerns.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with 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 $0.41 in 2010 to an estimated $2.27 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.25% 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)

W.W. Grainger Inc. (GWW)

Grainger_logoW.W. Grainger Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.04 in 2010 to an estimated $10.74 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.41% 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)

Amgen Inc. (AMGN)

Amgen Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the short dividend history as well as the high PEmg and PB ratios.  The Enterprising Investor’s only initial concern is 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 research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.12 in 2010 to an estimated $6.52 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.33% 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)

Google Inc. (GOOGL)

Google Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the short dividend history as well as the high PEmg and PB ratios.  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 research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $9.15 in 2010 to an estimated $18.15 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.86% 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)

Infosys Limited (INFY)

Infosys Limited is suitable for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the high PB ratio and the Enterprising Investor has no initial concerns. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities. From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.30 in 2011 to an estimated $3.09 for 2015. This level of demonstrated growth does not support the market’s implied estimate of 5.40% 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)

Jacobs Engineering Group (JEC)

Jacobs Engineering Group qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the 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 research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.61 in 2010 to an estimated $2.92 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 4.83% 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)

Lam Research Corporation (LRCX)

Lam Research is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the short dividend history, insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.76 in 2010 to $2.61 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 9.50% 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)

Monster Beverage Corporation (MNST)

Monster Beverage is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the lack of dividends, and the high PEmg and PB ratios. The Enterprising Investor’s only initial concern is the lack of dividends. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities. From a valuation perspective, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.92 in 2010 to an estimated $2.02 for 2014. This level of demonstrated growth does not support the market’s implied estimate of 18.01% 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)

FreePort McMoRan (FCX)

FreePort-McMoRan is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, lack of earnings or dividend stability over the last ten years, and the insufficient earnings growth over the last ten years.  The Enterprising Investor is concerned by 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.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.01 in 2010 to an estimated $3.03 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.40% 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 Ugly (Speculative and Overvalued)

Mr. MarketGraham Holdings Company (GHC)

Graham Holdings does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, the insufficient earnings growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor is concerned by the high level of debt relative to the current assets as well as the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation perspective, 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 demonstrated lack of growth does not support the market’s implied estimate of 12.52% 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)

Northeast Utilities Inc. (NU)

Northeast Utilities does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the lack of earnings stability over the last ten years.  The Enterprising Investor is concerned by 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 at this time.  From a valuation perspective, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.84 in 2010 to an estimated $2.33 for 2014.  This level of earnings growth does not support the market’s implied estimate of 5.56% 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)

Staples Inc. (SPLS)

Staples does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the lack of earnings stability or growth over the last ten years.  The Enterprising Investor is also concerned by the lack of earnings stability or growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation perspective, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.17 in 2010 to an estimated $0.81 for 2014.  This drop in earnings earnings clearly does not support the market’s implied estimate of 3.82% 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)

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