Feature Value Investing Weekly

17 Companies in the Spotlight This Week – 9/27/2014

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)

Comerica Inc. (CMA)

Comerica 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 $1.22 in 2010 to an estimated $2.62 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.58% 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)

Fedex Corporation (FDX)

FedEx Corporation is not suitable for the Defensive Investor but is for the Enterprising Investor. The Defensive Investor has concerns with the low current ratio, the insufficient level of earnings growth over the last ten years, and 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 through a review of ModernGraham’s valuation of United Parcel Service (UPS).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.51 in 2011 to an estimated $6.78 for 2015. This level of demonstrated growth outpaces the market’s implied estimate of 7.47% 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)

Oracle Inc. (ORCL)

Oracle Corp is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the short dividend history and the high PB ratio 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 through a review of ModernGraham’s valuation of Intel Corp (INTC) .  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.29 in 2011 to an estimated $2.44 for 2015. This level of demonstrated growth outpaces the market’s implied estimate of 3.66% 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)

Viacom Inc. (VIAB)

Viacom is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns including the low current ratio, the short dividend history and the high PB ratio.  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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.29 in 2010 to an estimated $4.62 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.10% 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)

The Good (Defensive or Enterprising and Fairly Valued)

Illinois Tool Works (ITW)

Illinois Tool Works is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios while 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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.77 in 2010 to an estimated $4.28 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.11% 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)

Leggett & Platt (LEG)

Leggett & Platt qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio 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 side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.87 in 2010 to an estimated $1.48 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.67% 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)

Mastercard Inc. (MA)

Mastercard qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio, lack of earnings 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 further research into the company and comparing it to other opportunities.  As for a valuation, 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 11.92% 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)

Medtronic Inc. (MDT)

Medtronic qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only initial concern is the high PB ratio while the company satisfies 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 Johnson & Johnson (JNJ).  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.50 in 2011 to an estimated $3.65 for 2015. This level of demonstrated growth supports the market’s implied estimate of 4.74% 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)

Michael Kors Holdings (KORS)

Michael Kors qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns and is in fact only satisfied by the company’s size and current ratio.  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. As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.15 in 2011 to an estimated $2.63 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 10.39% 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)

Altera Corporation (ALTR)

Altera Corporation 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 while 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 side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.46 in 2010 to an estimated $1.68 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.63% 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)

Linear Technology Corporation (LLTC)

Linear Technology Corp is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the level of earnings growth over the last ten years as well as the high PEmg and PB ratios. The Enterprising Investor has no initial concerns as the company 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 Analog Devices Inc (ADI).  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.52 in 2010 to an estimated $1.87 for 2014. This level of demonstrated growth does not support the market’s implied estimate of 7.81% 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)

MTS Systems Corp (MTSC)

MTS Systems Corp qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns including the small market cap size, the low current ratio, and 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 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 $1.63 in 2010 to an estimated $3.24 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.34% 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)

National Presto Industries (NPK)

National Presto Industries is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the small market cap size, while the Enterprising Investor’s only concern is 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 feel comfortable proceeding with 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 $7.84 in 2010 to an estimated $5.98 for 2014.  This demonstrated lack of growth does not support the market’s implied estimate of 1.07% 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)

EMC Corporation (EMC)

EMC Corporation is not suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, short dividend history, and the high PEmg and PB ratios. 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 purely a valuation standpoint, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.70 in 2010 to an estimated $1.31 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 6.98% 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)

Expedia Inc. (EXPE)

Expedia does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the company’s low current ratio, lack of earnings stability or growth over the last ten years, short dividend history, and high PEmg and PB ratios.  The Enterprising Investor is concerned by the company’s high level of debt relative to its current assets.  As a result, value investors following 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 a loss of $1.65 in 2010 to an estimated gain of $2.48 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 12.66% 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 Ugly (Speculative and Overvalued)

Mr. MarketDarden Restaurants (DRI)

Darden Restaurants does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, the lack of earnings growth over the last ten years, and the poor PEmg and PB ratios.  Likewise, the Enterprising Investor is concerned with 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.  From purely a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.94 in 2011 to an estimated of $2.42 in 2015.  This demonstrated drop in earnings 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)

Peabody Energy (BTU)

Peabody Energy does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, the lack of earnings stability or growth over the last ten years, and the poor PEmg and PB ratios.  Likewise, the Enterprising Investor is concerned with the high level of debt relative to the current assets as well as 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.  From purely a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.47 in 2010 to an estimated loss of $0.44 in 2014.  This demonstrated drop in earnings, in combination with the fact the company is currently losing money, does not support a positive valuation 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)

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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