Feature Value Investing Weekly

14 Companies in the Spotlight This Week – 10/18/14

image (7)We evaluated 14 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)

Cigna Corporation (CI)

200px-Cigna_logo.svgCigna Corporation is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, a strong indicator of its financial stability.  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.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $3.85 in 2010 to an estimated $5.96 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.11% 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.  (Read the full valuation)

Coach Inc. (COH)

Official_Coach_Inc_LogoCoach is an outstanding company for consideration by both Defensive Investors and Enterprising Investors. The only concern either investor type has is the Defensive Investor’s concern about the short dividend history. Other than that, the company passes all of the requirements with flying colors. As a result, both investor types should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.  The company has grown its EPSmg (normalized earnings) from $2.01 in 2010 to an estimated $3.26 for 2014. This demonstrates the company has achieved a strong level of growth, a fact supported by the company’s growth in regular EPS from an average of $1.32 for the period of 2005-07 to an average of $3.44 for the period of 2012-14. This strong level of demonstrated historical growth leads the ModernGraham valuation model to estimate a growth rate of 9.37% over the next 7-10 years. Though this is a high figure, the company has achieved a growth rate of 12.49% over the historical period under review. As a result, the company could see a downturn in its growth and still achieve the ModernGraham growth estimate.  The model then utilizes Graham’s formula to return an estimate of intrinsic value of $88.84, which is well above the market’s current price of the company. In fact, even with a growth rate estimate of only 3% over the next 7-10 years, the company’s value would be $47.30, which is still above the market’s current price. Value investors are therefore encouraged to proceed with further research to determine whether Coach Inc. is suitable for their own individual portfolios.  (Read the full valuation)

D.R. Horton Inc. (DHI)

DR_Horton_LogoD&R Horton Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $1.92 in 2010 to an estimated gain of $1.12 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.85% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

Estee Lauder Companies Inc. (EL)

Estee_Lauder_logoEstee Lauder is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s high PEmg and PB ratios.  The Enterprising Investor, however, 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.10 in 2010 to an $2.50 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 10.06% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

KLA-Tencor Corporation (KLAC)

KLA_logolockup_RGBKLA-Tencor qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s lack of earnings stability over the last ten years along with the high PB ratios.  The Enterprising Investor, however, 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.55 in 2010 to $3.70 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.95% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

Lennar Corporation (LEN)

Lennar_corporation_logoLennar Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s lack of earnings stability or growth over the last ten years along with the high PE ratio.  The Enterprising Investor, however, 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $3.28 in 2010 to an estimated gain of $1.73 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.32% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

Qualcomm Inc. (QCOM)

500px-QualcommLogo.svgQualcomm is a great company for both Defensive Investors and Enterprising Investors. The Defensive Investor only has one initial concern, which is the high PB ratio, and the Enterprising Investor has no initial concerns. Both investor types should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.  The company has grown its EPSmg (normalized earnings) from $1.64 in 2010 to an estimated $3.93 for 2014. This demonstrates the company has achieved a strong level of growth, a fact supported by the company’s growth in regular EPS from an average of $1.55 for the period of 2005-07 to an average of $4.11 for the period of 2012-14. This strong level of demonstrated historical growth leads the ModernGraham valuation model to estimate a growth rate of 15% over the next 7-10 years. Though this is a high figure, and is actually the maximum growth rate the model will churn out, it is nearly half the growth rate the company has achieved during the historical period. As a result, the company could see a significant downturn in its growth and still achieve the ModernGraham growth estimate.  The model then utilizes Graham’s formula to return an estimate of intrinsic value of $151.38, which is well above the market’s current price of the company. Value investors are therefore encouraged to proceed with further research to determine whether Qualcomm Inc. is suitable for their own individual portfolios.  (Read the full valuation)

The Good (Defensive or Enterprising and Fairly Valued)

Intuit Inc. (INTU)

Intuit 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, however, 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.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.78 in 2010 to an estimated $3.11 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.43% 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.  (Read the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

Applied Materials Inc. (AMAT)

Applied Materials is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s lack of sufficient earnings growth or stability over the last ten  years, and high PEmg and PB ratios.  The Enterprising Investor, on the other hand, 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.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.64 in 2010 to an estimated $0.70 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 9.94% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

Covidien plc (COV)

Covidien plc 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’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 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 $2.98 in 2010 to an estimated $3.93 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.62% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

FLIR Systems Inc. (FLIR)

FLIR Systems qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s short dividend history, and 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.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to an estimated $1.32 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.73% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

The Bad (Speculative and Undervalued or Fairly Valued)

Stericycle Inc. (SRCL)

Stericycle does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the company’s low current ratio, lack of dividend payments, and high PEmg and PB ratios.  The Enterprising Investor is similarly situated with concerns regarding the level of debt relative to the current assets, and the lack of dividend payments.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.02 in 2010 to an estimated $3.63 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.80% 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.  (Read the full valuation)

Tesoro Corporation (TSO)

Tesoro Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the company’s low current ratio, lack of stable dividend payments, and lack of earnings stability or growth over the last ten years.  The Enterprising Investor is similarly situated with concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.98 in 2010 to an estimated $3.94 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.35% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

The Ugly (Speculative and Overvalued)

Mr. Market

PerkinElmer Inc. (PKI)

PerkinElmer is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient level of earnings growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor has an issue with the level of debt relative to the net current assets and the lack of 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 a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.72 in 2010 to an estimated $1.56 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 8.57% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

Disclaimer: The author held a long position in Coach Inc. (COH) 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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