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Value Investing Research Since 2006

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Wednesday, December 19, 2018

26 Companies in the Spotlight This Week – 11/22/14


image (7)We evaluated 26 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)

Boeing Company (BA)

500px-Boeing-Logo.svgBoeing Company should be attractive to the Enterprising Investor as the only concern for the investor type is the low current ratio. However, the Defensive Investor should not be so thrilled with the company due to the high PEmg and PB ratios. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value, while Defensive Investors consider other opportunities.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.60 in 2010 to an estimated $6.35 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 5.87% over the next 7-10 years. In fact, the historical growth is around 15.26% per year, so the market is expecting a very significant drop in earnings growth. Even after the ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, the model returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.  (See the full valuation on Seeking Alpha)

Intel Corporation (INTC)

500px-Intel-logo.svgIntel Corporation passes the initial requirements of the Enterprising Investor, but does not quite qualify for the Defensive Investor. The Defensive Investor is concerned with the low current ratio along with the high PB ratio, while the Enterprising Investor has no initial concerns. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.27 in 2010 to an estimated $2.12 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 3.91% over the next 7-10 years. In fact, the historical growth is around 13.27% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and therefore returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.  (See the full valuation on Seeking Alpha)

NetApp Inc. (NTAP)

126px-Netapp_logo.svgNetApp is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the short dividend history and the high PEmg and PB ratios, 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 very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.08 in 2011 to an estimated $2.05 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 6.08% 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)

People’s United Financial Inc. (PBCT)

PeoplesUnitedBankPeople’s United Financial qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the high PEmg 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.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $0.34 in 2010 to an estimated $0.71 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.2% 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)

Precision Castparts Corporation (PCP)

200px-Precision_Castparts_Corp_logo.svgPrecision Castparts Corp. appears to not be quite strong enough for the Defensive Investor, who is very conservative and has stringent requirements. However, The Enterprising Investor should be very intrigued as the company passes all of the investor type’s requirements and therefore the initial stage of the analysis presents no concerns. Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $6.81 in 2011 to an estimated $11.25 for 2015. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 5.83% over the next 7-10 years. In fact, the historical growth is around 13.06% per year, so the market is expecting a very significant drop in earnings growth. Even though the ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, the model still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.  (See the full valuation on Seeking Alpha)

Sandisk Corporation (SNDK)

220px-SanDisk_Logo_2007.svgSandisk is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, short dividend history, the lack of stable earnings over the last ten years, and 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 very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.65 in 2010 to an estimated $4.31 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 7.07% 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)

State Street Corporation (STT)

220px-State_Street_Corporation_logo.svgState Street Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability 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 $1.42 in 2010 to an estimated $4.43 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.28% 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)

The Good (Defensive or Enterprising and Fairly Valued)

Ace Limited (ACE)

Ace Limited is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, indicating its fundamentals are very strong.  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 fairly valued after growing its EPSmg (normalized earnings) from $7.23 in 2010 to an estimated $8.80 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.04% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.  (See the full valuation)

Danaher Corporation (DHR)

After reviewing the data, Danaher should satisfy both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only initial concern is the high PEmg ratio, while the Enterprising Investor has no concerns at this first stage in the analysis. Therefore, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $2.13 in 2010 to an estimated $3.48 for 2014. This is a fairly strong level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 7.6% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.  (See the full valuation on Seeking Alpha)

Progressive Corporation (PGR)

Progressive Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the inconsistent dividend history, and the lack of earnings growth or stability over the last ten years, 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.  As for a valuation, the company appears fairly valued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to an estimated $1.68 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.85% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.  (See the full valuation)

Visa Inc. (V)

After reviewing the data, Visa should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio, short dividend history, short earnings history as a public company, as well as the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns with the company. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $2.07 in 2010 to an estimated $6.48 for 2014. This is very strong and impressive level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 15.02% over the next 7-10 years. In fact, actual historical growth is about 42.57% per year, clearly unsustainable, but the market is aware of that and has priced in a drop in the level of growth. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.  (See the full valuation on Seeking Alpha)

Yahoo Inc. (YHOO)

After reviewing the data, Yahoo should satisfy the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the lack of dividend payments as well as the high PEmg ratio, while the Enterprising Investor’s only issue with the company is the lack of dividends. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $0.57 in 2010 to an estimated $1.64 for 2014. This is a very strong and impressive level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 11.28% over the next 7-10 years. In fact, actual historical growth is about 38% per year, clearly unsustainable, but the market is aware of that and has priced in a drop in the level of growth. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.  (See the full valuation on Seeking Alpha)

The Mediocre (Defensive or Enterprising and Overvalued)

Baker Hughes Inc. (BHI)

Baker Hughes Inc. passes the requirements of both the Defensive Investor and the Enterprising Investor at the initial stage of the analysis.  The Defensive Investor’s only concern is the lack of sufficient earnings growth over the last ten years while the Enterprising Investor has concerns with the level 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 further research into the company.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) fail to grow at all from $3.22 in 2010 to 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.50% 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)

Hasbro Inc. (HAS)

Hasbro qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by 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 very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overervalued after growing its EPSmg (normalized earnings) from $2.32 in 2010 to only an estimated $2.72 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.13% 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)

Tripadvisor Inc. (TRIP)

Tripadvisor is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, short earnings history, lack of dividends, and high PEmg and PB ratios, while the Enterprising Investor is only initially concerned with the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overervalued after growing its EPSmg (normalized earnings) from $0.55 in 2010 to an estimated $1.51 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 19.43% 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)

Tyco International Limited (TYC)

Tyco International Limited is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability or growth over the last ten years, and the high PB ratio.  The Enterprising Investor is concerned by 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 at this time.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.39 in 2010 to an estimated $2.46 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 4.31% 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)

UnitedHealth Group Inc. (UNH)

UnitedHealth Group does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, and the high PB ratio.  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 side of things,  the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.36 in 2010 to an estimated $5.29 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 4.73% 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)

United Technologies Corporation (UTX)

United Technologies Corporation does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio and the high PB ratio, while 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 side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.48 in 2010 to an estimated $6.13 for 2014.  This level of demonstrated growth supports than the market’s implied estimate of 4.62% 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)

Wal-mart Stores Inc. (WMT)

After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the high PB ratio, while the Enterprising Investor has concerns with the high level of debt relative to the current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $3.75 in 2011 to an estimated $4.85 for 2015. This level of demonstrated growth is fairly strong, and is within a margin of safety relative to the market’s implied estimate of 4.56%. As a result, the company appears to be fairly valued at the present time.  (See the full valuation on Seeking Alpha)

Walt Disney Company (DIS)

After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the high PEmg and PB ratios, while the Enterprising Investor has concerns with the high level of debt relative to the current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $2.01 in 2010 to an estimated $3.42 for 2014. This level of demonstrated growth is fairly strong, and is within a margin of safety relative to the market’s implied estimate of 8.82%. As a result, the company appears to be fairly valued at the present time.  (See the full valuation on Seeking Alpha)

The Ugly (Speculative and Overvalued)

Mr. Market

Allegheny Technologies Inc. (ATI)

Allegheny Technologies does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the lack of earnings stability or growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor is 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 side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.80 in 2010 to only an estimated $0.88 for 2014.  This lack of demonstrated growth does not support the market’s implied estimate of 15.21% 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)

American Tower Corporation (AMT)

American Tower Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the short dividend history, the lack of sufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  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 should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.66 in 2010 to an estimated $1.56 in 2014.  This demonstrated level of growth does not support the market’s implied estimate of 27.69% earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model returns an estimate of intrinsic value that is below the market price.  (See the full valuation)

CenterPoint Energy Inc. (CNP)

CenterPoint Energy Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio and the level of earnings growth over the last ten years, while 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 side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.13 in 2010 to only an estimated $1.27 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.27% 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)

Murphy Oil Corporation (MUR)

Murphy Oil Corporation does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio and the level of earnings growth over the last ten years, while the Enterprising Investor is concerned by the high level of debt relative to the current assets along with 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 side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $5.11 in 2010 to only an estimated $4.58 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 1.32% 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)

Netflix Inc. (NFLX)

After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the lack of dividend payments and high PEmg and PB ratios, while the Enterprising Investor has concerns with the low current ratio and lack of dividend payments. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $1.96 in 2010 to only an estimated $2.42 for 2014. This level of demonstrated growth is in stark contrast to the market’s implied estimate of 74.66%. In fact, historical growth has only been 4.79% in recent years. There would have to be an incredible increase in the company’s growth in order to be worth the current market pricing, and such a growth rate would be unsustainable over a 7-10 year period. As a result, the company appears to be significantly overvalued at the present time.  (See the full valuation on Seeking Alpha)

Pentair Limited (PNR)

Pentair Limited does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the high level of debt relative to the net current assets along with 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.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.80 in 2010 to only an estimated $1.89 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 14.02% 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 The Walt Disney Company (DIS) 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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