Feature Value Investing Weekly

26 Companies in the Spotlight This Week – 12/13/14

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)

Aflac Inc. (AFL)

500px-Aflac.svgAflac performs extremely well in the initial stages of the analysis, passing all of the requirements of both the Enterprising Investor and the Defensive Investor. Any value investor following the ModernGraham approach based on Benjamin Graham’s teachings should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

To determine an estimate of the intrinsic value, one must consider the company’s earnings. Here, the company has grown its EPSmg (normalized earnings) from $3.65 in 2010 to an estimated $5.95 for 2014. This is a strong level of growth, approximately 12.55% each year. Even adjusting for a margin of safety to assume the company will not do as well in the future, a conservative growth estimate may be around 9.42%, which is well above the market’s implied forecast of only 0.74% earnings growth over the next 7-10 years. The company would have to see a significant slowdown in growth in order to be valued at the market’s current price. As a result, the ModernGraham valuation model returns an estimate of intrinsic value well above the price, supporting a clear conclusion that the company is significantly undervalued. All value investors are therefore encouraged to proceed with further research to determine whether Aflac is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Chubb Corporation (CB)

500px-Chubb_Corporation_logo.svgChubb Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings 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 $6.22 in 2010 to an estimated $7.24 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.85% 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)

Halliburton Inc. (HAL)

Halliburton_logo.svgHalliburton passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the low level of earnings growth over the last ten years, while the Enterprising Investor has no initial concerns. As a result, value 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 $2.14 in 2010 to an estimated $3.07 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of only 2.35% over the next 7-10 years. In fact, the historical growth is around 8.71% 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)

Pfizer Inc. (PFE)

500px-Pfizer_logo_(modern).svgPfizer passes the initial requirements of both the Defensive Investor and the Enterprising Investor. In fact, the company receives a perfect score for both investor types, a rare accomplishment which indicates the company is in a very strong financial position. As a result, value 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 $1.24 in 2010 to an estimated $2.22 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 2.95% over the next 7-10 years. In fact, the historical growth is around 15.75% 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)

T. Rowe Price Group (TROW)

220px-T-Rowe-Price-logoT.Rowe Price Group is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.09 in 2010 to an estimated $3.76 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 7% 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)

VF Corporation (VFC)

Vfc-lVF Corporation performs well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor, on the other hand, is concerned with the low current ratio in combination with the high PEmg and PB ratios, 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 $1.23 in 2010 to an estimated $2.59 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate of 10.07% earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 22% 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 caps the growth estimate at 15%. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

Wynn Resorts Limited (WYNN)

220px-Wynn_Resorts_logo.svgWynn Resorts Limited qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of stable earnings or dividends over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.59 in 2010 to an estimated $6.14 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 9.1% 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)

Accenture plc (ACN)

Accenture should satisfy 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, while the Enterprising Investor is only concerned initially by the low current ratio. 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 $2.44 in 2010 to $4.22 for 2014. This is very strong and an impressive level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 5.85% over the next 7-10 years. In fact, actual historical growth is about 8.45% per year, so the market has priced in a slight earnings drop to a more sustainable level over the long term. 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)

Waters Corporation (WAT)

Waters Corporation qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of dividends as well as the high PEmg and PB ratios.  The Enterprising Investor, on the other hand, is only concerned by the lack of dividends.  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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.38 in 2010 to an estimated $5.11 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.05% 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)

Abbott Labs (ABT)

Abbott Labs qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio and the high PB ratio, while the Enterprising Investor is concerned by the lack of earnings growth over the last five years.  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 overvalued after seeing its EPSmg (normalized earnings) drop from $2.98 in 2010 to only an estimated $2.51 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 4.58% 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)

Anthem Inc. (ANTM)

Anthem Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the short dividend history, 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 overvalued after growing its EPSmg (normalized earnings) from $6.96 in 2010 to only an estimated $8.17 for 2014.  This level of demonstrated growth does not quite support the market’s implied estimate of 3.51% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the market price.  (See the full valuation)

Brown-Forman Corporation (BF.B)

Brown-Forman is suitable for the Enterprising Investor but not for 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 overvalued after growing its EPSmg (normalized earnings) from $2.15 in 2011 to only an estimated $2.91 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 10.61% 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)

Expeditors International of Washington (EXPD)

Expeditors International of Washington is suitable for the Enterprising Investor but not for 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 overvalued after growing its EPSmg (normalized earnings) from $1.33 in 2010 to only an estimated $1.73 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 8.64% 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)

Garmin Limited (GRMN)

Garmin Limited qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the poor earnings growth over the last ten years along with the high PB ratio, while the Enterprising Investor is only concerned by the lack of earnings growth over the last five years.  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.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $3.29 in 2010 to an estimated $2.96 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.19% 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)

Harris Corporation (HRS)

Harris Corporation qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of sufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by 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 very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.39 in 2011 to only an estimated $3.45 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 5.78% 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)

Regal-Beloit Corporation (RBC)

Regal-Beloit Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the low level of earnings growth over the last ten years, 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 further research into the company.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.42 in 2010 to only $3.84 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.02% 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)

Tiffany & Company (TIF)

Tiffany & Company is suitable for the Enterprising Investor but not for 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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.30 in 2011 to only an estimated $3.09 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 13.15% 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)

Wolverine World Wide (WWW)

Wolverine World Wide is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor is concerned 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.87 in 2010 to only an estimated $1.18 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.99% 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)

Xcel Energy (XEL)

Xcel Energy qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio, and the Enterprising Investor is willing to overlook concerns because the company passes the more conservative requirements of the Defensive Investor.  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.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.50 in 2010 to only $1.87 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5% 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)

Zimmer Holdings Inc. (ZMH)

Zimmer Holdings Inc. qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by 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 very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.28 in 2010 to only an estimated $4.79 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.39% 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)

CSX Corporation (CSX)

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 net current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investor 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 $1.12 in 2010 to an estimated $1.80 for 2014. This level of demonstrated growth is fairly strong, and significantly higher than the market’s implied estimate of only 5.49%. Based on the demonstrated growth, and lessened by a margin of safety, the ModernGraham valuation model estimates a conservative growth over the next 7-10 years to be around 8.96%. As a result, CSX Corporation appears to be significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

Stanley Black & Decker Inc. (SWK)

As shown by 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 sufficient earnings growth over the last ten years and the high PEmg 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 investor 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 $2.72 in 2010 to an estimated $4.35 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 6.66%. As a result, the company appears to be fairly valued at the present time.  (See the full valuation on Seeking Alpha)

Union Pacific Corporation (UNP)

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 net 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 $2.21 in 2010 to an estimated $4.58 for 2014. This level of demonstrated growth is very strong, and significantly higher than the market’s implied estimate of only 8.43%. As a result, Union Pacific Corporation appears to be significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

The Ugly (Speculative and Overvalued)

Mr. Market

PPL Corporation (PPL)

PPL Corporation presents a speculative situation, as it does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, and an insufficient level of earnings growth over the last ten years. The Enterprising Investor takes issue with the level of debt relative to the current assets. As a result, any purchase of PPL Corporation stock is made with a speculative nature behind it. That said, any speculator interested in pursuing the company should still proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.

With regard to that intrinsic value, the company has grown its EPSmg (normalized earnings) from $2.10 in 2010 to only an estimated $2.19 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 3.78% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value below the current price, indicating the company is overvalued at the present time.  (See the full valuation on Seeking Alpha)

Salesforce.com Inc. (CRM)

Salesforce.com 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 lack of dividends.  The Enterprising Investor is concerned by the level of debt relative to the current assets, the lack of dividends, and 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 $0.11 in 2011 to an estimated loss of $0.02 for 2015.  This negative EPSmg does not support the current pricing, 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)

Southwestern Energy Company (SWN)

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, lack of dividend payments, lack of earnings stability over the last ten years and the high PEmg ratio, while the Enterprising Investor has concerns with the high level of debt relative to the current assets, lack of dividend payments, and lack of earnings stability over the last five years. 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 $1.00 in 2010 to an estimated $1.21 for 2014. This level of demonstrated growth is rather low, and does not support the market’s implied estimate of 7.72%. As a result, the company appears to be overvalued at the present time.  (See the full valuation on Seeking Alpha)

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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