Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Cablevision Systems Corporation (CVC) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Cablevision Systems Corporation (Cablevision), through its wholly owned subsidiary CSC Holdings, LLC (CSC Holdings, and collectively with Cablevision) and their subsidiaries operates in the United States based on the number of video customers. As of December 31, 2012, the Company served approximately 3.2 million video customers in and around the New York metropolitan area and in Montana, Wyoming, Colorado and Utah (the Optimum West service area). The Company’s cable television systems in the New York metropolitan area consists of the metropolitan cluster of cable television systems under common ownership in the United States (measured by number of video customers). In June 2013, Bow Tie Cinemas completed the acquisition of Clearview Cinemas from Cablevision Systems Corp. In July 2013, Charter Communications Inc and Cablevision Systems Corp announced the completion of acquisition of Cablevision’s Bresnan Broadband Holdings, LLC (Optimum West).
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
|Value Based on 3% Growth||$17.16|
|Value Based on 0% Growth||$10.06|
|Market Implied Growth Rate||4.07%|
|Net Current Asset Value (NCAV)||-$36.22|
Balance Sheet – September 2014
Earnings Per Share
Earnings Per Share – ModernGraham
Cablevision Systems Corporation is not suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, lack of earnings stability over the last ten years, as well as the short dividend history. The Enterprising Investor is concerned with 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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.57 in 2010 to an estimated $1.18 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 4.07% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.
Be sure to check out previous ModernGraham valuations of Cablevision Systems Corporation (CVC) for greater perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. What do you think? What value would you put on Cablevision Systems Corporation (CVC)? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer: The author did not hold a position in Cablevision Systems Corporation (CVC) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.