Feature Value Investing Weekly

18 Companies in the Spotlight This Week – 3/15/15

image (7)We evaluated 18 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 Inc. passes all of the initial requirements of both the Defensive Investor and the Enterprising Investor, which is a rare accomplishment indicative of the company’s strong financial position. As a result, 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.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.65 in 2010 to $6.07 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 0.78% over the next 7-10 years. In fact, the historical growth is around 13.23% 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, but still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.  (Read the full valuation on Seeking Alpha)

Pfizer Inc. (PFE)

500px-Pfizer_logo_(modern).svgPfizer Inc. does fairly well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and 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 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 $1.95 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 4.38% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 11.41% per year. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (Read the full valuation on Seeking Alpha)

T. Rowe Price Group Inc. (TROW)

220px-T-Rowe-Price-logoT. Rowe Price Group Inc. 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 undervalued after growing its EPSmg (normalized earnings) from $2.09 in 2010 to $3.79 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 6.6% 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 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 and high PB ratio, while the Enterprising Investor is only concerned with 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 $2.81 in 2011 to an estimated $4.50 for 2015. This is a strong and impressive level of demonstrated growth, which is in line with the market’s implied estimate for earnings growth of 5.41% 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.  (Read the full valuation on Seeking Alpha)

Baxter International Inc. (BAX)

Baxter International Inc. should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio and the high PB ratio. The Enterprising Investor is only concerned by the level of debt relative to the net current assets. 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 $2.88 in 2010 to $4.01 for 2014. This is a strong level of demonstrated growth, which is in line with the market’s implied estimate for earnings growth of 4.19% 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.  (Read the full valuation on Seeking Alpha)

Edwards Lifesciences Corporation (EW)

Edwards Lifesciences Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of dividend payments, and the high PEmg and PB ratios. The Enterprising Investor 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.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.55 in 2010 to $4.29 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.37% 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)

Hormel Foods Corporation (HRL)

Hormel Foods Corporation 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 fairly valued after growing its EPSmg (normalized earnings) from $1.43 in 2011 to an estimated $2.20 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 8.31% 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)

Lorillard Inc. (LO)

Lorillard Inc. should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio, short dividend history, and the poor PEmg and PB ratios. The Enterprising Investor is only concerned by the level of debt relative to the net current assets. 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 $1.94 in 2010 to $3.00 for 2014. This is a strong level of demonstrated growth, which is in line with the market’s implied estimate for earnings growth of 6.84% 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.  (Read the full valuation on Seeking Alpha)

Moody’s Corporation (MCO)

Moody’s Corporation is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the high PEmg ratio, while the Enterprising Investor has no initial concerns.  As a result, all 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 fairly valued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to $3.58 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 9.31% 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)

Waters Corporation (WAT)

Waters Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividend payments, along with the high PEmg and PB ratios, while the Enterprising Investor is only concerned with the lack of dividend payments.  As a result, all 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 fairly valued after growing its EPSmg (normalized earnings) from $3.38 in 2010 to $5.01 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.82% 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)

Anthem Inc. (ANTM)

Anthem Inc. passes all of the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor, who is concerned about the short dividend history. As a result, all 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $6.96 in 2010 to $8.25 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 4.69% over the next 7-10 years. In fact, the historical growth is only around 3.69% per year, so the market is expecting a significant rise in earnings growth. The ModernGraham valuation model takes a more conservative approach and reduces the historical growth to a more conservative figure, assuming that some slowdown will occur. Therefore, the model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.  (Read the full valuation on Seeking Alpha)

Garmin Limited (GRMN)

Garmin Limited is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low earnings growth over the last ten years, along with the high PB ratio, while the Enterprising Investor is only concerned with 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 $3.29 in 2010 to only $2.56 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.11% 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)

Patterson Companies Inc. (PDCO)

Patterson Companies is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the short dividend record, along 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 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 $1.77 in 2011 to only $2.05 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.56% 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)

Sigma-Aldrich Corporation (SIAL)

Sigma-Aldrich Corporation 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 $2.77 in 2010 to $3.93 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 13.29% 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)

Texas Instruments Inc. (TXN)

Texas Instruments is suitable for the Enterprising Investor, but not for the more conservative Defensive Investor, who is concerned with the low earnings growth over the last ten years and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, Enterprising Investors should feel comfortable with the company and proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.

With regard to the intrinsic value, the company has grown its EPSmg (normalized earnings) from $1.90 in 2010 to only $2.09 in 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 9.42% annually 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.  (Read the full valuation on Seeking Alpha)

The Bad (Speculative and Undervalued or Fairly Valued)

CenterPoint Energy Inc. (CNP)

CenterPoint Energy Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio along with the insufficient earnings growth over the last ten years, while the Enterprising Investor takes issue with the level of debt relative to the current assets.  As a result, all 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 $1.13 in 2010 to $1.35 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.34% 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)

PPG Industries Inc. (PPG)

PPG Industries Inc. is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the the low current ratio, 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 $3.69 in 2010 to $13.39 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of a 4.25% annual earnings over the next 7-10 years, leading 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

Yum! Brands Inc. (YUM)

Yum! Brands does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios. The Enterprising Investor takes issue with the level of debt relative to the current assets. As a result, any purchase of the company 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 the intrinsic value, the company has grown its EPSmg (normalized earnings) from $2.10 in 2010 to $2.60 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 11.01% annually 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.  (Read 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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