Feature Value Investing Weekly

18 Companies in the Spotlight This Week – 3/21/15

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)

CF Industries Holdings Inc. (CF)

CfindustrieslogoCF Industries Holdings Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the lack of earnings stability over the last ten years, while the Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $7.10 in 2010 to $24.63 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 1.73% annually over the next 7-10 years. In fact, the historical growth is nearly 50% 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)

Chubb Corporation (CB)

500px-Chubb_Corporation_logo.svgChubb Corporation 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 $6.22 in 2010 to $7.64 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 2.31% over the next 7-10 years. In fact, the historical growth is around 4.57% per year, so the market is expecting a 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)

Deere & Company (DE)

500px-John_Deere_logo.svgDeere & Company passes the initial requirements of both the Defensive Investor and the Enterprising Investor. In fact, the company passes all of the requirements of both investor types, 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 that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $4.68 in 2011 to an estimated $7.18 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 1.88% annually over the next 7-10 years. In fact, the historical growth is around 10.7% 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)

Fossil Group Inc. (FOSL)

220px-Fossil_logo.svgFossil Group Inc. 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 PB ratio, while the Enterprising Investor is concerned by the lack of 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 undervalued after growing its EPSmg (normalized earnings) from $2.52 in 2010 to $6.10 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 2.34% 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)

Ralph Lauren Corporation (RL)

Ralph_Lauren_CorporationRalph Lauren Corp. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. In fact, the company passes all of the requirements of both investor types, which is a rare accomplishment, demonstrating 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 that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $4.76 in 2011 to an estimated $7.72 for 2015. This is a strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of only 4.17% annually over the next 7-10 years. In fact, the historical growth is around 12.43% 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)

The Good (Defensive or Enterprising and Fairly Valued)

B&G Foods Inc. (BGS)

B&G Foods Inc. should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low market capitalization, short dividend history, and the high 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 $0.49 in 2010 to $0.94 for 2014. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 10.77% 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)

Google Inc. (GOOGL)

Google should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the lack of dividends and the high PEmg and PB ratios. The Enterprising Investor is only concerned by 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 $9.67 in 2010 to $18.19 for 2014. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 11.24% 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)

Xcel Energy Inc. (XEL)

Xcel Energy Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio.  The Enterprising Investor is concerned with the level of debt relative to the current assets but is willing to overlook those concerns since the company qualifies for the more conservative Defensive Investor.  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 $1.50 in 2010 to $1.89 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.66% 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)

Amgen Inc. (AMGN)

Amgen 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 along with the high PEmg and PB ratios. 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 $4.09 in 2010 to $5.97 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 9.42% over the next 7-10 years. The ModernGraham valuation model takes a conservative approach and reduces the historical growth, 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)

Analog Devices Inc. (ADI)

Analog Devices Inc. is suitable for the Enterprising Investor, but not the more conservative Defensive Investor, who is concerned with the insufficient earnings growth over the last ten years, as well as the high PEmg and PB ratios. The Enterprising Investor, on the other hand, has no initial concerns. As a result, the Enterprising Investor 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 $2.18 in 2011 to only an estimated $2.34 for 2015. This demonstrated lack of growth does not support the market’s implied estimate of 8.33%. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.  (Read the full valuation on Seeking Alpha)

Brown-Forman Corporation (BF.B)

Brown-Forman Corporation (BF.B) 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 11.18% 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)

Expeditors International of Washington Inc. (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 $1.75 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 9.85% 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)

Harris Corporation (HRS)

Harris Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor, who is concerned about the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor’s only concern is the level of debt relative to the net current assets. 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 $3.39 in 2011 to only an estimated $3.51 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 6.02% over the next 7-10 years. In fact, the historical growth is only around 0.68% 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)

Regal-Beloit Corporation (RBC)

Regal-Beloit Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low level of earnings growth over the last ten years along with the high PEmg 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 $3.42 in 2010 to only $2.62 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 10.36% 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)

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 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 $0.87 in 2010 to only $1.10 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 9.57% 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)

Zimmer Holdings Inc. (ZMH)

Zimmer Holdings 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 along with the high PEmg and PB ratios. 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 $3.28 in 2010 to $4.17 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 9.9% over the next 7-10 years. In fact, the historical growth is only around 4.27% 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)

The Bad (Speculative and Undervalued or Fairly Valued)

No companies fit these criteria this week.

The Ugly (Speculative and Overvalued)

Mr. Market

Abbott Laboratories (ABT)

Abbott Laboratories is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the the low current ratio, low earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the low current ratio and 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 $2.98 in 2010 to only $2.27 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of a 6.15% 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)

Marathon Oil Corporation (MRO)

Marathon Oil Corporation 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 low earnings growth over the last ten years.  The Enterprising Investor is concerned by the level of debt relative to the current assets and 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 $3.98 in 2010 to only $3.38 for 2014.  This level of demonstrated growth does not even support the market’s implied estimate of a 0.38% annual drop in 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)

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.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top