Feature Value Investing Weekly

21 Companies in the Spotlight This Week – 5/9/15

image (7)We evaluated 21 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)

BlackRock Inc. (BLK)

220px-BlackRock_wordmark.svgBlackRock Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only initial concern is the high PEmg ratio, and 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 $7.56 in 2010 to $16.03 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 7.35% annually over the next 7-10 years. In fact, the historical growth is around 22.37% 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)

Citigroup Inc. (C)

220px-Citi.svgCitigroup passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor has issues with the company’s inconsistent dividend history, low level of earnings growth over the last ten years and the lack of earnings stability over that time frame. The Enterprising Investor has no initial concerns. 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 a loss of $6.47 in 2011 to an estimated $3.74 for 2015. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 2.86% over the next 7-10 years. The ModernGraham valuation model returns an estimate of intrinsic value falling above the current price, indicating that the company is undervalued at the present time.  (Read the full valuation)

Honeywell International (HON)

honeywell_logoHoneywell International Inc. performs well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the low current ratio and high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the low current ratio. 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 $2.68 in 2011 to an estimated $5.07 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 4.53% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. 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)

MetLife Inc. (MET)

220px-MetLife_Logo.svgMetLife passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor has issues with the company’s low level of earnings growth over the last ten years and the lack of earnings stability over that time frame. The Enterprising Investor has no initial concerns. 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 $2.27 in 2010 to $3.77 for 2014. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 2.44% over the next 7-10 years. In fact, the historical growth is around 13.12% 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 that the company is undervalued at the present time.  (Read the full valuation)

Snap-on Inc. (SNA)

220px-Snap-on_logo.svgSnap-on Inc. (SNA) 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 $3.63 in 2011 to an estimated $6.68 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 7.21% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

Torchmark Corporation (TMK)

Torchmark_LogoTorchmark 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 that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.41 in 2010 to $3.68 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.38% over the next 7-10 years. In fact, the historical growth is around 10.53% 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)

The Good (Defensive or Enterprising and Fairly Valued)

Dollar Tree (DLTR)

Dollar Tree should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the lack of dividends along with the high PEmg and PB ratios while 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 $1.14 in 2011 to $2.60 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 11.25% 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)

Nordstrom Inc. (JWN)

Nordstrom should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio along with the high PEmg and PB ratios while 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 $2.37 in 2011 to $3.54 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 6.63% 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)

Pall Corporation (PLL)

Pall Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, 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 fairly valued after growing its EPSmg (normalized earnings) from $2.06 in 2011 to an estimated $3.64 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 9.44% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling within a margin of safety relative to the price.  (Read the full valuation)

Whole Foods Market Inc. (WFM)

Whole Foods Market should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio, inconsistent dividend history, and high PEmg and PB ratios while the Enterprising Investor is only concerned 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 $0.70 in 2011 to an estimated $1.51 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 11.96% 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)

The Mediocre (Defensive or Enterprising and Overvalued)

3M Company (MMM)

3M Company is suitable for the Enterprising Investor, but not for the more conservative Defensive Investor, who is concerned about the high PEmg and PB ratios. The Enterprising Investor, on the other hand, has no initial concerns. 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 $5.42 in 2011 to an estimated $7.19 for 2015. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 6.73% over the next 7-10 years. 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)

Archer Daniels Midland (ADM)

Archer Daniels Midland is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio along with the low earnings growth over the last ten years, 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.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.87 in 2010 to $2.55 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.53% 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)

Chipotle Mexican Grill Inc. (CMG)

Chipotle is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of dividends, and the high PEmg and PB ratios, while the Enterprising Investor is only concerned with 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 overvalued despite growing its EPSmg (normalized earnings) from $5.00 in 2011 to an estimated $13.07 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 20.07% earnings growth as such a high growth rate is generally unsustainable over a long period of time 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)

Fluor Corporation (FLR)

Fluor Corporation is suitable for the Enterprising Investor, but not for the more conservative Defensive Investor who is concerned about the low current ratio and the high PB ratios. The Enterprising Investor, on the other hand, has no initial concerns. 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 $2.94 in 2010 to $3.28 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 5% over the next 7-10 years. 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)

Kimco Realty Corporation (KIM)

Kimco Realty is suitable for the Enterprising Investor but not for the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of earnings stability or growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor is only concerned with the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach 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 $0.52 in 2010 to only $0.55 in 2014.  This level of growth does not support the market’s implied estimate of 18.23% annual earnings growth over the next 7-10 years, leading the ModernGraham valuation model to return an estimate of intrinsic value falling below the current price.  As a result, the company is considered to be overvalued at this time.  (Read the full valuation)

Psychemedics Corporation (PMD)

Psychemedics Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the small company size, the low earnings growth 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 overvalued after growing its EPSmg (normalized earnings) from $0.55 in 2011 to only an estimated $0.59 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 8.86% 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)

Sysco Corporation (SYY)

Sysco Corporation 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, and the high PEmg and PB ratios, while the Enterprising Investor is 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 $1.89 in 2011 to only an estimated $1.64 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 6.89% 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 Bad (Speculative and Undervalued or Fairly Valued)

No companies met these criteria this week.

The Ugly (Speculative and Overvalued)

Mr. MarketCrown Castle International (CCI)

Crown Castle International Corp 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 or growth over the last ten years, inconsistent dividend record, 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 despite growing its EPSmg (normalized earnings) from a loss of $0.32 in 2011 to an estimated gain of $1.88 in 2015.  This level of growth does not support the market’s implied estimate of 17.64% annual earnings growth over the next 7-10 years, leading the ModernGraham valuation model to return an estimate of intrinsic value falling below the current price.  As a result, the company is considered to be overvalued at this time.  (Read the full valuation)

Intercontinental Exchange Inc. (ICE)

Intercontinental Exchange Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, short dividend history, and the poor PEmg ratio.  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 overvalued after growing its EPSmg (normalized earnings) from $5.36 in 2011 to $8.01 for 2015.  This level of growth does not support the market’s implied estimate of 10.62% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.  (Read the full valuation)

Philip Morris International (PM)

Philip Morris International is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, inconsistent dividend history, and the poor PB ratio.  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 overvalued after growing its EPSmg (normalized earnings) from $3.94 in 2011 to only an estimated $4.36 for 2015.  This level of growth does not support the market’s implied estimate of 5.35% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.  (Read the full valuation)

Red Hat Inc. (RHT)

Red Hat Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, inconsistent dividend history, and the poor PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets along with the lack of dividends.  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 overvalued after growing its EPSmg (normalized earnings) from $0.45 in 2011 to $0.86 for 2015.  This level of growth does not support the market’s implied estimate of 39.77% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below 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.

 

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