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10 Undervalued Companies for the Defensive Dividend Stock Investor – September 2015

defensive dividend investorThere are a number of great companies in the market today. I’ve selected the highest dividend yields among the undervalued companies for defensive dividend stock investors reviewed by ModernGraham. Each company has been determined to be suitable for the Defensive Investor according to the ModernGraham approach.

Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

The companies selected for this list may not pay what some consider to be a huge dividend, but they have demonstrated strong financial positions through passing the rigorous requirements of the Defensive Investor and show potential for capital growth based on their current price in relation to intrinsic value.  As such, these defensive dividend stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

Be sure to check out the history of this screen!

10 Undervalued Companies for the Defensive Dividend Stock Investor

Helmerich & Payne (HP)

Helmerich & Payne Inc. qualifies for the more conservative Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the valuation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.24 in 2011 to an estimated $4.77 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.85% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. (See the full valuation)

People’s United Financial Inc. (PBCT)

People’s United Financial Inc. is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the strong fundamentals.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.40 in 2011 to an estimated $0.78 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.44% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. (See the full valuation)

CA Inc. (CA)

CA Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio while the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company passes the more rigorous Defensive Investor requirements. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.60 in 2012 to an estimated $2.11 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.18% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. (See the full valuation)

Cummins Inc. (CMI)

Cummins Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, which is a very rare accomplishment indicative of the strong fundamentals. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.78 in 2011 to an estimated $8.96 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.2% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Qualcomm Inc. (QCOM)

Qualcomm Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. In fact, neither investor type has any initial concerns, which is 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, it has grown its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.87 for 2015. This level of demonstrated growth outpaces the market’s implied estimate for annual earnings growth of 3.69% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 20% annually. The ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, but still returns an estimate of intrinsic value well above the current price, indicating that Qualcomm Inc. is undervalued at the present time.  (See the full valuation on Guru Focus)

Invesco Ltd (IVZ)

Invesco Limited qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the low current ratio.  The Enterprising Investor has concerns with the level of debt relative to the current assets, but is willing to overlook those issues since the company meets the more conservative Defensive Investor’s requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.22 in 2011 to an estimated $2.17 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.49% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value well above the price.  (See the full valuation)

Macerich Company (MAC)

Macerich Company 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 regarding the level of debt relative to the current assets because the company meets the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable with proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.09 in 2011 to an estimated $4.55 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.04% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. (See the full valuation)

Deere & Company (DE)

Deere & Company performs very well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. 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 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 $7.30 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 2.11% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 11.25% annually, 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 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. (See the full valuation)

Norfolk Southern Corporation (NSC)

Norfolk Southern Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the low current ratio while the Enterprising Investor is willing to overlook concerns with the level of debt because the company passes the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.28 in 2011 to an estimated $5.69 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 2.69% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)

T. Rowe Price Group (TROW)

T.Rowe Price Group Inc. qualifies for both the Defensive Investor and for the Enterprising Investor.  The Defensive Investor is only concerned by the high PB 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 comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.38 in 2011 to an estimated $4.16 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.03% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. (See the full valuation)

What do you think?  Are these companies a good value for Defensive Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:

The author held a long position in Deere & Company (DE) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

 

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