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 10 Companies Benjamin Graham Would Invest In Today – February 2016. 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 stock analysis showing a specific look at how FMC Technologies Inc (FTI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): FMC Technologies, Inc. is a provider of technology solutions for the energy industry. The Company’s segments include Subsea Technologies, Surface Technologies and Energy Infrastructure. Subsea Technologies designs and manufactures products and systems and provides services used by oil and gas companies involved in deepwater exploration and production of crude oil and natural gas. Surface Technologies designs and manufactures systems and provides services used by oil and gas companies involved in land and offshore exploration and production of crude oil and gas; designs, manufactures and supplies high pressure valves and fittings for oilfield service companies, and also provides flowback and wireline services for exploration companies. Energy Infrastructure manufactures and supplies liquid and gas measurement and transportation equipment and systems for the production, transportation and processing of crude oil, natural gas and petroleum-based refined products and the mining industry.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$6,235,415,412||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.69||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||44.19%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||15.34||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.54||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.69||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.71||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||1.61%|
|MG Value based on 3% Growth||$26.03|
|MG Value based on 0% Growth||$15.26|
|Market Implied Growth Rate||3.42%|
|% of Intrinsic Value||130.89%|
FMC Technologies, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.62 in 2012 to an estimated $1.80 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.42% 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 below the price.
FMC Technologies, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$0.10|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||Dec2015|
|Total Current Assets||$3,948,700,000|
|Total Current Liabilities||$2,343,300,000|
|Shares Outstanding (Diluted Average)||231,700,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.06|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.80|
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The author did not hold a position in any 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.