Personal Products Stocks

Estee Lauder Companies Inc Valuation – May 2016 $EL

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 – March 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 Estee Lauder Companies Inc (EL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Estee Lauder Companies Inc., is a manufacturer and marketer of skin care, makeup, fragrance and hair care products. The Company’s products are sold in over 150 countries and territories under a number of brand names, including Estee Lauder, Aramis, Clinique, Origins, Le Labo, M.A.C, Bobbi Brown, La Mer and Aveda. It is also the global licensee for fragrances and/or cosmetics sold under brand names, such as Tommy Hilfiger, Donna Karan, Michael Kors, Tom Ford and Coach. It sells its products principally through limited distribution channels to complement the images associated with its brands. These channels include points of sale consisting of upscale department stores, specialty retailers, upscale perfumeries and pharmacies and prestige salons and spas. In addition, its products are sold in freestanding Company-operated stores, its own and authorized retailer Websites, stores on cruise ships, direct response television (DRTV), in-flight and duty-free shops.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EL – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $33,138,722,203 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.75 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 216.96% Pass
6. Moderate PEmg Ratio PEmg < 20 31.40 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.92 Fail
Score
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 1.75 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.89 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EL value chart May 2016

EPSmg $2.88
MG Growth Estimate 12.44%
MG Value $96.21
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $41.79
MG Value based on 0% Growth $24.50
Market Implied Growth Rate 11.45%
Current Price $90.50
% of Intrinsic Value 94.06%

Estee Lauder Companies Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has no initial concerns. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.58 in 2012 to an estimated $2.88 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 11.45% 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.

Estee Lauder Companies Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

EL charts May 2016

Net Current Asset Value (NCAV) -$2.00
Graham Number $26.79
PEmg 31.40
Current Ratio 1.75
PB Ratio 8.92
Current Dividend $1.08
Dividend Yield 1.19%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $4,252,300,000
Total Current Liabilities $2,433,700,000
Long-term Debt $1,612,500,000
Total Assets $8,816,300,000
Intangible Assets $1,577,600,000
Total Liabilities $5,004,500,000
Shares Outstanding (Diluted Average) 375,600,000

Earnings Per Share History

Next Fiscal Year Estimate $3.09
6/1/2015 $2.82
6/1/2014 $3.06
6/1/2013 $2.58
6/1/2012 $2.16
6/1/2011 $1.74
6/1/2010 $1.19
6/1/2009 $0.55
6/1/2008 $1.20
6/1/2007 $1.08
6/1/2006 $0.56
6/1/2005 $0.89
6/1/2004 $0.74
6/1/2003 $0.63
6/1/2002 $0.35
6/1/2001 $0.58
6/1/2000 $0.60
6/1/1999 $0.52
6/1/1998 $0.45
6/1/1997 $0.37
6/1/1996 $0.30

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.88
6/1/2015 $2.68
6/1/2014 $2.45
6/1/2013 $1.98
6/1/2012 $1.58
6/1/2011 $1.24
6/1/2010 $0.96
6/1/2009 $0.85
6/1/2008 $0.97
6/1/2007 $0.83
6/1/2006 $0.68
6/1/2005 $0.71
6/1/2004 $0.60
6/1/2003 $0.53
6/1/2002 $0.49
6/1/2001 $0.54
6/1/2000 $0.49

Recommended Reading:

Other ModernGraham posts about the company

10 Best Stocks For Value Investors This Week – 10/31/15
The Estee Lauder Company Valuation – October 2015 Update $EL
The 8 Best Stocks For Value Investors This Week – 8/8/15
Estee Lauder Companies Analysis – August 2015 Update $EL
Estee Lauder Companies Quarterly Valuation – April 2015 $EL

Other ModernGraham posts about related companies

Colgate-Palmolive Co Valuation – January 2016 Update $CL
International Flavors & Fragrances Valuation – December 2015 Update $IFF
International Flavors & Fragrances Valuation – December 2015 Update $IFF
The Estee Lauder Company Valuation – October 2015 Update $EL
International Flavors & Fragrances Inc. Analysis – August 2015 Update $IFF
Estee Lauder Companies Analysis – August 2015 Update $EL
International Flavors & Fragrances Inc. Quarterly Valuation – May 2015 $IFF
Estee Lauder Companies Quarterly Valuation – April 2015 $EL
International Flavors & Fragrances Inc. Quarterly Valuation – February 2015 $IFF
Proctor & Gamble Annual Valuation – 2015 $PG

Disclaimer:

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.

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