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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. 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 S&P Global Inc (SPGI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): S&P Global Inc., formerly McGraw Hill Financial, Inc., is a provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets across the world. The Company’s products cater to the capital markets, which includes asset managers, investment banks, commercial banks, exchanges and issuers; the commodities markets, which includes producers, traders and intermediaries within energy, metals, petrochemicals and agriculture, and the commercial markets, which includes professionals and corporate executives within automotive and marketing/research information services. The Company operates its business through four segments: Standard & Poor’s Ratings Services (S&P Ratings), S&P Global Market Intelligence, S&P Dow Jones Indices (S&P DJ Indices) and S&P Global Platts. The Company serves through a range of products and services available through both third-party and distribution channels.
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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||$33,390,549,353||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.21||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|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||40.23%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||30.19||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||72.26||Fail|
|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||1.21||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||5.46||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||11.98%|
|MG Value based on 3% Growth||$60.45|
|MG Value based on 0% Growth||$35.43|
|Market Implied Growth Rate||10.84%|
|% of Intrinsic Value||93.02%|
S&P Global Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.32 in 2012 to an estimated $4.17 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.84% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into S&P Global Inc revealed the company was trading above its Graham Number of $16.9. The company pays a dividend of $1.41 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 30.19, which was above the industry average of 21.33. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.
S&P Global 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)||-$17.00|
|Number of Consecutive Years of Dividend Growth||20|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2016|
|Total Current Assets||$3,704,000,000|
|Total Current Liabilities||$3,051,000,000|
|Shares Outstanding (Diluted Average)||265,300,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$7.12|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$4.17|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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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.