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 Kindred Healthcare Inc (KND) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Kindred Healthcare, Inc. is a healthcare services company. The Company operates through four divisions, including the hospital division, the Kindred at Home division, the Kindred Rehabilitation Services division and the nursing center division. Its divisions represent over six segments, including hospitals, home health services, hospice services, Kindred Hospital Rehabilitation Services, RehabCare and nursing centers. The Company’s hospital division provides long-term acute care services through the operation of a national network of approximately 95 transitional care (TC) hospitals. Its Kindred at Home division provides home health, hospice, and community care services. Its Kindred Rehabilitation Services division operates inpatient rehabilitation hospitals (IRFs) and acute rehabilitation units (ARUs), and provides rehabilitation services. Its nursing center division provides care through the operation of a national network of approximately 90 nursing centers.
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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||$572,672,589||Fail|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.61||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|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||-1393.51%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||-1.92||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.71||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||1.61||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||5.33||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||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||-$51.44|
|MG Value based on 0% Growth||-$30.15|
|Market Implied Growth Rate||-5.21%|
|% of Intrinsic Value||N/A|
Kindred Healthcare, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $-0.09 in 2012 to an estimated $-3.55 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Kindred Healthcare, Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.48 per share, for a yield of 7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -1.92. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-43.22.
Kindred Healthcare, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$43.22|
|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||9/1/2016|
|Total Current Assets||$1,643,875,000|
|Total Current Liabilities||$1,021,344,000|
|Shares Outstanding (Diluted Average)||86,869,000|
Earnings Per Share History
|Next Fiscal Year Estimate||-$7.49|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||-$3.55|
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.