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A.O. Smith Corp Valuation – January 2019 $AOS

Company Profile (excerpt from Reuters): Robert Half International Inc. is engaged in providing specialized staffing and risk consulting services. The Company provides staffing and risk consulting services through the divisions: Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. The Company operates through three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. The temporary and consultant segment provides specialized staffing in the accounting and finance, administrative and office, information technology, legal, advertising, marketing and Web design fields. The permanent placement segment provides full-time personnel in the accounting, finance, administrative and office, and information technology fields. The risk consulting segment provides business and technology risk consulting and internal audit services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AOS – January 2019

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 $6,620,378,658 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.16 Pass
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 114.11% Pass
6. Moderate PEmg Ratio PEmg < 20 23.59 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.51 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 2.16 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.22 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

EPSmg $1.95
MG Growth Estimate 12.75%
MG Value $66.31
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $28.28
MG Value based on 0% Growth $16.58
Market Implied Growth Rate 7.55%
Current Price $46.01
% of Intrinsic Value 69.39%

A. O. Smith Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the 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 Undervalued after growing its EPSmg (normalized earnings) from $1.05 in 2014 to an estimated $1.95 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.55% 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 above the price.

At the time of valuation, further research into A. O. Smith Corp revealed the company was trading above its Graham Number of $23.34. The company pays a dividend of $0.56 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 23.59, which was below the industry average of 23.62, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.92.

A. O. Smith Corp performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.92
Graham Number $23.34
PEmg 23.59
Current Ratio 2.16
PB Ratio 4.51
Current Dividend $0.56
Dividend Yield 1.22%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $1,598,700,000
Total Current Liabilities $738,900,000
Long-Term Debt $193,300,000
Total Assets $3,025,200,000
Intangible Assets $812,600,000
Total Liabilities $1,269,000,000
Shares Outstanding (Diluted Average) 172,085,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.52
Dec2017 $1.70
Dec2016 $1.85
Dec2015 $1.58
Dec2014 $1.14
Dec2013 $0.92
Dec2012 $0.86
Dec2011 $1.64
Dec2010 $0.61
Dec2009 $0.59
Dec2008 $0.45
Dec2007 $0.48
Dec2006 $0.41
Dec2005 $0.26
Dec2004 $0.20
Dec2003 $0.29
Dec2002 $0.31
Dec2001 $0.10
Dec2000 $0.21
Dec1999 $0.30
Dec1998 $0.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.95
Dec2017 $1.59
Dec2016 $1.45
Dec2015 $1.24
Dec2014 $1.05
Dec2013 $0.98
Dec2012 $0.95
Dec2011 $0.92
Dec2010 $0.54
Dec2009 $0.48
Dec2008 $0.41
Dec2007 $0.37
Dec2006 $0.31
Dec2005 $0.24
Dec2004 $0.23
Dec2003 $0.25
Dec2002 $0.23

Recommended Reading:

Other ModernGraham posts about the company

A.O. Smith Corp Valuation – March 2018 $AOS
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Best Dividend Paying Stocks for Dividend Growth Investors – March 2017
Best Dividend Paying Stocks for Dividend Growth Investors – February 2017
Best Dividend Paying Stocks for Dividend Growth Investors – January 2017

Other ModernGraham posts about related companies

Parker-Hannifin Corp Valuation – January 2019 $PH
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Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII
Standex International Corp Valuation – September 2018 $SXI
Lincoln Electric Holdings Inc Valuation – August 2018 $LECO
Regal Beloit Corp Valuation – August 2018 $RBC
Kennametal Inc Valuation – August 2018 $KMT
SPX Corp Valuation – August 2018 $SPXC

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.

A.O. Smith Corp Valuation – March 2018 $AOS

 

AOS Chart

AOS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AOS – March 2018

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 $11,096,333,508 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.24 Pass
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 87.83% Pass
6. Moderate PEmg Ratio PEmg < 20 58.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.80 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 2.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.41 Pass
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

EPSmg $1.11
MG Growth Estimate 0.80%
MG Value $11.20
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $16.10
MG Value based on 0% Growth $9.44
Market Implied Growth Rate 24.82%
Current Price $64.54
% of Intrinsic Value 576.03%

A. O. Smith Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years. 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 $1.05 in 2014 to an estimated $1.11 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 24.82% 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 below the price.

At the time of valuation, further research into A. O. Smith Corp revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.56 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 58.14, which was above the industry average of 29.29. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.26.

A. O. Smith Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.26
Graham Number $0.00
PEmg 58.14
Current Ratio 2.24
PB Ratio 6.80
Current Dividend $0.56
Dividend Yield 0.87%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $1,766,800,000
Total Current Liabilities $788,500,000
Long-Term Debt $402,900,000
Total Assets $3,197,300,000
Intangible Assets $825,400,000
Total Liabilities $1,548,500,000
Shares Outstanding (Diluted Average) 173,766,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate
Dec2017 $1.70
Dec2016 $1.85
Dec2015 $1.58
Dec2014 $1.14
Dec2013 $0.92
Dec2012 $0.86
Dec2011 $1.64
Dec2010 $0.61
Dec2009 $0.59
Dec2008 $0.45
Dec2007 $0.48
Dec2006 $0.41
Dec2005 $0.26
Dec2004 $0.20
Dec2003 $0.29
Dec2002 $0.31
Dec2001 $0.10
Dec2000 $0.21
Dec1999 $0.30
Dec1998 $0.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.11
Dec2017 $1.59
Dec2016 $1.45
Dec2015 $1.24
Dec2014 $1.05
Dec2013 $0.98
Dec2012 $0.95
Dec2011 $0.92
Dec2010 $0.54
Dec2009 $0.48
Dec2008 $0.41
Dec2007 $0.37
Dec2006 $0.31
Dec2005 $0.24
Dec2004 $0.23
Dec2003 $0.25
Dec2002 $0.23

Recommended Reading:

Other ModernGraham posts about the company

A.O. Smith Corp Valuation – November 2015 Update $AOS
A.O. Smith Corporation Analysis – Initial Coverage $AOS

Other ModernGraham posts about related companies

Parker-Hannifin Corp Valuation – March 2018 $PH
Dover Corp Valuation – March 2018 $DOV
Ingersoll-Rand PLC Valuation – February 2018 $IR
Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN
Lennox International Inc Valuation – Initial Coverage $LII

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.

A.O.Smith Corporation Valuation – June 2016 $AOS

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 A.O.Smith Corporation (AOS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): A. O. Smith Corporation operates its business through two segments, which include North America and Rest of World. The Company’s Rest of World segment primarily comprises China, Europe and India. The Rest of World segment supplies water heaters to the residential market in China with a range of product offering, including electric, gas, gas tankless, heat pump and solar units, as well as combi boilers. The Company’s North America segment serves residential and commercial end markets in North America with a range of products, including water heaters, boilers and other. Its North America segment also manufactures and globally markets specialty commercial water heating equipment, condensing and non-condensing boilers and water systems tanks. Primarily for Asia, its Rest of World segment also manufactures and markets water treatment products. The Company also markets in-home air purification products in China.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AOS – June 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 $7,330,868,182 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.37 Pass
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 199.33% Pass
6. Moderate PEmg Ratio PEmg < 20 29.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.03 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 2.37 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.33 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

AOS value chart June 2016

EPSmg $2.82
MG Growth Estimate 7.27%
MG Value $64.88
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $40.84
MG Value based on 0% Growth $23.94
Market Implied Growth Rate 10.61%
Current Price $83.68
% of Intrinsic Value 128.97%

A. O. Smith Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the 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 Overvalued after growing its EPSmg (normalized earnings) from $1.9 in 2012 to an estimated $2.82 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.61% 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.

A. O. Smith Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

AOS charts June 2016

Net Current Asset Value (NCAV) $2.85
Graham Number $36.28
PEmg 29.71
Current Ratio 2.37
PB Ratio 5.03
Current Dividend $0.81
Dividend Yield 0.97%
Number of Consecutive Years of Dividend Growth 20

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,425,900,000
Total Current Liabilities $602,000,000
Long-Term Debt $274,100,000
Total Assets $2,650,600,000
Intangible Assets $711,900,000
Total Liabilities $1,172,100,000
Shares Outstanding (Diluted Average) 88,905,000

Earnings Per Share History

Next Fiscal Year Estimate $3.48
Dec2015 $3.16
Dec2014 $2.28
Dec2013 $1.83
Dec2012 $1.71
Dec2011 $3.29
Dec2010 $1.21
Dec2009 $1.13
Dec2008 $0.90
Dec2007 $0.95
Dec2006 $0.82
Dec2005 $0.51
Dec2004 $0.39
Dec2003 $0.59
Dec2002 $0.62
Dec2001 $0.20
Dec2000 $0.42
Dec1999 $0.59
Dec1998 $0.61
Dec1997 $1.82
Dec1996 $0.46

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.82
Dec2015 $2.47
Dec2014 $2.11
Dec2013 $1.96
Dec2012 $1.90
Dec2011 $1.83
Dec2010 $1.07
Dec2009 $0.95
Dec2008 $0.81
Dec2007 $0.73
Dec2006 $0.61
Dec2005 $0.49
Dec2004 $0.47
Dec2003 $0.50
Dec2002 $0.46
Dec2001 $0.50
Dec2000 $0.69

Recommended Reading:

Other ModernGraham posts about the company

A.O. Smith Corp Valuation – November 2015 Update $AOS
A.O. Smith Corporation Analysis – Initial Coverage $AOS

Other ModernGraham posts about related companies

Ingersoll-Rand PLC Valuation – May 2016 $IR
Snap-on Inc Valuation – February 2016 $SNA
AGCO Corporation Valuation – February 2016 $AGCO
Joy Global Inc Valuation – February 2016 $JOY
Allegion PLC Valuation – February 2016 Update $ALLE
Rockwell Automation Inc Valuation – February 2016 Update $ROK
Parker Hannifin Corp Valuation – January 2016 Update $PH
Stanley Black & Decker Inc Valuation – January 2016 Update $SWK
Paccar Inc Valuation – January 2016 Update $PCAR
AGCO Corporation Valuation – February 2016 $AGCO

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.

A.O. Smith Corp Valuation – November 2015 Update $AOS

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 Most Undervalued Companies for the Defensive Investor – November 2015.  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 A.O. Smith Corp (AOS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): A. O. Smith Corporation operates its business through two segments, which include North America and Rest of World. Both segments manufacture and market a range of residential gas, gas tankless and electric water heaters and commercial water heating equipment. The North America segment manufactures and markets specialty commercial water heating equipment, condensing and non-condensing boilers, and water systems tanks. The Company serves residential and commercial end markets in North America with a range of products, including water heaters, boilers and others. The Rest of World segment manufactures and markets water treatment products, primarily in Asia. The Rest of World segment includes China, Europe and India. The Company supplies water heaters to the residential market in China with a range of product offering, including electric, gas, gas tankless, heat pump and solar units, as well as combi boilers.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of AOS – November 2015

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 $6,992,607,399 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.27 Pass
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 168.61% Pass
6. Moderate PEmg Ratio PEmg < 20 32.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.02 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 2.27 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.31 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

AOS value Chart November 2015

EPSmg $2.44
MG Growth Estimate 4.96%
MG Value $45.02
Opinion Overvalued
MG Value based on 3% Growth $35.44
MG Value based on 0% Growth $20.78
Market Implied Growth Rate 12.09%
Current Price $79.87
% of Intrinsic Value 177.41%

A.O. Smith Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising 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 overvalued after growing its EPSmg (normalized earnings) from $1.84 in 2011 to an estimated $2.44 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 12.09% 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on A.O. Smith Corp (AOS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AOS Charts November 2015

Net Current Asset Value (NCAV) $2.64
Graham Number $33.24
PEmg 32.68
Current Ratio 2.27
PB Ratio 5.02
Dividend Yield 0.90%
Number of Consecutive Years of Dividend Growth 20

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $1,413,800,000
Total Current Liabilities $624,100,000
Long-Term Debt $247,700,000
Total Assets $2,600,200,000
Intangible Assets $717,600,000
Total Liabilities $1,177,800,000
Shares Outstanding (Diluted Average) 89,370,000

Earnings Per Share History

Next Fiscal Year Estimate $3.07
Dec14 $2.28
Dec13 $1.83
Dec12 $1.71
Dec11 $3.29
Dec10 $1.21
Dec09 $1.18
Dec08 $0.90
Dec07 $0.95
Dec06 $0.82
Dec05 $0.51
Dec04 $0.39
Dec03 $0.59
Dec02 $0.62
Dec01 $0.20
Dec00 $0.42
Dec99 $0.59
Dec98 $0.61
Dec97 $1.82
Dec96 $0.69
Dec95 $0.65

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.44
Dec14 $2.11
Dec13 $1.96
Dec12 $1.91
Dec11 $1.84
Dec10 $1.08
Dec09 $0.97
Dec08 $0.81
Dec07 $0.73
Dec06 $0.61
Dec05 $0.49
Dec04 $0.47
Dec03 $0.50
Dec02 $0.46
Dec01 $0.50
Dec00 $0.71
Dec99 $0.86

Recommended Reading:

Other ModernGraham posts about the company

A.O. Smith Corporation Analysis – Initial Coverage $AOS

Other ModernGraham posts about related companies

Danaher Corporation Valuation – November 2015 Update $DHR
AGCO Corporation Valuation – November 2015 Update $AGCO
Snap-on Inc. Valuation – November 2015 Update $SNA
Joy Global Inc. Valuation – November 2015 Update $JOY
Rockwell Automation Inc. Valuation – October 2015 Update $ROK
Paccar Inc. Analysis – October 2015 Update $PCAR
W.W. Grainger Inc. Analysis – October 2015 Update $GWW
My Personal Holdings: Deere & Company – October 2015 Update $DE
Allegion PLC Analysis – September 2015 Update $ALLE
Parker Hannifin Corporation Analysis – September 2015 Update $PH

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.

A.O. Smith Corporation Analysis – Initial Coverage $AOS

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 Most Undervalued Companies for the Defensive Investor – August 2015.  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 A.O. Smith Corporation (AOS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): A. O. Smith Corporation operates its business through two segments, which include North America and Rest of World. Both segments manufacture and market a range of residential gas, gas tankless and electric water heaters and commercial water heating equipment. The North America segment manufactures and markets specialty commercial water heating equipment, condensing and non-condensing boilers, and water systems tanks. The Company serves residential and commercial end markets in North America with a range of products, including water heaters, boilers and others. The Rest of World segment manufactures and markets water treatment products, primarily in Asia. The Rest of World segment includes China, Europe and India. The Company supplies water heaters to the residential market in China with a range of product offering, including electric, gas, gas tankless, heat pump and solar units, as well as combi boilers.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AOS – August 2015

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 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
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 Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 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 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 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

EPSmg 2.42
MG Growth Estimate 4.80%
MG Value $43.86
Opinion Overvalued
MG Value based on 3% Growth $35.15
MG Value based on 0% Growth $20.61
Market Implied Growth Rate 9.57%
Current Price $67.00
% of Intrinsic Value 152.76%

A.O. Smith Corporation (AOS) qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising 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 overvalued after growing its EPSmg (normalized earnings) from $1.84 in 2011 to an estimated $2.42 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 9.57% 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on A.O. Smith Corporation (AOS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AOS charts August 2015

Net Current Asset Value (NCAV) $2.75
PEmg 27.64
Current Ratio 2.42
PB Ratio 4.19
Dividend Yield 1.01%
Number of Consecutive Years of Dividend Growth 20

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $1,400,000,000
Total Current Liabilities $579,100,000
Long-Term Debt $266,200,000
Total Assets $2,589,800,000
Intangible Assets $725,300,000
Total Liabilities $1,153,300,000
Shares Outstanding (Diluted Average) 89,825,000

Earnings Per Share History

Next Fiscal Year Estimate $3.01
Dec14 $2.28
Dec13 $1.83
Dec12 $1.71
Dec11 $3.29
Dec10 $1.21
Dec09 $1.18
Dec08 $0.90
Dec07 $0.95
Dec06 $0.82
Dec05 $0.51
Dec04 $0.39
Dec03 $0.59
Dec02 $0.62
Dec01 $0.20
Dec00 $0.42
Dec99 $0.59
Dec98 $0.61
Dec97 $1.82
Dec96 $0.69
Dec95 $0.65

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.42
Dec14 $2.11
Dec13 $1.96
Dec12 $1.91
Dec11 $1.84
Dec10 $1.08
Dec09 $0.97
Dec08 $0.81
Dec07 $0.73
Dec06 $0.61
Dec05 $0.49
Dec04 $0.47
Dec03 $0.50
Dec02 $0.46
Dec01 $0.50
Dec00 $0.71
Dec99 $0.86

Recommended Reading:

Other ModernGraham posts about the company

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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.  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.

Snap-On Inc Valuation – March 2019 #SNA

Company Profile (excerpt from Reuters): Snap-on Incorporated, incorporated on April 7, 1930, is a manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions. The Company’s segments include the Commercial & Industrial Group, the Snap-on Tools Group, the Repair Systems & Information Group and Financial Services. The Commercial & Industrial Group consists of business operations serving a range of industrial and commercial customers around the world, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments, primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the Company’s mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers, primarily owners and managers of independent repair shops and original equipment manufacturer (OEM) dealership service and repair shops, through direct and distributor channels. Financial Services consists of the business operations of Snap-on Credit LLC (SOC), the Company’s financial services business in the United States, and the Company’s other financial services subsidiaries in those international markets where it has franchise operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SNA – March 2019

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 $8,765,637,793 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.33 Pass
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 155.65% Pass
6. Moderate PEmg Ratio PEmg < 20 14.50 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.87 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 2.33 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.75 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

EPSmg $10.87
MG Growth Estimate 8.99%
MG Value $287.73
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $157.61
MG Value based on 0% Growth $92.39
Market Implied Growth Rate 3.00%
Current Price $157.61
% of Intrinsic Value 54.78%

Snap-on Incorporated qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.8 in 2015 to an estimated $10.87 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3% 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 above the price.

At the time of valuation, further research into Snap-on Incorporated revealed the company was trading above its Graham Number of $123.17. The company pays a dividend of $3.41 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.5, which was below the industry average of 26.53, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.66.

Snap-on Incorporated performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.66
Graham Number $123.17
PEmg 14.50
Current Ratio 2.33
PB Ratio 2.87
Current Dividend $3.41
Dividend Yield 2.16%
Number of Consecutive Years of Dividend Growth 9

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,216,900,000
Total Current Liabilities $952,000,000
Long-Term Debt $946,000,000
Total Assets $5,373,100,000
Intangible Assets $1,135,100,000
Total Liabilities $2,254,500,000
Shares Outstanding (Diluted Average) 56,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.10
Dec2018 $11.87
Dec2017 $9.52
Dec2016 $9.20
Dec2015 $8.10
Dec2014 $7.14
Dec2013 $5.93
Dec2012 $5.20
Dec2011 $4.71
Dec2010 $3.19
Dec2009 $2.32
Dec2008 $4.07
Dec2007 $3.09
Dec2006 $1.69
Dec2005 $1.59
Dec2004 $1.40
Dec2003 $1.35
Dec2002 $1.81
Dec2001 $0.33
Dec2000 $2.53
Dec1999 $2.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.87
Dec2018 $9.89
Dec2017 $8.59
Dec2016 $7.79
Dec2015 $6.80
Dec2014 $5.84
Dec2013 $4.89
Dec2012 $4.21
Dec2011 $3.63
Dec2010 $3.02
Dec2009 $2.81
Dec2008 $2.82
Dec2007 $2.08
Dec2006 $1.57
Dec2005 $1.44
Dec2004 $1.40
Dec2003 $1.48

Recommended Reading:

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Snap-on Inc Valuation – May 2018 $SNA
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Snap-on Incorporated Valuation – August 2016 $SNA

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W.W. Grainger Inc Valuation – February 2019 $GWW
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Allegion PLC Valuation – February 2019 $ALLE
Arconic Inc Valuation – February 2019 $ARNC
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Rockwell Automation Inc Valuation – February 2019 $ROK
Eaton Corp PLC Valuation – January 2019 $ETN
Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS

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.

W.W. Grainger Inc Valuation – February 2019 $GWW

Company Profile (excerpt from Reuters): W.W. Grainger, Inc. (Grainger), incorporated on December 27, 1928, is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. The Company operates through two segments, which include the United States and Canada. The Company’s business support functions provide coordination and guidance in the areas of accounting and finance, business development, communications and investor relations, compensation and benefits, information systems, health and safety, global supply chain functions, human resources, risk management, internal audit, legal, real estate, security, tax and treasury. The Company’s other businesses also include Zoro Tools, Inc. (Zoro), the single channel online business in the United States, MonotaRO Co. (MonotaRO) in Japan, and operations in Europe, Asia and Latin America.

Downloadable PDF version of this valuation:

ModernGraham Valuation of GWW – February 2019

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 $17,300,462,081 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.37 Pass
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 61.29% Pass
6. Moderate PEmg Ratio PEmg < 20 22.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.33 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 2.37 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.02 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

EPSmg $13.56
MG Growth Estimate 3.46%
MG Value $209.15
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $196.57
MG Value based on 0% Growth $115.23
Market Implied Growth Rate 7.15%
Current Price $309.17
% of Intrinsic Value 147.82%

W W Grainger Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the 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 Overvalued after growing its EPSmg (normalized earnings) from $11.01 in 2015 to an estimated $13.56 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.15% 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 below the price.

At the time of valuation, further research into W W Grainger Inc revealed the company was trading above its Graham Number of $121.15. The company pays a dividend of $5.36 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 22.81, which was below the industry average of 24.89, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.96.

W W Grainger Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.96
Graham Number $121.15
PEmg 22.81
Current Ratio 2.37
PB Ratio 8.33
Current Dividend $5.36
Dividend Yield 1.73%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,557,000,000
Total Current Liabilities $1,501,000,000
Long-Term Debt $2,090,000,000
Total Assets $5,873,000,000
Intangible Assets $884,000,000
Total Liabilities $3,780,000,000
Shares Outstanding (Diluted Average) 56,377,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.41
Dec2018 $13.73
Dec2017 $10.02
Dec2016 $9.87
Dec2015 $11.58
Dec2014 $11.45
Dec2013 $11.13
Dec2012 $9.52
Dec2011 $9.07
Dec2010 $6.93
Dec2009 $5.62
Dec2008 $5.97
Dec2007 $4.94
Dec2006 $4.24
Dec2005 $3.78
Dec2004 $3.13
Dec2003 $2.46
Dec2002 $2.24
Dec2001 $1.84
Dec2000 $2.05
Dec1999 $1.92

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $13.56
Dec2018 $11.53
Dec2017 $10.56
Dec2016 $10.79
Dec2015 $11.01
Dec2014 $10.36
Dec2013 $9.36
Dec2012 $8.13
Dec2011 $7.12
Dec2010 $5.94
Dec2009 $5.27
Dec2008 $4.87
Dec2007 $4.11
Dec2006 $3.52
Dec2005 $3.01
Dec2004 $2.53
Dec2003 $2.19

Recommended Reading:

Other ModernGraham posts about the company

W.W. Grainger Inc Valuation – May 2018 $GWW
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
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W. W. Grainger Inc Valuation – January 2017 $GWW

Other ModernGraham posts about related companies

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Rockwell Automation Inc Valuation – February 2019 $ROK
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Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT

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.

Xylem Inc Valuation – February 2019 $XYL

Company Profile (excerpt from Reuters): Xylem Inc., incorporated on May 4, 2011, is a water technology company. The Company designs, manufactures and services engineered solutions across a range of critical applications. The Company is an equipment and service provider for water and wastewater applications with a portfolio of products and services addressing the cycle of water, from collection, distribution and use to the return of water to the environment. The Company has three business segments: Water Infrastructure, Applied Water and Sensus. The Company’s portfolio of solutions addresses customer needs across the water cycle, from the delivery and use of drinking water to the collection and treatment of wastewater to the return of water to the environment. The Company’s applications in the areas of water equipment industry include transport, treatment, test, building services, industrial processing and irrigation. The Company sells its products in various countries through a distribution network consisting of direct sales force and independent channel partners.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of XYL – February 2019

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 $13,552,661,042 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.51 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 67.57% Pass
6. Moderate PEmg Ratio PEmg < 20 29.53 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.91 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 1.51 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.91 Fail
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

EPSmg $2.56
MG Growth Estimate 8.02%
MG Value $62.78
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $37.10
MG Value based on 0% Growth $21.75
Market Implied Growth Rate 10.52%
Current Price $75.57
% of Intrinsic Value 120.37%

Xylem Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 $1.67 in 2015 to an estimated $2.56 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.52% 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 below the price.

At the time of valuation, further research into Xylem Inc revealed the company was trading above its Graham Number of $33.3. The company pays a dividend of $0.84 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 29.53, which was above the industry average of 24.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.98.

Xylem 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) -$12.98
Graham Number $33.30
PEmg 29.53
Current Ratio 1.51
PB Ratio 4.91
Current Dividend $0.84
Dividend Yield 1.11%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,094,000,000
Total Current Liabilities $1,389,000,000
Long-Term Debt $2,051,000,000
Total Assets $7,222,000,000
Intangible Assets $4,208,000,000
Total Liabilities $4,440,000,000
Shares Outstanding (Diluted Average) 180,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.20
Dec2018 $3.03
Dec2017 $1.83
Dec2016 $1.45
Dec2015 $1.87
Dec2014 $1.83
Dec2013 $1.22
Dec2012 $1.59
Dec2011 $1.50
Dec2010 $1.72

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.56
Dec2018 $2.16
Dec2017 $1.70
Dec2016 $1.62
Dec2015 $1.67
Dec2014 $1.57
Dec2013 $1.36
Dec2012 $1.27
Dec2011 $0.96
Dec2010 $0.57

Recommended Reading:

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Xylem Inc Valuation – May 2018 $XYL
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Xylem Inc Valuation – August 2016 $XYL
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Xylem Inc Valuation – January 2016 Update $XYL

Other ModernGraham posts about related companies

Arconic Inc Valuation – February 2019 $ARNC
Roper Technologies Inc Valuation – February 2019 $ROP
Rockwell Automation Inc Valuation – February 2019 $ROK
Eaton Corp PLC Valuation – January 2019 $ETN
Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT

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.

Allegion PLC Valuation – February 2019 $ALLE

Company Profile (excerpt from Reuters): Allegion Public Limited Company, incorporated on May 9, 2013, is a provider of security products and solutions. The Company offers a portfolio of mechanical and electronic security products across a range of brands. Its segments include Americas; Europe, Middle East, India and Africa (EMEIA), and Asia Pacific. Its products include door closers and controls; door and door frames (steel); electronic security products; electronic and biometric access control systems; exit devices; locks, locksets, portable locks and key systems; time, attendance and workforce productivity systems, and other accessories. The Company sells a range of security products and solutions for end users in commercial, institutional and residential facilities across the world, including into the education, healthcare, government, hospitality, commercial office and single and multi-family residential markets. As of December 31, 2016, it manufactured and sold mechanical and electronic security products and solutions in approximately 130 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ALLE – February 2019

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 $8,399,205,187 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.79 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 40600.00% Pass
6. Moderate PEmg Ratio PEmg < 20 23.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 12.97 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 1.79 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.43 Fail
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

EPSmg $3.81
MG Growth Estimate 15.00%
MG Value $146.61
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $55.22
MG Value based on 0% Growth $32.37
Market Implied Growth Rate 7.43%
Current Price $88.94
% of Intrinsic Value 60.67%

Allegion PLC is suitable for the Enterprising Investor but not 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 poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $1.08 in 2015 to an estimated $3.81 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.43% 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 above the price.

At the time of valuation, further research into Allegion PLC revealed the company was trading above its Graham Number of $27.16. The company pays a dividend of $0.84 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 23.36, which was below the industry average of 24.89, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.84.

Allegion PLC performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.84
Graham Number $27.16
PEmg 23.36
Current Ratio 1.79
PB Ratio 12.97
Current Dividend $0.84
Dividend Yield 0.94%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $931,600,000
Total Current Liabilities $520,800,000
Long-Term Debt $1,409,500,000
Total Assets $2,810,200,000
Intangible Assets $1,430,100,000
Total Liabilities $2,156,200,000
Shares Outstanding (Diluted Average) 95,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.82
Dec2018 $4.54
Dec2017 $2.85
Dec2016 $2.36
Dec2015 $1.59
Dec2014 $1.80
Dec2013 $0.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.81
Dec2018 $3.08
Dec2017 $2.16
Dec2016 $1.62
Dec2015 $1.08
Dec2014 $0.69
Dec2013 $0.11

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – July 2018
Allegion PLC Valuation – May 2018 $ALLE
Allegion PLC Valuation – January 2017 $ALLE
Allegion PLC Valuation – August 2016 $ALLE
26 Best Stocks For Value Investors This Week – 2/6/16

Other ModernGraham posts about related companies

Arconic Inc Valuation – February 2019 $ARNC
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Rockwell Automation Inc Valuation – February 2019 $ROK
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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.

Arconic Inc Valuation – February 2019 $ARNC

Company Profile (excerpt from Reuters): Arconic Inc., formerly Alcoa Inc., incorporated on September 18, 1888, is engaged in lightweight metals engineering and manufacturing. The Company operates through three segments: Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions. The Company’s multi-material products, which include aluminum, titanium and nickel, are used around the world in aerospace, automotive, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics and industrial applications. As of December 31, 2016, the Company had operations in 19 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ARNC – February 2019

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 $8,481,400,416 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.87 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 85666566.67% Pass
6. Moderate PEmg Ratio PEmg < 20 35.15 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.58 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 1.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.93 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

EPSmg $0.50
MG Growth Estimate 15.00%
MG Value $19.22
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $7.24
MG Value based on 0% Growth $4.24
Market Implied Growth Rate 13.32%
Current Price $17.55
% of Intrinsic Value 91.29%

Arconic 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 poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net 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 $0 in 2015 to an estimated $0.5 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 13.32% 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 Arconic Inc revealed the company was trading below its Graham Number of $19.96. The company pays a dividend of $0.24 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 35.15, which was above the industry average of 24.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.98.

Arconic 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) -$12.98
Graham Number $19.96
PEmg 35.15
Current Ratio 1.87
PB Ratio 1.58
Current Dividend $0.24
Dividend Yield 1.37%
Number of Consecutive Years of Dividend Growth 3

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $6,581,000,000
Total Current Liabilities $3,520,000,000
Long-Term Debt $5,896,000,000
Total Assets $18,693,000,000
Intangible Assets $5,419,000,000
Total Liabilities $13,108,000,000
Shares Outstanding (Diluted Average) 503,019,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.55
Dec2018 $1.30
Dec2017 -$0.28
Dec2016 -$2.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.50
Dec2018 -$0.10
Dec2017 -$0.71
Dec2016 -$0.77

Recommended Reading:

Other ModernGraham posts about the company

Arconic Inc Valuation – April 2018 $ARNC

Other ModernGraham posts about related companies

Roper Technologies Inc Valuation – February 2019 $ROP
Rockwell Automation Inc Valuation – February 2019 $ROK
Eaton Corp PLC Valuation – January 2019 $ETN
Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN

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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