Cardinal Health Inc Valuation – January 2019 $CAH

Company Profile (excerpt from Reuters): Cardinal Health, Inc., incorporated on May 16, 1979, is a healthcare services and products company. The Company operates through two segments: Pharmaceutical and Medical. The Company provides solutions for hospital systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices across the world. As of June 30, 2016, the Company has manufactured or sourced approximately 2.8 billion individual consumer healthcare, home medical equipment and over-counter products, and served approximately 25,000 pharmacies.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CAH – 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 $14,614,005,822 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.06 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 22.78% Fail
6. Moderate PEmg Ratio PEmg < 20 14.79 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 1.06 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.76 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 $3.32
MG Growth Estimate 2.20%
MG Value $42.80
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $48.08
MG Value based on 0% Growth $28.19
Market Implied Growth Rate 3.15%
Current Price $49.05
% of Intrinsic Value 114.61%

Cardinal Health 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 growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 growing its EPSmg (normalized earnings) from $2.89 in 2015 to an estimated $3.32 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.15% 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 Cardinal Health Inc revealed the company was trading above its Graham Number of $44.21. The company pays a dividend of $1.86 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.79, which was below the industry average of 52.7, 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 $-31.55.

Cardinal Health 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) -$31.55
Graham Number $44.21
PEmg 14.79
Current Ratio 1.06
PB Ratio 2.54
Current Dividend $1.86
Dividend Yield 3.80%
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 $24,445,000,000
Total Current Liabilities $23,057,000,000
Long-Term Debt $7,999,000,000
Total Assets $40,011,000,000
Intangible Assets $12,093,000,000
Total Liabilities $34,098,000,000
Shares Outstanding (Diluted Average) 306,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.43
Jun2018 $0.81
Jun2017 $4.03
Jun2016 $4.32
Jun2015 $3.62
Jun2014 $3.38
Jun2013 $0.97
Jun2012 $3.06
Jun2011 $2.72
Jun2010 $1.77
Jun2009 $3.18
Jun2008 $3.57
Jun2007 $4.77
Jun2006 $2.33
Jun2005 $2.41
Jun2004 $3.35
Jun2003 $3.03
Jun2002 $2.33
Jun2001 $1.85
Jun2000 $1.58
Jun1999 $1.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.32
Jun2018 $2.92
Jun2017 $3.73
Jun2016 $3.41
Jun2015 $2.89
Jun2014 $2.48
Jun2013 $2.13
Jun2012 $2.76
Jun2011 $2.81
Jun2010 $2.94
Jun2009 $3.44
Jun2008 $3.47
Jun2007 $3.34
Jun2006 $2.65
Jun2005 $2.74
Jun2004 $2.74
Jun2003 $2.29

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – August 2018
10 Low PE Stock Picks for the Defensive Investor – August 2018
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – August 2018
10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2018
Best Dividend Paying Stocks for Dividend Growth Investors – June 2018

Other ModernGraham posts about related companies

Zimmer Biomet Holdings Inc Valuation – January 2019 $ZBH
Henry Schein Inc Valuation – January 2019 $HSIC
Medtronic PLC Valuation – January 2019 $MDT
UnitedHealth Group Inc Valuation – November 2018 $UNH
Luminex Corp Valuation – October 2018 $LMNX
LHC Group Inc Valuation – September 2018 $LHCG
Chartwell Retirement Residences Valuation – August 2018 $TSE:CSH.UN
STERIS PLC Valuation – August 2018 $STE
CryoLife Inc Valuation – August 2018 $CRY
Charles River Laboratories International Inc Valuation – August 2018 $CRL

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.

Cardinal Health Inc Valuation – March 2018 $CAH

Company Profile (excerpt from Reuters): Cardinal Health, Inc., incorporated on May 16, 1979, is a healthcare services and products company. The Company operates through two segments: Pharmaceutical and Medical. The Company provides solutions for hospital systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices across the world. As of June 30, 2016, the Company has manufactured or sourced approximately 2.8 billion individual consumer healthcare, home medical equipment and over-counter products, and served approximately 25,000 pharmacies.

CAH Chart

CAH data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CAH – 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 $20,584,983,275 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.09 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 78.49% Pass
6. Moderate PEmg Ratio PEmg < 20 14.78 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.72 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 1.09 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.39 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 $4.43
MG Growth Estimate 11.80%
MG Value $142.06
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $64.19
MG Value based on 0% Growth $37.63
Market Implied Growth Rate 3.14%
Current Price $65.41
% of Intrinsic Value 46.04%

Cardinal Health Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 $2.48 in 2014 to an estimated $4.43 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.14% 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 Cardinal Health Inc revealed the company was trading above its Graham Number of $50.88. The company pays a dividend of $1.81 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.78, which was below the industry average of 43.8, 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 $-32.02.

Cardinal Health Inc fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$32.02
Graham Number $50.88
PEmg 14.78
Current Ratio 1.09
PB Ratio 2.72
Current Dividend $1.81
Dividend Yield 2.77%
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 $25,188,000,000
Total Current Liabilities $23,125,000,000
Long-Term Debt $9,057,000,000
Total Assets $42,905,000,000
Intangible Assets $14,366,000,000
Total Liabilities $35,306,000,000
Shares Outstanding (Diluted Average) 316,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.34
Jun2017 $4.03
Jun2016 $4.32
Jun2015 $3.62
Jun2014 $3.38
Jun2013 $0.97
Jun2012 $3.06
Jun2011 $2.72
Jun2010 $1.77
Jun2009 $3.18
Jun2008 $3.57
Jun2007 $4.77
Jun2006 $2.33
Jun2005 $2.41
Jun2004 $3.35
Jun2003 $3.03
Jun2002 $2.33
Jun2001 $1.85
Jun2000 $1.58
Jun1999 $1.12
Jun1998 $1.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.43
Jun2017 $3.73
Jun2016 $3.41
Jun2015 $2.89
Jun2014 $2.48
Jun2013 $2.13
Jun2012 $2.76
Jun2011 $2.81
Jun2010 $2.94
Jun2009 $3.44
Jun2008 $3.47
Jun2007 $3.34
Jun2006 $2.65
Jun2005 $2.74
Jun2004 $2.74
Jun2003 $2.29
Jun2002 $1.80

Recommended Reading:

Other ModernGraham posts about the company

58 Companies in the Spotlight This Week – 1/31/15
Cardinal Health Inc. Annual Valuation – 2015 $CAH
14 Companies in the Spotlight This Week – 1/4/14
ModernGraham Valuation: Cardinal Health (CAH)

Other ModernGraham posts about related companies

Zimmer Biomet Holdings Inc Valuation – March 2018 $ZBH
Henry Schein Inc Valuation – March 2018 $HSIC
Medtronic PLC Valuation – March 2018 $MDT
UnitedHealth Group Inc Valuation – February 2018 $UNH
VCA Inc Valuation – Initial Coverage $WOOF
Universal Health Services Inc Valuation – August 2017 $UHS
Telefex Inc Valuation – Initial Coverage $TFX
BIO-TECHNE Corp Valuation – Initial Coverage $TECH
LifePoint Health Inc Valuation – Initial Coverage $LPNT
Psychemedics Corp Valuation – April 2017 $PMD

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.

Cardinal Health Inc Valuation – July 2016 $CAH

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 – June 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 Cardinal Health Inc (CAH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cardinal Health, Inc. is a healthcare services and products company. The Company operates in two segments: Pharmaceutical and Medical. The Company also provides medical products to patients in the home. In the United States, the Company’s Pharmaceutical segment distributes branded and generic pharmaceutical, over-the-counter healthcare and consumer products through its Pharmaceutical Distribution division to retailers, hospitals and other healthcare providers. In China, the Pharmaceutical segment distributes branded, generic and specialty pharmaceutical, over-the-counter healthcare and consumer products, provides logistics, marketing and other services and operates direct-to-patient specialty pharmacies through Cardinal Health China. The Medical segment distributes a range of medical, surgical and laboratory products and provides services to hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CAH – July 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 $25,745,700,701 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.15 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 -1.04% Fail
6. Moderate PEmg Ratio PEmg < 20 22.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.86 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 1.15 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.79 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

CAH value chart July 2016

EPSmg $3.44
MG Growth Estimate 3.69%
MG Value $54.67
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $49.90
MG Value based on 0% Growth $29.25
Market Implied Growth Rate 7.12%
Current Price $78.29
% of Intrinsic Value 143.19%

Cardinal Health 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 growth 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. 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 growing its EPSmg (normalized earnings) from $2.76 in 2012 to an estimated $3.44 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.12% 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.

Cardinal Health Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

CAH charts July 2016

Net Current Asset Value (NCAV) -$15.26
Graham Number $45.15
PEmg 22.75
Current Ratio 1.15
PB Ratio 3.86
Current Dividend $1.55
Dividend Yield 1.98%
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

Balance Sheet Information 3/1/2016
Total Current Assets $22,291,000,000
Total Current Liabilities $19,385,000,000
Long-Term Debt $5,195,000,000
Total Assets $34,055,000,000
Intangible Assets $9,150,000,000
Total Liabilities $27,342,000,000
Shares Outstanding (Diluted Average) 331,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.40
Jun2015 $3.62
Jun2014 $3.38
Jun2013 $0.97
Jun2012 $3.06
Jun2011 $2.72
Jun2010 $1.77
Jun2009 $3.18
Jun2008 $3.57
Jun2007 $4.77
Jun2006 $2.33
Jun2005 $2.41
Jun2004 $3.35
Jun2003 $3.10
Jun2002 $2.30
Jun2001 $1.88
Jun2000 $1.59
Jun1999 $1.09
Jun1998 $0.99
Jun1997 $0.74
Jun1996 $0.51

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.44
Jun2015 $2.89
Jun2014 $2.48
Jun2013 $2.13
Jun2012 $2.76
Jun2011 $2.81
Jun2010 $2.94
Jun2009 $3.44
Jun2008 $3.47
Jun2007 $3.35
Jun2006 $2.66
Jun2005 $2.75
Jun2004 $2.76
Jun2003 $2.31
Jun2002 $1.80
Jun2001 $1.45
Jun2000 $1.15

Recommended Reading:

Other ModernGraham posts about the company

58 Companies in the Spotlight This Week – 1/31/15
Cardinal Health Inc. Annual Valuation – 2015 $CAH
14 Companies in the Spotlight This Week – 1/4/14
ModernGraham Valuation: Cardinal Health (CAH)

Other ModernGraham posts about related companies

Varian Medical Systems Inc Valuation – July 2016 $VAR
St. Jude Medical Inc Valuation – June 2016 $STJ
Zimmer Biomet Holdings Inc Valuation – June 2016 $ZBH
Waters Corporation Valuation – May 2016 $WAT
Align Technology Inc Valuation – May 2016 $ALGN
C.R. Bard Inc Stock Valuation – February 2016 $BCR
Psychemedics Corp Stock Valuation – February 2016 $PMD
Patterson Companies Inc Stock Valuation – February 2016 $PDCO
Edwards Lifesciences Corp Valuation – February 2016 $EW
Baxter International Inc Valuation – February 2016 $BAX

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.

Cardinal Health Inc. Annual Valuation – 2015 $CAH

cardinal-health

Cardinal Health does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and high PEmg and PB ratios. The Enterprising Investor takes issue with the level of debt relative to the current assets. As a result, any purchase of the company is made with a speculative nature behind it. That said, any speculator interested in pursuing the company should still proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.

With regard to that intrinsic value, the company has grown its EPSmg (normalized earnings) from $2.81 in 2011 to only an estimated $3.08 for 2015. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 9.01% over the next 7-10 years. In fact, actual growth has been closer to 1.94% in recent years. The ModernGraham valuation model therefore returns an estimate of intrinsic value below the current price, indicating the company is overvalued at the present time.

Be sure to check out previous ModernGraham valuations of Cardinal Health Inc. (CAH) for greater perspective!

Read the full valuation on Seeking Alpha!

CAH Chart

CAH data by YCharts

Disclaimer:  The author did not hold a position in Cardinal Health Inc. (CAH) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

ModernGraham Valuation: Cardinal Health (CAH)

moneyCompany Profile (obtained from Google Finance): Cardinal Health, Inc. is a healthcare services company providing products and services that help pharmacies, hospitals, surgery centers, physician offices and other healthcare providers. During the fiscal year ended June 30, 2012 (fiscal 2012), the Company operated in two segments: Pharmaceutical and Medical. The Pharmaceutical segment distributes branded and generic pharmaceutical, over-the-counter healthcare, and consumer products through its pharmaceutical distribution business to retailers. The Medical segment distributes a range of medical, surgical and laboratory products to hospitals, surgery centers, laboratories, physician offices and other healthcare providers. Effective March 18, 2013, it merged with AssuraMed Holding Inc.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $21.50
MG Opinion Overvalued
Value Based on 3% Growth $37.18
Value Based on 0% Growth $21.79
Market Implied Growth Rate 8.84%
Net Current Asset Value (NCAV) -$4.35
PEmg 26.19
Current Ratio 1.28
PB Ratio 3.64

Balance Sheet – 9/30/2013 

Current Assets $16,037,000,000
Current Liabilities $12,507,000,000
Total Debt $3,693,000,000
Total Assets $23,816,000,000
Intangible Assets $5,570,000,000
Total Liabilities $17,519,000,000
Outstanding Shares 341,000,000

Earnings Per Share

2014 (estimate) $3.66
2013 $0.97
2012 $3.06
2011 $2.74
2010 $1.62
2009 $3.16
2008 $3.61
2007 $2.07
2006 $2.90
2005 $2.40
2004 $3.47
2002 $1.85

Earnings Per Share – Modern Graham 

2014 (estimate) $2.56
2013 $2.11
2012 $2.74
2011 $2.60
2010 $2.57
2009 $2.98

Conclusion:

Cardinal Health Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The company’s current ratio is too low for either investor type, the company has not significantly grown its earnings over either a five year period or a ten year period, and the company trades at too high a PEmg and PB ratios.  As a result, investors seeking to follow ModernGraham’s updated version of Benjamin Graham’s requirements for Intelligent Investing should do further research into other companies, beginning with a review of the 5 Low PE Companies we reviewed this weekend on Seeking Alpha.  From a valuation perspective, Cardinal Health has shrunk its earnings from $2.98 in 2009 to an estimated $2.56 for 2014.  Meanwhile the market is implying a growth estimate of 8.84%, which is clearly well above the historical performance of the company.  As a result, Cardinal Health appears to be overvalued at the current time.

What do you think?  Do you agree that Cardinal Health Inc. is overvalued?  What would be your assessment?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Cardinal Health (CAH) at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

Cerner Corp Valuation – February 2019 $CERN

Company Profile (excerpt from Reuters): Cerner Corporation (Cerner), incorporated on October 6, 1986, is a supplier of healthcare information technology (HCIT). The Company offers a range of intelligent solutions and services that support the clinical, financial and operational needs of organizations of all sizes. The Company’s segments include Domestic and Global. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The Global segment includes revenue contributions and expenditures linked to business activity in Aruba, Australia, Austria, the Bahamas, Belgium, Bermuda, Brazil, Canada, Cayman Islands, Chile, Denmark, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, Switzerland and the United Arab Emirates. As of December 31, 2016, the Company had systems in over 25,000 facilities across the world, including hospitals, physician practices, laboratories, ambulatory centers, behavioral health centers, cardiac facilities, radiology clinics, surgery centers, extended care facilities, retail pharmacies, and employer sites.

Downloadable PDF version of this valuation:

ModernGraham Valuation of CERN – 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 $18,332,883,868 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.41 Pass
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 160.26% Pass
6. Moderate PEmg Ratio PEmg < 20 25.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.79 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 2.41 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.32 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

EPSmg $2.23
MG Growth Estimate 9.77%
MG Value $62.47
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $32.30
MG Value based on 0% Growth $18.93
Market Implied Growth Rate 8.44%
Current Price $56.52
% of Intrinsic Value 90.48%

Cerner Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.35 in 2015 to an estimated $2.23 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 8.44% 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 Cerner Corporation revealed the company was trading above its Graham Number of $29.47. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 25.38, which was below the industry average of 51.18, 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 $1.63.

Cerner Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.63
Graham Number $29.47
PEmg 25.38
Current Ratio 2.41
PB Ratio 3.79
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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 $2,318,804,000
Total Current Liabilities $962,690,000
Long-Term Debt $438,802,000
Total Assets $6,708,636,000
Intangible Assets $2,147,361,000
Total Liabilities $1,780,247,000
Shares Outstanding (Diluted Average) 330,809,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.58
Dec2018 $1.89
Dec2017 $2.57
Dec2016 $1.85
Dec2015 $1.54
Dec2014 $1.50
Dec2013 $1.13
Dec2012 $1.13
Dec2011 $0.88
Dec2010 $0.70
Dec2009 $0.58
Dec2008 $0.57
Dec2007 $0.38
Dec2006 $0.34
Dec2005 $0.14
Dec2004 $0.11
Dec2003 $0.15
Dec2002 $0.08
Dec2001 -$0.15
Dec2000 $0.37
Dec1999 -$0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.23
Dec2018 $1.99
Dec2017 $1.93
Dec2016 $1.55
Dec2015 $1.35
Dec2014 $1.19
Dec2013 $0.99
Dec2012 $0.87
Dec2011 $0.70
Dec2010 $0.57
Dec2009 $0.47
Dec2008 $0.38
Dec2007 $0.27
Dec2006 $0.20
Dec2005 $0.11
Dec2004 $0.10
Dec2003 $0.09

Recommended Reading:

Other ModernGraham posts about the company

Cerner Corporation Valuation – April 2018 $CERN
5 Companies for Enterprising Investors Near 52 Week Lows – January 2017
5 Companies for Enterprising Investors Near 52 Week Lows – December 2016
14 Best Undervalued Stocks of the Week – 8/6/16
Cerner Corporation Valuation – August 2016 $CERN

Other ModernGraham posts about related companies

HCA Healthcare Inc Valuation – February 2019 $HCA
Stryker Corp Valuation – February 2019 $SYK
Align Technology Inc Valuation – February 2019 $ALGN
Quest Diagnostics Inc Valuation – February 2019 $DGX
AmerisourceBergen Corp Valuation – February 2019 $ABC
Abiomed Inc Valuation – February 2019 $ABMD
Laboratory Corp of America Holdings Inc Valuation – January 2019 $LH
Intuitive Surgical Inc Valuation – January 2019 $ISRG
PerkinElmer Inc Valuation – January 2019 $PKI
Cardinal Health Inc Valuation – January 2019 $CAH

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.

HCA Healthcare Inc Valuation – February 2019 $HCA

Company Profile (excerpt from Reuters): HCA Healthcare, Inc., formerly HCA Holdings, Inc., incorporated on October 19, 2010, is a holding company. The Company, through its subsidiaries, owns and operates hospitals and related healthcare entities. As of December 31, 2016, the Company operated in two geographically organized groups, including the National and American Groups. As of December 31, 2016, the National Group included 84 hospitals, which were located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia. As of December 31, 2016, the American Group included 80 hospitals, which were located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. As of December 31, 2016, the Company operated six hospitals in England.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HCA – 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 $48,101,661,954 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.35 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 136.01% Pass
6. Moderate PEmg Ratio PEmg < 20 16.19 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -16.89 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 1.35 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 12.12 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 $8.63
MG Growth Estimate 15.00%
MG Value $332.20
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $125.12
MG Value based on 0% Growth $73.34
Market Implied Growth Rate 3.84%
Current Price $139.66
% of Intrinsic Value 42.04%

HCA 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 low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $4.24 in 2015 to an estimated $8.63 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.84% 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 above the price.

At the time of valuation, further research into HCA Healthcare Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.4 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 16.19, which was below the industry average of 51.18, 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 $-90.43.

HCA Healthcare 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) -$90.43
Graham Number $0.00
PEmg 16.19
Current Ratio 1.35
PB Ratio -16.89
Current Dividend $1.40
Dividend Yield 1.00%
Number of Consecutive Years of Dividend Growth 1

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 $10,213,000,000
Total Current Liabilities $7,569,000,000
Long-Term Debt $32,033,000,000
Total Assets $39,207,000,000
Intangible Assets $7,953,000,000
Total Liabilities $42,125,000,000
Shares Outstanding (Diluted Average) 352,876,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.87
Dec2018 $10.66
Dec2017 $5.95
Dec2016 $7.30
Dec2015 $4.99
Dec2014 $4.16
Dec2013 $3.37
Dec2012 $3.49
Dec2011 $4.97
Dec2010 $2.76
Dec2009 $2.44
Dec2008 $0.00
Dec2007 $0.00
Dec2006 $0.00
Dec2005 $3.19
Dec2004 $2.58
Dec2003 $2.61
Dec2002 $1.59
Dec2001 $1.65
Dec2000 $0.39
Dec1999 $1.11

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.63
Dec2018 $7.54
Dec2017 $5.71
Dec2016 $5.28
Dec2015 $4.24
Dec2014 $3.83
Dec2013 $3.58
Dec2012 $3.37
Dec2011 $2.88
Dec2010 $1.57
Dec2009 $1.03
Dec2008 $0.60
Dec2007 $1.16
Dec2006 $1.82
Dec2005 $2.60
Dec2004 $2.12
Dec2003 $1.75

Recommended Reading:

Other ModernGraham posts about the company

HCA Healthcare Inc Valuation – April 2018 $HCA
HCA Holdings Inc Valuation – August 2016 $HCA
HCA Holdings Inc. Analysis – Initial Coverage $HCA

Other ModernGraham posts about related companies

Stryker Corp Valuation – February 2019 $SYK
Align Technology Inc Valuation – February 2019 $ALGN
Quest Diagnostics Inc Valuation – February 2019 $DGX
AmerisourceBergen Corp Valuation – February 2019 $ABC
Abiomed Inc Valuation – February 2019 $ABMD
Laboratory Corp of America Holdings Inc Valuation – January 2019 $LH
Intuitive Surgical Inc Valuation – January 2019 $ISRG
PerkinElmer Inc Valuation – January 2019 $PKI
Cardinal Health Inc Valuation – January 2019 $CAH
Varian Medical Systems Inc Valuation – January 2019 $VAR

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.

Stryker Corp Valuation – February 2019 $SYK

Company Profile (excerpt from Reuters): Stryker Corporation (Stryker), incorporated on February 20, 1946, is a medical technology company. The Company offers a range of medical technologies, including orthopedic, medical and surgical, and neurotechnology and spine products. The Company’s segments include Orthopaedics; MedSurg; Neurotechnology and Spine, and Corporate and Other. The Orthopaedics segment includes reconstructive (hip and knee) and trauma implant systems and other related products. The Company’s MedSurg segment consists of instruments, endoscopy, medical and sustainability products. The Neurotechnology and Spine segment includes neurovascular products, spinal implant systems and other related products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SYK – 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 $68,070,990,264 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.02 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 99.40% Pass
6. Moderate PEmg Ratio PEmg < 20 28.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.92 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 2.02 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.72 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 $6.52
MG Growth Estimate 15.00%
MG Value $250.97
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $94.52
MG Value based on 0% Growth $55.41
Market Implied Growth Rate 9.76%
Current Price $182.66
% of Intrinsic Value 72.78%

Stryker Corporation 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 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 $2.83 in 2015 to an estimated $6.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.76% 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 Stryker Corporation revealed the company was trading above its Graham Number of $75.02. The company pays a dividend of $1.93 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 28.02, which was below the industry average of 51.18, 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 $-15.17.

Stryker Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.17
Graham Number $75.02
PEmg 28.02
Current Ratio 2.02
PB Ratio 5.92
Current Dividend $1.93
Dividend Yield 1.06%
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 $9,733,000,000
Total Current Liabilities $4,807,000,000
Long-Term Debt $8,486,000,000
Total Assets $27,229,000,000
Intangible Assets $12,726,000,000
Total Liabilities $15,499,000,000
Shares Outstanding (Diluted Average) 380,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.98
Dec2018 $9.34
Dec2017 $2.68
Dec2016 $4.35
Dec2015 $3.78
Dec2014 $1.34
Dec2013 $2.63
Dec2012 $3.39
Dec2011 $3.45
Dec2010 $3.19
Dec2009 $2.77
Dec2008 $2.78
Dec2007 $2.44
Dec2006 $1.89
Dec2005 $1.57
Dec2004 $1.08
Dec2003 $1.07
Dec2002 $0.81
Dec2001 $0.67
Dec2000 $0.55
Dec1999 $0.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.52
Dec2018 $5.29
Dec2017 $3.16
Dec2016 $3.30
Dec2015 $2.83
Dec2014 $2.50
Dec2013 $3.08
Dec2012 $3.24
Dec2011 $3.09
Dec2010 $2.81
Dec2009 $2.51
Dec2008 $2.24
Dec2007 $1.85
Dec2006 $1.46
Dec2005 $1.18
Dec2004 $0.93
Dec2003 $0.78

Recommended Reading:

Other ModernGraham posts about the company

Stryker Corp Valuation – April 2018 $SYK
Stryker Corporation Valuation – August 2016 $SYK
Stryker Corporation Valuation – January 2016 Update $SYK
Stryker Corporation Analysis – October 2015 Update $SYK
Stryker Corporation Analysis – July 2015 Update $SYK

Other ModernGraham posts about related companies

Abiomed Inc Valuation – February 2019 $ABMD
Laboratory Corp of America Holdings Inc Valuation – January 2019 $LH
Intuitive Surgical Inc Valuation – January 2019 $ISRG
PerkinElmer Inc Valuation – January 2019 $PKI
Cardinal Health Inc Valuation – January 2019 $CAH
Varian Medical Systems Inc Valuation – January 2019 $VAR
Zimmer Biomet Holdings Inc Valuation – January 2019 $ZBH
Henry Schein Inc Valuation – January 2019 $HSIC
Medtronic PLC Valuation – January 2019 $MDT
UnitedHealth Group Inc Valuation – November 2018 $UNH

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.

Align Technology Inc Valuation – February 2019 $ALGN

Company Profile (excerpt from Reuters): Align Technology, Inc., incorporated on April 3, 1997, designs, manufactures and markets a system of clear aligner therapy, intra-oral scanners and computer-aided design/computer-aided manufacturing (CAD/CAM) digital services used in dentistry, orthodontics and dental records storage. The Company operates through two segments: Clear Aligner segment and Scanner and Services (Scanner) segment. The Clear Aligner segment consists of its Invisalign System, which includes Invisalign Full, Teen and Assist (Comprehensive Products), Express/Lite (Non-Comprehensive Products) and Vivera Retainers, along with its training and ancillary products for treating malocclusion (Non-Case). The Scanner segment consists of intra-oral scanning systems and other services available with the intra-oral scanners that provide digital alternatives to the traditional cast models. The Scanner segment includes its iTero scanner and OrthoCAD services. iTero scanner is used by dental professionals, and labs and services for restorative and orthodontic digital procedures, as well as Invisalign digital impression submission.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ALGN – 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 $19,185,761,689 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.88 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 391.57% Pass
6. Moderate PEmg Ratio PEmg < 20 63.09 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 15.50 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 1.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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

EPSmg $3.80
MG Growth Estimate 15.00%
MG Value $146.43
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $55.15
MG Value based on 0% Growth $32.33
Market Implied Growth Rate 27.29%
Current Price $239.94
% of Intrinsic Value 163.86%

Align Technology, 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 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 $1.37 in 2015 to an estimated $3.8 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 27.29% 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 Align Technology, Inc. revealed the company was trading above its Graham Number of $39.78. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 63.09, which was above the industry average of 51.18. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.21.

Align Technology, 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) $6.21
Graham Number $39.78
PEmg 63.09
Current Ratio 1.88
PB Ratio 15.50
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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 $1,302,479,000
Total Current Liabilities $692,073,000
Long-Term Debt $0
Total Assets $2,052,458,000
Intangible Assets $81,949,000
Total Liabilities $799,567,000
Shares Outstanding (Diluted Average) 80,943,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.49
Dec2018 $4.92
Dec2017 $2.83
Dec2016 $2.33
Dec2015 $1.77
Dec2014 $1.77
Dec2013 $0.78
Dec2012 $0.71
Dec2011 $0.83
Dec2010 $0.95
Dec2009 -$0.45
Dec2008 $1.18
Dec2007 $0.50
Dec2006 -$0.55
Dec2005 $0.02
Dec2004 $0.14
Dec2003 -$0.35
Dec2002 -$1.52
Dec2001 -$2.61
Dec2000 -$25.64
Dec1999 -$3.65

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.80
Dec2018 $3.21
Dec2017 $2.21
Dec2016 $1.75
Dec2015 $1.37
Dec2014 $1.11
Dec2013 $0.71
Dec2012 $0.67
Dec2011 $0.63
Dec2010 $0.46
Dec2009 $0.19
Dec2008 $0.43
Dec2007 $0.02
Dec2006 -$0.30
Dec2005 -$0.40
Dec2004 -$2.41
Dec2003 -$4.71

Recommended Reading:

Other ModernGraham posts about the company

Align Technology Inc Valuation – April 2018 $ALGN
Align Technology Inc Valuation – August 2016 $ALGN
Align Technology Inc Valuation – May 2016 $ALGN
Align Technology Inc. Valuation – November 2015 Update $ALGN
Align Technology Analysis – Initial Coverage $ALGN

Other ModernGraham posts about related companies

Abiomed Inc Valuation – February 2019 $ABMD
Laboratory Corp of America Holdings Inc Valuation – January 2019 $LH
Intuitive Surgical Inc Valuation – January 2019 $ISRG
PerkinElmer Inc Valuation – January 2019 $PKI
Cardinal Health Inc Valuation – January 2019 $CAH
Varian Medical Systems Inc Valuation – January 2019 $VAR
Zimmer Biomet Holdings Inc Valuation – January 2019 $ZBH
Henry Schein Inc Valuation – January 2019 $HSIC
Medtronic PLC Valuation – January 2019 $MDT
UnitedHealth Group Inc Valuation – November 2018 $UNH

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.

Quest Diagnostics Inc Valuation – February 2019 $DGX

Company Profile (excerpt from Reuters): Quest Diagnostics Incorporated, incorporated on September 20, 1996, is a provider of diagnostic information services. The Company operates through two businesses: Diagnostic Information Services and Diagnostic Solutions. The Diagnostic Information Services business develops and delivers diagnostic testing information and services, providing insights that empower and enable a range of customers, including patients, clinicians, hospitals, integrated delivery networks (IDNs), health plans, employers and accountable care organizations (ACOs). Its Diagnostic Solutions group includes its risk assessment services business, which offers solutions for insurers, and its healthcare information technology businesses, which offers solutions for healthcare providers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DGX – 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 $11,921,276,764 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.15 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 44.56% Pass
6. Moderate PEmg Ratio PEmg < 20 16.98 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.27 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 1.15 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 15.86 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 $5.16
MG Growth Estimate 3.88%
MG Value $83.87
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $74.80
MG Value based on 0% Growth $43.85
Market Implied Growth Rate 4.24%
Current Price $87.61
% of Intrinsic Value 104.46%

Quest Diagnostics Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $4.1 in 2014 to an estimated $5.16 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.24% 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 Quest Diagnostics Inc revealed the company was trading above its Graham Number of $68.13. The company pays a dividend of $1.35 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 16.98, which was below the industry average of 51.18, 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 $-28.91.

Quest Diagnostics Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$28.91
Graham Number $68.13
PEmg 16.98
Current Ratio 1.15
PB Ratio 2.27
Current Dividend $1.35
Dividend Yield 1.54%
Number of Consecutive Years of Dividend Growth 0

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 $1,603,000,000
Total Current Liabilities $1,389,000,000
Long-Term Debt $3,394,000,000
Total Assets $10,986,000,000
Intangible Assets $7,615,000,000
Total Liabilities $5,621,000,000
Shares Outstanding (Diluted Average) 139,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.66
Dec2017 $5.50
Dec2016 $4.51
Dec2015 $4.87
Dec2014 $3.81
Dec2013 $5.54
Dec2012 $3.46
Dec2011 $2.92
Dec2010 $4.05
Dec2009 $3.87
Dec2008 $2.97
Dec2007 $1.74
Dec2006 $2.94
Dec2005 $2.66
Dec2004 $2.35
Dec2003 $2.02
Dec2002 $1.62
Dec2001 $0.83
Dec2000 $0.54
Dec1999 -$0.03
Dec1998 $0.22

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.16
Dec2017 $4.89
Dec2016 $4.53
Dec2015 $4.40
Dec2014 $4.10
Dec2013 $4.15
Dec2012 $3.46
Dec2011 $3.34
Dec2010 $3.40
Dec2009 $3.00
Dec2008 $2.55
Dec2007 $2.34
Dec2006 $2.54
Dec2005 $2.19
Dec2004 $1.79
Dec2003 $1.34
Dec2002 $0.88

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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.

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