CBRE Group Inc Valuation – March 2019 #CBRE

Company Profile (excerpt from Reuters): CBRE Group, Inc., incorporated on February 20, 2001, is a holding company that conducts all of its operations through its subsidiaries. The Company operates as a commercial real estate services and investment company. The Company operates through the segments: The Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; Global Investment Management, and Development Services. The Company provides services in the office, retail, industrial, multifamily and hotel sectors of commercial real estate.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CBRE – 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 $16,848,841,335 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.16 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 270.51% Pass
6. Moderate PEmg Ratio PEmg < 20 18.28 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.43 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 1.16 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.86 Fail
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 $2.74
MG Growth Estimate 15.00%
MG Value $105.64
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $39.79
MG Value based on 0% Growth $23.32
Market Implied Growth Rate 4.89%
Current Price $50.16
% of Intrinsic Value 47.48%

CBRE Group 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, and the lack of dividends. 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 $1.3 in 2015 to an estimated $2.74 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.89% 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 CBRE Group Inc revealed the company was trading above its Graham Number of $33.87. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.28, which was below the industry average of 21.22, 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 $-4.94.

CBRE Group 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) -$4.94
Graham Number $33.87
PEmg 18.28
Current Ratio 1.16
PB Ratio 3.43
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 $6,754,210,000
Total Current Liabilities $5,803,380,000
Long-Term Debt $1,767,260,000
Total Assets $13,456,793,000
Intangible Assets $5,093,617,000
Total Liabilities $8,446,891,000
Shares Outstanding (Diluted Average) 342,689,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.52
Dec2018 $3.10
Dec2017 $2.05
Dec2016 $1.69
Dec2015 $1.63
Dec2014 $1.45
Dec2013 $0.95
Dec2012 $0.97
Dec2011 $0.74
Dec2010 $0.63
Dec2009 $0.12
Dec2008 -$4.81
Dec2007 $1.66
Dec2006 $1.35
Dec2005 $0.95
Dec2004 $0.30
Dec2003 -$0.23
Dec2002 $0.15
Dec2001 $0.73

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.74
Dec2018 $2.23
Dec2017 $1.72
Dec2016 $1.48
Dec2015 $1.30
Dec2014 $1.07
Dec2013 $0.82
Dec2012 $0.34
Dec2011 -$0.09
Dec2010 -$0.41
Dec2009 -$0.67
Dec2008 -$0.74
Dec2007 $1.13
Dec2006 $0.74
Dec2005 $0.42
Dec2004 $0.17
Dec2003 $0.11

Recommended Reading:

Other ModernGraham posts about the company

CBRE Group Inc Valuation – June 2018 $CBRE

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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.

CBRE Group Inc Valuation – June 2018 $CBRE

Company Profile (excerpt from Reuters): CBRE Group, Inc., incorporated on February 20, 2001, is a holding company that conducts all of its operations through its subsidiaries. The Company operates as a commercial real estate services and investment company. The Company operates through the segments: The Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; Global Investment Management, and Development Services. The Company provides services in the office, retail, industrial, multifamily and hotel sectors of commercial real estate.

CBRE Chart

CBRE data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CBRE – June 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 $15,651,811,146 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.18 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 346.98% Pass
6. Moderate PEmg Ratio PEmg < 20 21.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.57 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 1.18 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.99 Fail
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 $2.17
MG Growth Estimate 15.00%
MG Value $83.67
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $31.51
MG Value based on 0% Growth $18.47
Market Implied Growth Rate 6.35%
Current Price $46.07
% of Intrinsic Value 55.06%

CBRE Group 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 PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. 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 $1.07 in 2014 to an estimated $2.17 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.35% 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 CBRE Group Inc revealed the company was trading above its Graham Number of $27.99. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 21.2, which was below the industry average of 22.96, 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 $-5.06.

CBRE Group 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) -$5.06
Graham Number $27.99
PEmg 21.20
Current Ratio 1.18
PB Ratio 3.57
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 3/1/2018
Total Current Assets $5,754,300,000
Total Current Liabilities $4,869,655,000
Long-Term Debt $1,758,188,000
Total Assets $11,907,442,000
Intangible Assets $4,677,134,000
Total Liabilities $7,488,768,000
Shares Outstanding (Diluted Average) 342,590,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.94
Dec2017 $2.03
Dec2016 $1.69
Dec2015 $1.63
Dec2014 $1.45
Dec2013 $0.95
Dec2012 $0.97
Dec2011 $0.74
Dec2010 $0.63
Dec2009 $0.12
Dec2008 -$4.81
Dec2007 $1.66
Dec2006 $1.35
Dec2005 $0.95
Dec2004 $0.30
Dec2003 -$0.23
Dec2002 $0.15
Dec2001 $0.73

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.17
Dec2017 $1.71
Dec2016 $1.48
Dec2015 $1.30
Dec2014 $1.07
Dec2013 $0.82
Dec2012 $0.34
Dec2011 -$0.09
Dec2010 -$0.41
Dec2009 -$0.67
Dec2008 -$0.74
Dec2007 $1.13
Dec2006 $0.74
Dec2005 $0.42
Dec2004 $0.17
Dec2003 $0.11
Dec2002 $0.25

Recommended Reading:

Other ModernGraham posts about the company

CBRE Group Inc Valuation – July 2016 $CBG
58 Companies in the Spotlight This Week – 1/31/15
CBRE Group Inc. Annual Valuation – 2015 $CBG
14 Companies in the Spotlight This Week – 1/11/14
ModernGraham Valuation: CBRE Group Inc. (CBG)

Other ModernGraham posts about related companies

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Discover Financial Services Valuation – May 2018 $DFS
Affiliated Managers Group Inc Valuation – May 2018 $AMG
The Western Union Co Valuation – April 2018 $WU
Northern Trust Corp Valuation – April 2018 $NTRS
Nasdaq Inc Valuation – April 2018 $NDAQ
Leucadia National Corp Valuation – March 2018 $LUK

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.

CBRE Group Inc Valuation – July 2016 $CBG

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 CBRE Group Inc (CBG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CBRE Group, Inc. is a holding company that conducts all of its operations through its subsidiaries. The Company is a commercial real estate services and investment company. The Company operates through the segments: The Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; Global Investment Management, and Development Services. It offers services to occupiers, owners, lenders and investors in office, retail, industrial, multifamily and other types of commercial real estate. It offers commercial real estate services under the CBRE brand name, investment management services under the CBRE Global Investors brand name and development services under the Trammell Crow Company brand name. It is focused on several competencies, including commercial property, corporate facilities, project and transaction management, tenant/occupier and property/agency leasing, capital markets solutions, real estate investment management, valuation, development services and proprietary research.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CBG – 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 $9,539,252,832 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 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 -272.61% Fail
6. Moderate PEmg Ratio PEmg < 20 16.87 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.30 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 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.75 Fail
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

CBG value chart July 2016

EPSmg $1.63
MG Growth Estimate 15.00%
MG Value $62.86
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $23.67
MG Value based on 0% Growth $13.88
Market Implied Growth Rate 4.19%
Current Price $27.55
% of Intrinsic Value 43.83%

CBRE Group 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 or growth over the last ten years, the poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. 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 $0.34 in 2012 to an estimated $1.63 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.19% 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 above the price.

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

Stage 3: Information for Further Research

CBG charts July 2016

Net Current Asset Value (NCAV) -$8.68
Graham Number $20.16
PEmg 16.87
Current Ratio 1.11
PB Ratio 3.30
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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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 $4,086,896,000
Total Current Liabilities $3,696,420,000
Long-Term Debt $2,635,045,000
Total Assets $9,835,135,000
Intangible Assets $4,550,202,000
Total Liabilities $7,017,540,000
Shares Outstanding (Diluted Average) 337,506,000

Earnings Per Share History

Next Fiscal Year Estimate $2.15
Dec2015 $1.63
Dec2014 $1.45
Dec2013 $0.95
Dec2012 $0.97
Dec2011 $0.74
Dec2010 $0.63
Dec2009 $0.12
Dec2008 -$4.81
Dec2007 $1.66
Dec2006 $1.35
Dec2005 $0.95
Dec2004 $0.30
Dec2003 -$0.63
Dec2002 $0.41
Dec2001 $0.73

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.63
Dec2015 $1.30
Dec2014 $1.07
Dec2013 $0.82
Dec2012 $0.34
Dec2011 -$0.09
Dec2010 -$0.41
Dec2009 -$0.67
Dec2008 -$0.74
Dec2007 $1.10
Dec2006 $0.71
Dec2005 $0.37
Dec2004 $0.11
Dec2003 $0.05
Dec2002 $0.33
Dec2001 $0.24

Recommended Reading:

Other ModernGraham posts about the company

58 Companies in the Spotlight This Week – 1/31/15
CBRE Group Inc. Annual Valuation – 2015 $CBG
14 Companies in the Spotlight This Week – 1/11/14
ModernGraham Valuation: CBRE Group Inc. (CBG)

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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.

CBRE Group Inc. Annual Valuation – 2015 $CBG

CBRE_logoBenjamin 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 5 Most Undervalued Companies for the Defensive Investor – December 2014.  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 specific look at how CBRE Group Inc. (CBG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CBRE Group, Inc. is a holding company that conducts all of its operations through its indirect subsidiaries. The Company is a commercial real estate services firm. The Company offers a range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate. As of December 31, 2011, it operated approximately 300 offices worldwide, providing commercial real estate services under the CBRE brand name, investment management services under the CBRE Global Investors brand name and development services under the Trammell Crow brand name. In August 2014, CBRE Group Inc acquired Preuss Gesellschaft mbH and subsidiaries (Preuss), provider of project management services in Germany. In August 2014, the Company acquired CBRE Louisville, commercial real estate services firm that has served as CBRE’s affiliate in metropolitan Louisville, Kentucky and southern Indiana.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  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 – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  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 = 2/5

  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 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $32.95
MG Value $44.33
MG Opinion Undervalued
Value Based on 3% Growth $16.69
Value Based on 0% Growth $9.79
Market Implied Growth Rate 10.06%
Net Current Asset Value (NCAV) -$5.75
PEmg 28.62
Current Ratio 1.29
PB Ratio 5.13

Balance Sheet – September 2014

Current Assets $3,461,000,000
Current Liabilities $2,677,000,000
Total Debt $2,084,000,000
Total Assets $7,530,000,000
Intangible Assets $3,130,000,000
Total Liabilities $5,384,000,000
Outstanding Shares 334,300,000

Earnings Per Share

2014 (estimate) $1.69
2013 $0.95
2012 $0.97
2011 $0.74
2010 $0.63
2009 $0.12
2008 -$4.81
2007 $1.66
2006 $1.35
2005 $0.95
2004 $0.30

Earnings Per Share – ModernGraham

2014 (estimate) $1.15
2013 $0.82
2012 $0.34
2011 -$0.09
2010 -$0.41
2009 -$0.67

Dividend History
CBRE Group Inc. does not pay a dividend.

Conclusion:

CBRE Group Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, lack of earnings stability or growth over the last ten years, lack of dividends, as well as the poor PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the net current assets along with the lack of dividends.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.41 in 2010 to an estimated gain of $1.15 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 10.06% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of CBRE Group Inc. (CBG) for greater perspective!

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 CBRE Group Inc. (CBG)?  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.

Disclaimer:  The author did not hold a position in CBRE Group Inc. (CBG) 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: CBRE Group Inc. (CBG)

moneyCompany Profile (obtained from Google Finance): CBRE Group, Inc is a holding company that conducts all of its operations through its indirect subsidiaries. The Company is a commercial real estate services firm. The Company offers a range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate. The Company operates in five segments: Americas, Europe, Middle East and Africa (EMEA), Asia Pacific, Global Investment Management and Development Services. In June 2013, the Company acquired SOGESMAINT-CBRE. Effective September 2, 2013, CBRE Group Inc acquired an undisclosed majority interest in Basale Sverige AB, from Basale Gruppen AS, In September 2013, CBRE Group Inc acquired Fameco. In November 2013, CBRE Group Inc acquired Alan Selby & Partners LLP. In December 2013, CBRE Group Inc acquired The CAC Group. Effective December 23, 2013, CBRE Group Inc acquired Norland Managed Services Ltd.

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 = 1/7

  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 – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  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 = 2/5

  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 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $34.70
MG Opinion Fairly Valued
Value Based on 3% Growth $13.07
Value Based on 0% Growth $7.66
Market Implied Growth Rate 10.31%
Net Current Asset Value (NCAV) -$5.61
PEmg 29.12
Current Ratio 1.39
PB Ratio 4.95

Balance Sheet – 9/30/2013 

Current Assets $2,559,000,000
Current Liabilities $1,842,700,000
Total Debt $1,878,500,000
Total Assets $6,177,300,000
Intangible Assets $2,700,200,000
Total Liabilities $4,419,300,000
Outstanding Shares 331,380,000

Earnings Per Share

2013 (estimate) $1.24
2012 $0.96
2011 $0.72
2010 $0.60
2009 $0.12
2008 -$4.86
2007 $1.65
2006 $1.35
2005 $0.95
2004 $0.30
2003 -$0.63

Earnings Per Share – ModernGraham 

2013 (estimate) $0.90
2012 $0.32
2011 -$0.11
2010 -$0.43
2009 -$0.68
2008 -$0.76

Conclusion:

CBRE Group Inc. is yet another company in a long line of recent reviews that is not suitable for either the Defensive Investor or the Enterprising Investor.  It’s important to note that one of the reasons we put companies through these requirements is to eliminate all but those that present the least amount of risk to investors.  CBRE Group is no different; the company has not had stable earnings over the last ten years, does not pay dividends, has a poor current ratio, has not grown earnings over the ten year period, and is trading at high PEmg and PB ratios.  Defensive Investors and Enterprising Investors would be better suited looking at less risky companies that pass these tests.  From a valuation perspective, the company actually fares somewhat well, having grown EPSmg (normalized earnings) from -$0.76 in 2008 to an estimated $0.90 for 2013.  The market is currently implying a growth rate of 10.31%, and that rate is supported by the historical performance.  As a result, the company would appear to be fairly valued at the present time.

What do you think?  Do you agree that CBRE Group Inc. is fairly valued?  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 CBRE Group Inc. (CBG) at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

Goldman Sachs Group Inc Valuation – April 2019 #GS

Company Profile (excerpt from Reuters): The Goldman Sachs Group, Inc., incorporated on July 21, 1998, is an investment banking, securities and investment management company that provides a range of financial services to corporations, financial institutions, governments and individuals. The Company operates in four business segments: Investment Banking, Institutional Client Services, Investing & Lending, and Investment Management. As of December 2016, it had offices in over 30 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GS – April 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $74,225,517,968 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 62.01% Pass
5. Moderate PEmg Ratio PEmg < 20 11.71 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.86 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $17.28
MG Growth Estimate 3.68%
MG Value $274.01
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $250.54
MG Value based on 0% Growth $146.87
Market Implied Growth Rate 1.61%
Current Price $202.38
% of Intrinsic Value 73.86%

Goldman Sachs Group Inc 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 $13.88 in 2015 to an estimated $17.28 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.61% 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 above the price.

At the time of valuation, further research into Goldman Sachs Group Inc revealed the company was trading below its Graham Number of $287.24. The company pays a dividend of $3.15 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.71, which was below the industry average of 21.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Goldman Sachs Group Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $287.24
PEmg 11.71
PB Ratio 0.86
Dividend Yield 1.56%
TTM Dividend $3.15
Number of Consecutive Years of Dividend Growth 7

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
Long-Term Debt & Capital Lease Obligation $245,582,000,000
Total Assets $931,796,000,000
Intangible Assets $4,082,000,000
Total Liabilities $841,611,000,000
Shares Outstanding (Diluted Average) 383,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.27
Dec2018 $25.27
Dec2017 $9.01
Dec2016 $16.29
Dec2015 $12.14
Dec2014 $17.07
Dec2013 $15.46
Dec2012 $14.13
Dec2011 $4.51
Dec2010 $13.18
Dec2009 $22.13
Nov2008 $4.47
Nov2007 $24.73
Nov2006 $19.69
Nov2005 $11.21
Nov2004 $8.92
Nov2003 $5.87
Nov2002 $4.03
Nov2001 $4.26
Nov2000 $6.00
Nov1999 $5.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $17.28
Dec2018 $16.84
Dec2017 $13.08
Dec2016 $15.08
Dec2015 $13.88
Dec2014 $14.12
Dec2013 $13.06
Dec2012 $11.80
Dec2011 $11.69
Dec2010 $15.80
Dec2009 $16.89
Nov2008 $14.11
Nov2007 $17.32
Nov2006 $12.39
Nov2005 $8.11
Nov2004 $6.31
Nov2003 $5.05

Recommended Reading:

Other ModernGraham posts about the company

Goldman Sachs Group Inc Valuation – November 2018 $GS
Goldman Sachs Group Inc Valuation – February 2018 $GS
Goldman Sachs Group Inc Valuation – June 2016 $GS
10 Low PE Stocks for the Enterprising Investor – June 2016
Stocks Trading Below Their Graham Number – May 2016

Other ModernGraham posts about related companies

American Express Co Valuation – April 2019 #AXP
Broadridge Financial Solutions Inc Valuation – April 2019 #BR
T.Rowe Price Group Inc Valuation – March 2019 #TROW
Moody’s Corp Valuation – March 2019 #MCO
Charles Schwab Corp Valuation – March 2019 #SCHW
Willis Towers Watson PLC Valuation – March 2019 #WLTW
Paypal Holdings Inc Valuation – March 2019 #PYPL
Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN

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.

American Express Co Valuation – April 2019 #AXP

Company Profile (excerpt from Reuters): American Express Company, incorporated on June 10, 1965, together with its subsidiaries, is a global services company. The Company’s principal products and services are charge and credit card products, and travel-related services offered to consumers and businesses around the world. The Company’s segments include the Global Consumer Services Group (GCSG), Global Merchant and Network Services (GMNS), and Global Commercial Services (GCS). The Company’s range of products and services includes network services; merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants; other fee services, including fraud prevention services and the design and operation of customer loyalty programs; expense management products and services, and stored value/prepaid products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AXP – April 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $93,000,342,672 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 83.98% Pass
5. Moderate PEmg Ratio PEmg < 20 15.56 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.24 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.13
MG Growth Estimate 6.66%
MG Value $155.42
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $103.32
MG Value based on 0% Growth $60.57
Market Implied Growth Rate 3.53%
Current Price $110.86
% of Intrinsic Value 71.33%

American Express Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PB ratio. 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 $4.94 in 2015 to an estimated $7.13 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.53% 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 above the price.

At the time of valuation, further research into American Express Company revealed the company was trading above its Graham Number of $76.95. The company pays a dividend of $1.48 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 15.56, which was below the industry average of 21.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

American Express Company performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $76.95
PEmg 15.56
PB Ratio 4.24
Dividend Yield 1.34%
TTM Dividend $1.48
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
Long-Term Debt & Capital Lease Obligation $58,423,000,000
Total Assets $188,602,000,000
Intangible Assets $3,347,000,000
Total Liabilities $166,312,000,000
Shares Outstanding (Diluted Average) 853,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.00
Dec2018 $7.91
Dec2017 $2.99
Dec2016 $5.61
Dec2015 $5.05
Dec2014 $5.56
Dec2013 $4.88
Dec2012 $3.89
Dec2011 $4.12
Dec2010 $3.35
Dec2009 $1.54
Dec2008 $2.32
Dec2007 $3.36
Dec2006 $2.99
Dec2005 $2.97
Dec2004 $2.68
Dec2003 $2.30
Dec2002 $2.01
Dec2001 $0.98
Dec2000 $2.07
Dec1999 $1.81

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.13
Dec2018 $5.60
Dec2017 $4.57
Dec2016 $5.24
Dec2015 $4.94
Dec2014 $4.71
Dec2013 $4.04
Dec2012 $3.43
Dec2011 $3.11
Dec2010 $2.64
Dec2009 $2.40
Dec2008 $2.84
Dec2007 $3.02
Dec2006 $2.77
Dec2005 $2.50
Dec2004 $2.18
Dec2003 $1.90

Recommended Reading:

Other ModernGraham posts about the company

American Express Co Valuation – November 2018 $AXP
American Express Co. Valuation – February 2018 $AXP
5 Undervalued Dow Components to Research – March 2017
5 Undervalued Dow Components to Research – February 2017
10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017

Other ModernGraham posts about related companies

Broadridge Financial Solutions Inc Valuation – April 2019 #BR
T.Rowe Price Group Inc Valuation – March 2019 #TROW
Moody’s Corp Valuation – March 2019 #MCO
Charles Schwab Corp Valuation – March 2019 #SCHW
Willis Towers Watson PLC Valuation – March 2019 #WLTW
Paypal Holdings Inc Valuation – March 2019 #PYPL
Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN
S&P Global Inc Valuation – March 2019 #SPGI

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.

Broadridge Financial Solutions Inc Valuation – April 2019 #BR

Company Profile (excerpt from Reuters): Broadridge Financial Solutions, Inc. (Broadridge), incorporated on December 6, 2006, is a provider of investor communications and technology-driven solutions to banks, broker-dealers, mutual funds and corporate issuers. The Company’s segments include Investor Communication Solutions, and Global Technology and Operations. The Company’s services include investor and customer communications, securities processing, and data and analytics solutions. The Company delivers a range of solutions that helps its clients serve their retail and institutional customers across the entire investment lifecycle, including pre-trade, trade, and post-trade processing functionality. The Company serves a client base across four client groups: capital markets, asset management, wealth management and corporations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BR – April 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 $12,145,347,942 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.02 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 185.25% Pass
6. Moderate PEmg Ratio PEmg < 20 31.08 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.13 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 1.02 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 78.56 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 $3.37
MG Growth Estimate 11.73%
MG Value $107.83
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $48.93
MG Value based on 0% Growth $28.68
Market Implied Growth Rate 11.29%
Current Price $104.87
% of Intrinsic Value 97.25%

Broadridge Financial Solutions, 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, 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.89 in 2015 to an estimated $3.37 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 11.29% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Broadridge Financial Solutions, Inc. revealed the company was trading above its Graham Number of $29.75. The company pays a dividend of $1.46 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 31.08, which was above the industry average of 21.66. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-10.65.

Broadridge Financial Solutions, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$10.65
Graham Number $29.75
PEmg 31.08
Current Ratio 1.02
PB Ratio 11.13
Current Dividend $1.46
Dividend Yield 1.39%
Number of Consecutive Years of Dividend Growth 12

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 $966,400,000
Total Current Liabilities $951,200,000
Long-Term Debt $1,194,100,000
Total Assets $3,357,600,000
Intangible Assets $1,699,700,000
Total Liabilities $2,235,000,000
Shares Outstanding (Diluted Average) 119,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.18
Jun2018 $3.56
Jun2017 $2.70
Jun2016 $2.53
Jun2015 $2.32
Jun2014 $2.12
Jun2013 $1.69
Jun2012 $0.97
Jun2011 $1.32
Jun2010 $1.37
Jun2009 $1.58
Jun2008 $1.36
Jun2007 $1.42
Jun2006 $1.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.37
Jun2018 $2.86
Jun2017 $2.43
Jun2016 $2.18
Jun2015 $1.89
Jun2014 $1.62
Jun2013 $1.37
Jun2012 $1.25
Jun2011 $1.40
Jun2010 $1.42
Jun2009 $1.33
Jun2008 $1.07
Jun2007 $0.79
Jun2006 $0.40

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

T.Rowe Price Group Inc Valuation – March 2019 #TROW
Moody’s Corp Valuation – March 2019 #MCO
Charles Schwab Corp Valuation – March 2019 #SCHW
Willis Towers Watson PLC Valuation – March 2019 #WLTW
Paypal Holdings Inc Valuation – March 2019 #PYPL
Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN
S&P Global Inc Valuation – March 2019 #SPGI
Equifax Inc Valuation – March 2019 #EFX

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.

T.Rowe Price Group Inc Valuation – March 2019 #TROW

Company Profile (excerpt from Reuters): T. Rowe Price Group, Inc., incorporated on February 4, 2000, is a financial services holding company. The Company provides global investment management services through its subsidiaries to investors across the world. The Company provides an array of Company sponsored the United States mutual funds, other sponsored pooled investment vehicles, sub advisory services, separate account management, recordkeeping, and related services to individuals, advisors, institutions, financial intermediaries and retirement plan sponsors.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TROW – 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 $23,699,005,370 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.99 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 119.75% Pass
6. Moderate PEmg Ratio PEmg < 20 16.37 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.97 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 6.99 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 Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.11
MG Growth Estimate 6.95%
MG Value $136.92
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $88.66
MG Value based on 0% Growth $51.97
Market Implied Growth Rate 3.94%
Current Price $100.12
% of Intrinsic Value 73.12%

T. Rowe Price Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. 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 $4.18 in 2015 to an estimated $6.11 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.94% 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 T. Rowe Price Group Inc revealed the company was trading above its Graham Number of $59.52. The company pays a dividend of $2.8 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 16.37, which was below the industry average of 21.22, 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 $1.69.

T. Rowe Price Group Inc fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.69
Graham Number $59.52
PEmg 16.37
Current Ratio 6.99
PB Ratio 3.97
Current Dividend $2.80
Dividend Yield 2.80%
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 12/1/2018
Total Current Assets $1,974,800,000
Total Current Liabilities $282,700,000
Long-Term Debt $0
Total Assets $7,689,300,000
Intangible Assets $665,700,000
Total Liabilities $1,565,000,000
Shares Outstanding (Diluted Average) 243,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.12
Dec2018 $7.27
Dec2017 $5.97
Dec2016 $4.75
Dec2015 $4.63
Dec2014 $4.55
Dec2013 $3.90
Dec2012 $3.36
Dec2011 $2.92
Dec2010 $2.53
Dec2009 $1.65
Dec2008 $1.82
Dec2007 $2.40
Dec2006 $1.90
Dec2005 $1.58
Dec2004 $1.26
Dec2003 $0.88
Dec2002 $0.76
Dec2001 $0.76
Dec2000 $1.04
Dec1999 $0.93

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.11
Dec2018 $5.89
Dec2017 $5.05
Dec2016 $4.47
Dec2015 $4.18
Dec2014 $3.79
Dec2013 $3.23
Dec2012 $2.75
Dec2011 $2.38
Dec2010 $2.09
Dec2009 $1.87
Dec2008 $1.92
Dec2007 $1.85
Dec2006 $1.47
Dec2005 $1.19
Dec2004 $0.98
Dec2003 $0.85

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – February 2019
Best Dividend Paying Stocks for Dividend Growth Investors – August 2018
Best Dividend Paying Stocks for Dividend Growth Investors – June 2018
T. Rowe Price Group Inc Valuation – June 2018 $TROW
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017

Other ModernGraham posts about related companies

Moody’s Corp Valuation – March 2019 #MCO
Charles Schwab Corp Valuation – March 2019 #SCHW
Willis Towers Watson PLC Valuation – March 2019 #WLTW
Paypal Holdings Inc Valuation – March 2019 #PYPL
Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN
S&P Global Inc Valuation – March 2019 #SPGI
Equifax Inc Valuation – March 2019 #EFX
CME Group Inc Valuation – March 2019 #CME

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.

Moody’s Corp Valuation – March 2019 #MCO

Company Profile (excerpt from Reuters): Moody’s Corporation (Moody’s), incorporated on June 2, 2000, is a provider of credit ratings; credit, capital markets and economic related research, data and analytical tools; software solutions and related risk management services, quantitative credit risk measures, financial services training and certification services, and research and analytical services to financial institution customers. The Company operates in two segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA). The Company’s MIS segment consists of the Company’s ratings operations. The Company’s MA segment develops a range of products and services that support financial analysis and risk management activities of institutional participants in financial markets.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MCO – 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 $33,481,677,645 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.61 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 146.68% Pass
6. Moderate PEmg Ratio PEmg < 20 31.24 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 52.53 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.06 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 $5.68
MG Growth Estimate 5.95%
MG Value $115.79
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $82.32
MG Value based on 0% Growth $48.26
Market Implied Growth Rate 11.37%
Current Price $177.38
% of Intrinsic Value 153.19%

Moody’s Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor 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 $4.07 in 2015 to an estimated $5.68 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.37% 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 Moody’s Corporation revealed the company was trading above its Graham Number of $19.55. The company pays a dividend of $1.76 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 31.24, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-28.2.

Moody’s 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) -$28.20
Graham Number $19.55
PEmg 31.24
Current Ratio 1.61
PB Ratio 52.53
Current Dividend $1.76
Dividend Yield 0.99%
Number of Consecutive Years of Dividend Growth 9

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,386,900,000
Total Current Liabilities $2,098,500,000
Long-Term Debt $5,226,100,000
Total Assets $9,526,200,000
Intangible Assets $5,347,400,000
Total Liabilities $8,869,700,000
Shares Outstanding (Diluted Average) 194,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.08
Dec2018 $6.74
Dec2017 $5.15
Dec2016 $1.36
Dec2015 $4.63
Dec2014 $4.61
Dec2013 $3.60
Dec2012 $3.05
Dec2011 $2.49
Dec2010 $2.15
Dec2009 $1.69
Dec2008 $1.87
Dec2007 $2.58
Dec2006 $2.58
Dec2005 $1.84
Dec2004 $1.40
Dec2003 $1.19
Dec2002 $0.92
Dec2001 $0.66
Dec2000 $0.49
Dec1999 $0.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.68
Dec2018 $4.82
Dec2017 $3.86
Dec2016 $3.29
Dec2015 $4.07
Dec2014 $3.58
Dec2013 $2.91
Dec2012 $2.46
Dec2011 $2.16
Dec2010 $2.06
Dec2009 $2.04
Dec2008 $2.17
Dec2007 $2.18
Dec2006 $1.85
Dec2005 $1.39
Dec2004 $1.09
Dec2003 $0.87

Recommended Reading:

Other ModernGraham posts about the company

Moody’s Corporation – June 2018 $MCO
Moody’s Corporation Valuation – March 2017 $MCO
21 Best Undervalued Stocks of the Week – 8/27/16
Moody’s Corporation Valuation – August 2016 $MCO
Moody’s Corporation Stock Valuation – February 2016 $MCO

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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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