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Cisco Systems Inc Valuation – April 2019 #CSCO

Company Profile (excerpt from Reuters): Cisco Systems, Inc. (Cisco), incorporated on December 10, 1984, is engaged in designing and selling a range of technologies across networking, security, collaboration, applications and the cloud. The Company operates through three geographic segments: Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).The Company’s product and technologies includes, infrastructure platforms; applications; security and other products. It also offers technical support services and advanced services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CSCO – 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 $243,035,961,849 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.80 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 21.55% Fail
6. Moderate PEmg Ratio PEmg < 20 31.37 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.10 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 1.80 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.67 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.76
MG Growth Estimate 1.20%
MG Value $19.19
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $25.52
MG Value based on 0% Growth $14.96
Market Implied Growth Rate 11.43%
Current Price $55.21
% of Intrinsic Value 287.64%

Cisco Systems, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.63 in 2015 to an estimated $1.76 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Cisco Systems, Inc. revealed the company was trading above its Graham Number of $24.85. The company pays a dividend of $1.24 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.37, which was below the industry average of 69.29, 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 $-1.9.

Cisco Systems, 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) -$1.90
Graham Number $24.85
PEmg 31.37
Current Ratio 1.80
PB Ratio 6.10
Current Dividend $1.24
Dividend Yield 2.25%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2019
Total Current Assets $53,117,000,000
Total Current Liabilities $29,479,000,000
Long-Term Debt $15,893,000,000
Total Assets $102,462,000,000
Intangible Assets $35,563,000,000
Total Liabilities $61,673,000,000
Shares Outstanding (Diluted Average) 4,505,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.93
Jul2018 $0.02
Jul2017 $1.90
Jul2016 $2.11
Jul2015 $1.75
Jul2014 $1.49
Jul2013 $1.86
Jul2012 $1.49
Jul2011 $1.17
Jul2010 $1.33
Jul2009 $1.05
Jul2008 $1.31
Jul2007 $1.17
Jul2006 $0.89
Jul2005 $0.87
Jul2004 $0.62
Jul2003 $0.50
Jul2002 $0.25
Jul2001 -$0.14
Jul2000 $0.36
Jul1999 $0.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.76
Jul2018 $1.27
Jul2017 $1.87
Jul2016 $1.82
Jul2015 $1.63
Jul2014 $1.54
Jul2013 $1.50
Jul2012 $1.30
Jul2011 $1.21
Jul2010 $1.20
Jul2009 $1.11
Jul2008 $1.08
Jul2007 $0.92
Jul2006 $0.74
Jul2005 $0.58
Jul2004 $0.40
Jul2003 $0.27

Recommended Reading:

Other ModernGraham posts about the company

Cisco Systems Inc Valuation – November 2018 $CSCO
Cisco Systems Inc Valuation – February 2018 $CSCO
5 Undervalued Dow Components to Research – March 2017
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2017
5 Undervalued Dow Components to Research – February 2017

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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.

Jack Henry & Associates Inc Valuation – April 2019 #JKHY

Company Profile (excerpt from Reuters): Jack Henry & Associates, Inc., incorporated on October 4, 1985, is a provider of information processing solutions for community banks. The Company offers a range of products and services, including processing transactions, automating business processes, and managing information financial institutions and diverse corporate entities. The Company operates in two segments, which include bank systems and services (Bank) and credit union systems and services (Credit Union). The Company provides its products and services through approximately three business brands, which include Jack Henry Banking, Symitar and ProfitStars. The Core software system consists of the integrated applications required to process deposit, loan, and general ledger transactions, and to maintain centralized customer/member information. Jack Henry Banking markets over three core software systems to banks and Symitar markets over two core software systems to credit unions. The Company’s subsidiaries include Jack Henry Services, Inc., Jack Henry Software/Commlink, Inc., Symitar Systems, Inc., Check Collect, Inc. and Bayside Business Solutions, Inc.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JKHY – 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 $10,937,524,534 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.07 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 142.89% Pass
6. Moderate PEmg Ratio PEmg < 20 38.72 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.88 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 1.07 Fail
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 $3.66
MG Growth Estimate 10.26%
MG Value $106.22
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $53.07
MG Value based on 0% Growth $31.11
Market Implied Growth Rate 15.11%
Current Price $141.73
% of Intrinsic Value 133.43%

Jack Henry & Associates, Inc. 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 low current ratio. 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 $2.17 in 2015 to an estimated $3.66 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 15.11% 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 Jack Henry & Associates, Inc. revealed the company was trading above its Graham Number of $35.7. The company pays a dividend of $1.36 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 38.72, which was above the industry average of 32.68. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.81.

Jack Henry & Associates, 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) -$2.81
Graham Number $35.70
PEmg 38.72
Current Ratio 1.07
PB Ratio 7.88
Current Dividend $1.36
Dividend Yield 0.96%
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 $362,639,000
Total Current Liabilities $340,074,000
Long-Term Debt $0
Total Assets $1,971,777,000
Intangible Assets $1,113,794,000
Total Liabilities $579,822,000
Shares Outstanding (Diluted Average) 77,409,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.45
Jun2018 $4.85
Jun2017 $3.14
Jun2016 $3.12
Jun2015 $2.59
Jun2014 $2.19
Jun2013 $1.94
Jun2012 $1.74
Jun2011 $1.59
Jun2010 $1.38
Jun2009 $1.22
Jun2008 $1.16
Jun2007 $1.14
Jun2006 $0.96
Jun2005 $0.81
Jun2004 $0.68
Jun2003 $0.55
Jun2002 $0.62
Jun2001 $0.61
Jun2000 $0.40
Jun1999 $0.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.66
Jun2018 $3.57
Jun2017 $2.82
Jun2016 $2.54
Jun2015 $2.17
Jun2014 $1.90
Jun2013 $1.69
Jun2012 $1.52
Jun2011 $1.37
Jun2010 $1.23
Jun2009 $1.13
Jun2008 $1.04
Jun2007 $0.93
Jun2006 $0.79
Jun2005 $0.68
Jun2004 $0.61
Jun2003 $0.55

Recommended Reading:

Other ModernGraham posts about the company

Jack Henry & Associates Inc Valuation – August 2018 $JKHY
Jack Henry & Associates Inc Valuation – Initial Coverage $JKHY

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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.

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.

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Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
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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.

Prudential Financial Inc Valuation – April 2019 #PRU

Company Profile (excerpt from Reuters): Prudential Financial, Inc., incorporated in 1999, is a financial services company. The Company, through its subsidiaries and affiliates, offers a range of financial products and services, which includes life insurance, annuities, retirement-related services, mutual funds and investment management. The Company’s operations consists of four divisions, which together encompass seven segments. Its divisions include The U.S. Retirement Solutions and Investment Management division; the U.S. Individual Life and Group Insurance division; the International Insurance division, and Closed Block division. The Company has operations in the United States, Asia, Europe and Latin America.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PRU – 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 $39,227,191,497 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
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 191.48% Pass
5. Moderate PEmg Ratio PEmg < 20 7.86 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.82 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 $12.20
MG Growth Estimate 15.00%
MG Value $469.62
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $176.87
MG Value based on 0% Growth $103.68
Market Implied Growth Rate -0.32%
Current Price $95.91
% of Intrinsic Value 20.42%

Prudential Financial Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. 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 $5.22 in 2015 to an estimated $12.2 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.32% annual earnings loss 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 Prudential Financial Inc revealed the company was trading below its Graham Number of $177.98. The company pays a dividend of $3.6 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 7.86, which was below the industry average of 19.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Prudential Financial Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $177.98
PEmg 7.86
PB Ratio 0.82
Dividend Yield 3.75%
TTM Dividend $3.60
Number of Consecutive Years of Dividend Growth 10

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 $18,333,000,000
Total Assets $815,078,000,000
Intangible Assets $1,850,000,000
Total Liabilities $766,047,000,000
Shares Outstanding (Diluted Average) 421,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.96
Dec2018 $9.50
Dec2017 $17.86
Dec2016 $9.71
Dec2015 $12.17
Dec2014 $3.23
Dec2013 -$1.55
Dec2012 $1.05
Dec2011 $7.12
Dec2010 $5.32
Dec2009 $7.63
Dec2008 -$2.53
Dec2007 $7.61
Dec2006 $6.50
Dec2005 $6.34
Dec2004 $3.31
Dec2003 $1.98
Dec2002 $1.25
Dec2001 $0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $12.20
Dec2018 $11.71
Dec2017 $11.30
Dec2016 $6.99
Dec2015 $5.22
Dec2014 $2.18
Dec2013 $2.41
Dec2012 $4.16
Dec2011 $5.49
Dec2010 $4.75
Dec2009 $4.68
Dec2008 $3.55
Dec2007 $6.11
Dec2006 $4.87
Dec2005 $3.56
Dec2004 $1.89
Dec2003 $1.01

Recommended Reading:

Other ModernGraham posts about the company

Best Stocks Below Their Graham Number – February 2019
10 Best Dividend Paying Stocks for the Enterprising Investor – September 2018
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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.

Synchrony Financial Valuation – March 2019 #SYF

Company Profile (excerpt from Reuters): Synchrony Financial (Synchrony), incorporated on September 12, 2003, is a consumer financial services company. The Company provides a range of credit products through programs it has established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers. The Company’s revenue activities are managed through three sales platforms: Retail Card, Payment Solutions and CareCredit. It offers its credit products through its subsidiary, Synchrony Bank (the Bank). Through the Bank, it offers a range of deposit products insured by the Federal Deposit Insurance Corporation (FDIC), including certificates of deposit, individual retirement accounts (IRAs), money market accounts and savings accounts.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SYF – 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,645,504,194 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 347.91% Pass
5. Moderate PEmg Ratio PEmg < 20 9.91 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.64 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 $3.36
MG Growth Estimate 7.74%
MG Value $80.62
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $48.76
MG Value based on 0% Growth $28.58
Market Implied Growth Rate 0.70%
Current Price $33.31
% of Intrinsic Value 41.32%

Synchrony Financial is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. 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 $2.22 in 2015 to an estimated $3.36 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.7% 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 Synchrony Financial revealed the company was trading below its Graham Number of $43.03. The company pays a dividend of $0.72 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 9.91, 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.

Synchrony Financial fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $43.03
PEmg 9.91
PB Ratio 1.64
Dividend Yield 2.16%
TTM Dividend $0.72
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 $23,996,000,000
Total Assets $106,792,000,000
Intangible Assets $2,161,000,000
Total Liabilities $92,114,000,000
Shares Outstanding (Diluted Average) 720,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.03
Dec2018 $3.74
Dec2017 $2.42
Dec2016 $2.71
Dec2015 $2.65
Dec2014 $2.78
Dec2013 $2.21
Dec2012 $0.00
Dec2011 $2.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.36
Dec2018 $2.97
Dec2017 $2.58
Dec2016 $2.46
Dec2015 $2.22
Dec2014 $1.82
Dec2013 $1.19
Dec2012 $0.61
Dec2011 $0.76

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Stocks for the Enterprising Investor – January 2019
Most Undervalued Stocks of the S&P 500 – August 2018
10 Undervalued Stocks for the Enterprising Investor – August 2018
10 Undervalued Stocks for the Enterprising Investor – July 2018
Synchrony Financial Valuation – June 2018 $SYF

Other ModernGraham posts about related companies

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
Northern Trust Corp Valuation – March 2019 #NTRS
Affiliated Managers Group Inc Valuation – February 2019 $AMG
Bank of New York Mellon Corp Valuation – February 2019 $BK
Western Union Co Valuation – February 2019 $WU
Raymond James Financial Valuation – February 2019 $RJF

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.

SVB Financial Group Valuation – March 2019 #SIVB

Company Profile (excerpt from Reuters): SVB Financial Group (SVB Financial), incorporated on March 22, 1999, is a diversified financial services company, as well as a bank holding and a financial holding company. The Company operates through three segments: Global Commercial Bank, SVB Private Bank and SVB Capital. The Company, through its subsidiaries and divisions, offers a range of banking and financial products and services to clients across the United States. The Company offers services in the technology, life science/healthcare, private equity/venture capital and wine industries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SIVB – 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,930,426,391 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 361.84% Pass
5. Moderate PEmg Ratio PEmg < 20 16.91 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.50 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 Fail
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $14.52
MG Growth Estimate 15.00%
MG Value $558.84
Opinion Undervalued
MG Grade D+
MG Value based on 3% Growth $210.47
MG Value based on 0% Growth $123.38
Market Implied Growth Rate 4.21%
Current Price $245.49
% of Intrinsic Value 43.93%

SVB Financial Group does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history. The Enterprising Investor has concerns regarding 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 $5.34 in 2015 to an estimated $14.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.21% 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 SVB Financial Group revealed the company was trading above its Graham Number of $205.49. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.91, which was above the industry average of 16.75.

SVB Financial Group scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Graham Number $205.49
PEmg 16.91
PB Ratio 2.50
Dividend Yield 0.00%
TTM Dividend $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
Long-Term Debt & Capital Lease Obligation $696,465,000
Total Assets $56,927,979,000
Intangible Assets $0
Total Liabilities $51,663,136,000
Shares Outstanding (Diluted Average) 53,688,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $19.29
Dec2018 $18.11
Dec2017 $9.20
Dec2016 $7.31
Dec2015 $6.62
Dec2014 $5.31
Dec2013 $4.67
Dec2012 $3.91
Dec2011 $3.94
Dec2010 $2.24
Dec2009 $0.66
Dec2008 $2.16
Dec2007 $3.37
Dec2006 $2.38
Dec2005 $2.40
Dec2004 $1.70
Dec2003 $0.35
Dec2002 $1.21
Dec2001 $1.79
Dec2000 $3.23
Dec1999 $1.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $14.52
Dec2018 $11.19
Dec2017 $7.36
Dec2016 $6.15
Dec2015 $5.34
Dec2014 $4.47
Dec2013 $3.73
Dec2012 $3.03
Dec2011 $2.56
Dec2010 $1.96
Dec2009 $1.95
Dec2008 $2.53
Dec2007 $2.49
Dec2006 $1.90
Dec2005 $1.60
Dec2004 $1.36
Dec2003 $1.31

Recommended Reading:

Other ModernGraham posts about the company

SVB Financial Group Valuation – June 2018 $SIVB
SVB Financial Group Valuation – Initial Coverage $SIVB

Other ModernGraham posts about related companies

US Bancorp Valuation – March 2019 #USB
Citizens Financial Group Inc Valuation – February 2019 $CFG
BB&T Corp Valuation – February 2019 $BBT
M&T Bank Corp Valuation – February 2019 $MTB
Bank of America Corp Valuation – January 2019 $BAC
Fifth Third Bancorp Valuation – January 2019 $FITB
Zions Bancorp Valuation – January 2019 $ZION
Regions Financial Corp Valuation – January 2019 $RF
Huntington Bancshares Inc Valuation – January 2019 $HBAN
PNC Financial Services Group Inc Valuation – January 2019 $PNC

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.

Occidental Petroleum Corp Valuation – March 2019 #OXY

Company Profile (excerpt from Reuters): Occidental Petroleum Corporation (Occidental), incorporated on April 9, 1986, is an oil and gas exploration and production company. The Company operates through three segments: oil and gas, chemical (OxyChem), and midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The OxyChem segment manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities. Occidental’s domestic upstream oil and gas operations are located in New Mexico and Texas. Its international operations are located in Bolivia, Colombia, Oman, Qatar and the United Arab Emirates (UAE).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of OXY – 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 $48,967,841,552 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -55.40% Fail
6. Moderate PEmg Ratio PEmg < 20 42.46 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.31 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 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.05 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.54
MG Growth Estimate 15.00%
MG Value $59.24
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $22.31
MG Value based on 0% Growth $13.08
Market Implied Growth Rate 16.98%
Current Price $65.33
% of Intrinsic Value 110.28%

Occidental Petroleum Corporation 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, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.42 in 2015 to an estimated $1.54 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.98% 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 Occidental Petroleum Corporation revealed the company was trading above its Graham Number of $32.19. The company pays a dividend of $3.1 per share, for a yield of 4.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 42.46, which was below the industry average of 58.42, 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 $-16.66.

Occidental Petroleum Corporation 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) -$16.66
Graham Number $32.19
PEmg 42.46
Current Ratio 1.34
PB Ratio 2.31
Current Dividend $3.10
Dividend Yield 4.75%
Number of Consecutive Years of Dividend Growth 17

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 $9,932,000,000
Total Current Liabilities $7,412,000,000
Long-Term Debt $10,201,000,000
Total Assets $43,854,000,000
Intangible Assets $0
Total Liabilities $22,524,000,000
Shares Outstanding (Diluted Average) 755,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.63
Dec2018 $5.39
Dec2017 $1.70
Dec2016 -$0.75
Dec2015 -$10.23
Dec2014 $0.79
Dec2013 $7.32
Dec2012 $5.67
Dec2011 $8.32
Dec2010 $5.56
Dec2009 $3.58
Dec2008 $8.34
Dec2007 $6.44
Dec2006 $4.87
Dec2005 $6.48
Dec2004 $2.80
Dec2003 $1.98
Dec2002 $1.31
Dec2001 $1.55
Dec2000 $2.13
Dec1999 $0.62

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.54
Dec2018 $0.79
Dec2017 -$1.09
Dec2016 -$1.47
Dec2015 -$0.42
Dec2014 $4.83
Dec2013 $6.60
Dec2012 $6.25
Dec2011 $6.51
Dec2010 $5.66
Dec2009 $5.79
Dec2008 $6.52
Dec2007 $5.25
Dec2006 $4.26
Dec2005 $3.58
Dec2004 $2.07
Dec2003 $1.64

Recommended Reading:

Other ModernGraham posts about the company

Occidental Petroleum Corp Valuation – June 2018 $OXY
Most Overvalued Stocks of the S&P 500 – March 2017
Occidental Petroleum Corp Valuation – February 2017 $OXY
Occidental Petroleum Corp Valuation – August 2016 $OXY
Occidental Petroleum Corporation – 2015 Update $OXY

Other ModernGraham posts about related companies

Phillips 66 Valuation – March 2019 #PSX
Halliburton Co Valuation – March 2019 #HAL
Kinder Morgan Inc Valuation – February 2019 $KMI
National Oilwell Varco Inc Valuation – February 2019 $NOV
Diamondback Energy Inc Valuation – February 2019 $FANG
TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC
Baker Hughes, a GE Co Valuation – February 2019 $BHGE
EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP

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.

Discover Financial Services Valuation – March 2019 $DFS

Company Profile (excerpt from Reuters): Discover Financial Services (DFS), incorporated on July 25, 1960, is a direct banking and payment services company. The Company is a bank holding company, as well as a financial holding company. The Company operates through two segments: Direct Banking and Payment Services. It provides direct banking products and services, and payment services through its subsidiaries. It offers its customers credit card loans, private student loans, personal loans, home equity loans and deposit products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DFS – 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,591,292,141 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 122.38% Pass
5. Moderate PEmg Ratio PEmg < 20 10.13 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.17 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 $7.09
MG Growth Estimate 6.82%
MG Value $156.93
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $102.80
MG Value based on 0% Growth $60.26
Market Implied Growth Rate 0.82%
Current Price $71.84
% of Intrinsic Value 45.78%

Discover Financial Services 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 $4.87 in 2015 to an estimated $7.09 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.82% 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 Discover Financial Services revealed the company was trading below its Graham Number of $77.91. The company pays a dividend of $1.5 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.13, which was below the industry average of 31.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Discover Financial Services fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Graham Number $77.91
PEmg 10.13
PB Ratio 2.17
Dividend Yield 2.09%
TTM Dividend $1.50
Number of Consecutive Years of Dividend Growth 8

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $27,228,000,000
Total Assets $109,553,000,000
Intangible Assets $416,000,000
Total Liabilities $98,423,000,000
Shares Outstanding (Diluted Average) 336,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.45
Dec2018 $7.79
Dec2017 $5.42
Dec2016 $5.77
Dec2015 $5.13
Dec2014 $4.90
Dec2013 $4.96
Nov2012 $4.46
Nov2011 $4.06
Nov2010 $1.22
Nov2009 $2.38
Nov2008 $1.92
Nov2007 $1.23
Nov2006 $1.89
Nov2005 $1.21
Nov2004 $0.00
Nov2003 $1.36

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.09
Dec2018 $6.21
Dec2017 $5.36
Dec2016 $5.23
Dec2015 $4.87
Dec2014 $4.47
Dec2013 $3.98
Nov2012 $3.26
Nov2011 $2.49
Nov2010 $1.72
Nov2009 $1.88
Nov2008 $1.51
Nov2007 $1.25
Nov2006 $1.13
Nov2005 $0.68
Nov2004 $0.36
Nov2003 $0.45

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – June 2018
Discover Financial Services Valuation – May 2018 $DFS
10 Low PE Stock Picks for the Defensive Investor – August 2017
10 Low PE Stock Picks for the Defensive Investor – February 2017
12 Best Stocks for Value Investors This Week – 2/4/17

Other ModernGraham posts about related companies

Mastercard Inc Valuation – January 2019 $MA
Visa Inc Valuation – November 2018 $V
American Express Co Valuation – November 2018 $AXP
Mastercard Inc Valuation – March 2018 $MA
Discover Financial Services Valuation – January 2017 $DFS
Discover Financial Services Valuation – August 2016 $DFS
Mastercard Inc Valuation – July 2016 $MA
Discover Financial Services Valuation – February 2016 $DFS
Mastercard Inc Valuation – January 2016 Update $MA
Discover Financial Services Inc. Valuation – November 2015 Update $DFS

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.

Edwards Lifesciences Corp Valuation – March 2019 $EW

Company Profile (excerpt from Reuters): Edwards Lifesciences Corporation, incorporated on September 10, 1999, is a manufacturer of heart valve systems and repair products used to replace or repair a patient’s diseased or defective heart valve. The Company is globally engaged in patient-focused innovations for structural heart disease and critical care monitoring. Its segments include United States, Europe, Japan and Rest of World. Its products are categorized into three areas: Transcatheter Heart Valve Therapy, Surgical Heart Valve Therapy and Critical Care. It also develops hemodynamic monitoring systems that are used to measure a patient’s cardiovascular function in the hospital setting. The Company’s Transcatheter Heart Valve Therapy and Surgical Heart Valve Therapy products are manufactured in the United States, Singapore and Switzerland. Critical Care products are manufactured in its facilities located in Puerto Rico and the Dominican Republic. Its subsidiaries include Edwards Lifesciences Asset Management Corporation, Edwards Lifesciences CardiAQ LLC., Valtech Cardio Inc. and Red Hill Insurance Corporation.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EW – 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 $36,091,033,254 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.61 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 258.21% Pass
6. Moderate PEmg Ratio PEmg < 20 47.51 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.73 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 2.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.42 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 $3.66
MG Growth Estimate 8.64%
MG Value $94.29
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $53.01
MG Value based on 0% Growth $31.08
Market Implied Growth Rate 19.51%
Current Price $173.71
% of Intrinsic Value 184.24%

Edwards Lifesciences Corp 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 Overvalued after growing its EPSmg (normalized earnings) from $2.32 in 2015 to an estimated $3.66 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.51% 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 Edwards Lifesciences Corp revealed the company was trading above its Graham Number of $41.72. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 47.51, which was below the industry average of 53.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.49.

Edwards Lifesciences Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $0.49
Graham Number $41.72
PEmg 47.51
Current Ratio 2.61
PB Ratio 11.73
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 $2,286,900,000
Total Current Liabilities $876,600,000
Long-Term Debt $593,800,000
Total Assets $5,323,700,000
Intangible Assets $1,455,400,000
Total Liabilities $2,183,300,000
Shares Outstanding (Diluted Average) 212,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.15
Dec2018 $3.38
Dec2017 $2.70
Dec2016 $2.61
Dec2015 $2.25
Dec2014 $3.74
Dec2013 $1.71
Dec2012 $1.23
Dec2011 $0.99
Dec2010 $0.92
Dec2009 $0.98
Dec2008 $0.55
Dec2007 $0.47
Dec2006 $0.53
Dec2005 $0.32
Dec2004 $0.01
Dec2003 $0.32
Dec2002 $0.23
Dec2001 -$0.05
Dec2000 -$1.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.66
Dec2018 $2.92
Dec2017 $2.66
Dec2016 $2.53
Dec2015 $2.32
Dec2014 $2.14
Dec2013 $1.28
Dec2012 $1.02
Dec2011 $0.87
Dec2010 $0.77
Dec2009 $0.66
Dec2008 $0.46
Dec2007 $0.38
Dec2006 $0.32
Dec2005 $0.20
Dec2004 $0.05

Recommended Reading:

Other ModernGraham posts about the company

Edwards Lifesciences Corp Valuation – May 2018 $EW
12 Best Stocks for Value Investors This Week – 2/4/17
Edwards Lifesciences Corp Valuation – January 2017 $EW
Edwards Lifesciences Corp Valuation – August 2016 $EW
15 Best Stocks For Value Investors This Week – 2/13/16

Other ModernGraham posts about related companies

Boston Scientific Corporation Valuation – March 2019 $BSX
Baxter International Inc Valuation – March 2019 $BAX
Centene Corp Valuation – March 2019 $CNC
Abbott Laboratories Valuation – February 2019 $ABT
Becton Dickinson and Co Valuation – February 2019 $BDX
IQVIA Holdings Inc Valuation – February 2019 $IQV
Thermo Fisher Scientific Inc Valuation – February 2019 $TMO
Illumina Inc Valuation – February 2019 $ILMN
Waters Corp Valuation – February 2019 $WAT
Cerner Corp Valuation – February 2019 $CERN

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.

Boston Scientific Corporation Valuation – March 2019 $BSX

Company Profile (excerpt from Reuters): Boston Scientific Corporation, incorporated on June 22, 1979, is a developer, manufacturer and marketer of medical devices that are used in a range of interventional medical specialties. The Company offers its products by seven businesses: interventional cardiology, cardiac rhythm management, endoscopy, peripheral interventions, urology and pelvic health, neuromodulation, and electrophysiology. It operates through three segments: Cardiovascular, Rhythm Management, and MedSurg. Its Cardiovascular segment consists of Interventional Cardiology and Peripheral Interventions businesses. Rhythm Management consists of Cardiac Rhythm Management and Electrophysiology businesses. MedSurg consists of Endoscopy, Urology and Pelvic Health, and Neuromodulation businesses. It sells ACURATE TA and ACURATE neo /TF valve systems in Europe and in other geographies outside of the United States.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BSX – 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 $56,533,391,248 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.76 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 -185.15% Fail
6. Moderate PEmg Ratio PEmg < 20 46.99 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.57 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 0.76 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.82 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.87
MG Growth Estimate 15.00%
MG Value $33.42
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $12.59
MG Value based on 0% Growth $7.38
Market Implied Growth Rate 19.25%
Current Price $40.79
% of Intrinsic Value 122.06%

Boston Scientific Corporation 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, and the 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 earnings stability over the last five years, 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 Overvalued after growing its EPSmg (normalized earnings) from $-0.47 in 2015 to an estimated $0.87 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.25% 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 Boston Scientific Corporation revealed the company was trading above its Graham Number of $14.78. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 46.99, which was below the industry average of 53.13, 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 $-5.88.

Boston Scientific Corporation 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) -$5.88
Graham Number $14.78
PEmg 46.99
Current Ratio 0.76
PB Ratio 6.57
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,003,000,000
Total Current Liabilities $5,260,000,000
Long-Term Debt $4,797,000,000
Total Assets $20,999,000,000
Intangible Assets $14,283,000,000
Total Liabilities $12,273,000,000
Shares Outstanding (Diluted Average) 1,406,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.54
Dec2018 $1.19
Dec2017 $0.08
Dec2016 $0.25
Dec2015 -$0.18
Dec2014 -$0.09
Dec2013 -$0.09
Dec2012 -$2.89
Dec2011 $0.29
Dec2010 -$0.70
Dec2009 -$0.68
Dec2008 -$1.36
Dec2007 -$0.33
Dec2006 -$2.81
Dec2005 $0.75
Dec2004 $1.24
Dec2003 $0.56
Dec2002 $0.45
Dec2001 -$0.07
Dec2000 $0.46
Dec1999 $0.45

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.87
Dec2018 $0.44
Dec2017 $0.04
Dec2016 -$0.19
Dec2015 -$0.47
Dec2014 -$0.64
Dec2013 -$0.88
Dec2012 -$1.21
Dec2011 -$0.43
Dec2010 -$0.92
Dec2009 -$0.98
Dec2008 -$0.92
Dec2007 -$0.51
Dec2006 -$0.38
Dec2005 $0.75
Dec2004 $0.67
Dec2003 $0.38

Recommended Reading:

Other ModernGraham posts about the company

Boston Scientific Corp Valuation – May 2018 $BSX
Most Overvalued Stocks of the S&P 500 – March 2017
Boston Scientific Corp Valuation – January 2017 $BSX
Boston Scientific Inc. Analysis – September 2015 Update $BSX
23 Companies to Research This Week – 9/13/14

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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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