CenturyLink Inc Valuation – April 2019 #CTL

Company Profile (excerpt from Reuters): CenturyLink, Inc., incorporated on May 7, 1968, is an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. The Company’s segments include Enterprise and Consumer . Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CTL – 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 $13,378,511,740 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.69 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 -70.46% Fail
6. Moderate PEmg Ratio PEmg < 20 20.27 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.67 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 0.69 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -20.69 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.61
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $8.85
MG Value based on 0% Growth $5.19
Market Implied Growth Rate 5.88%
Current Price $12.37
% of Intrinsic Value N/A

Centurylink 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, 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 or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.05 in 2015 to an estimated $0.61 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.88% 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 Centurylink Inc revealed the company was trading below its Graham Number of $20.62. The company pays a dividend of $2.16 per share, for a yield of 17.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.26, which was below the industry average of 97.99, 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 $-43.67.

Centurylink 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) -$43.67
Graham Number $20.62
PEmg 20.26
Current Ratio 0.69
PB Ratio 0.67
Current Dividend $2.16
Dividend Yield 17.46%
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 $3,820,000,000
Total Current Liabilities $5,531,000,000
Long-Term Debt $35,409,000,000
Total Assets $70,256,000,000
Intangible Assets $38,810,000,000
Total Liabilities $50,428,000,000
Shares Outstanding (Diluted Average) 1,067,234,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.03
Dec2018 -$1.63
Dec2017 $2.21
Dec2016 $1.16
Dec2015 $1.58
Dec2014 $1.36
Dec2013 -$0.40
Dec2012 $1.25
Dec2011 $1.07
Dec2010 $3.13
Dec2009 $3.23
Dec2008 $3.52
Dec2007 $3.72
Dec2006 $3.07
Dec2005 $2.49
Dec2004 $2.41
Dec2003 $2.35
Dec2002 $5.61
Dec2001 $1.05
Dec2000 $0.90
Dec1999 $1.70

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.61
Dec2018 $0.58
Dec2017 $1.52
Dec2016 $1.11
Dec2015 $1.05
Dec2014 $0.95
Dec2013 $1.05
Dec2012 $1.99
Dec2011 $2.55
Dec2010 $3.31
Dec2009 $3.33
Dec2008 $3.27
Dec2007 $3.03
Dec2006 $2.86
Dec2005 $2.76
Dec2004 $2.75
Dec2003 $2.72

Recommended Reading:

Other ModernGraham posts about the company

CenturyLink Inc Valuation – June 2018 $CTL
CenturyLink Inc Valuation – July 2017 $CTL
CenturyLink Inc Valuation – February 2016 $CTL
27 Companies in the Spotlight This Week – 12/20/14
CenturyLink Inc. Annual Valuation – 2014 $CTL

Other ModernGraham posts about related companies

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Harris Corp Valuation – December 2018 $HRS
Verizon Communications Inc Valuation – November 2018 $VZ
Lumentum Holdings Inc Valuation – October 2018 $LITE
Windstream Holdings Inc Valuation – September 2018 $WIN

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.

CenturyLink Inc Valuation – June 2018 $CTL

Company Profile (excerpt from Reuters): CenturyLink, Inc., incorporated on May 7, 1968, is an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. The Company’s segments include Enterprise and Consumer . Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services.

CTL Chart

CTL data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CTL – 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 $20,228,370,038 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.88 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 -47.38% Fail
6. Moderate PEmg Ratio PEmg < 20 14.39 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.86 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 0.88 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -63.25 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 $1.30
MG Growth Estimate 5.61%
MG Value $25.69
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $18.89
MG Value based on 0% Growth $11.07
Market Implied Growth Rate 2.95%
Current Price $18.75
% of Intrinsic Value 72.98%

Centurylink 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 Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.95 in 2014 to an estimated $1.3 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.95% 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 Centurylink Inc revealed the company was trading above its Graham Number of $16.34. The company pays a dividend of $2.16 per share, for a yield of 11.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.39, which was below the industry average of 37.78, 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 $-44.11.

Centurylink 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) -$44.11
Graham Number $16.34
PEmg 14.39
Current Ratio 0.88
PB Ratio 0.86
Current Dividend $2.16
Dividend Yield 11.52%
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 $4,183,000,000
Total Current Liabilities $4,767,000,000
Long-Term Debt $36,940,000,000
Total Assets $74,793,000,000
Intangible Assets $42,706,000,000
Total Liabilities $51,350,000,000
Shares Outstanding (Diluted Average) 1,069,183,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.54
Dec2017 $2.21
Dec2016 $1.16
Dec2015 $1.58
Dec2014 $1.36
Dec2013 -$0.40
Dec2012 $1.25
Dec2011 $1.07
Dec2010 $3.13
Dec2009 $3.23
Dec2008 $3.52
Dec2007 $3.72
Dec2006 $3.07
Dec2005 $2.49
Dec2004 $2.41
Dec2003 $2.35
Dec2002 $5.61
Dec2001 $1.05
Dec2000 $0.90
Dec1999 $1.70
Dec1998 $1.64

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.30
Dec2017 $1.52
Dec2016 $1.11
Dec2015 $1.05
Dec2014 $0.95
Dec2013 $1.05
Dec2012 $1.99
Dec2011 $2.55
Dec2010 $3.31
Dec2009 $3.33
Dec2008 $3.27
Dec2007 $3.03
Dec2006 $2.86
Dec2005 $2.76
Dec2004 $2.75
Dec2003 $2.72
Dec2002 $2.67

Recommended Reading:

Other ModernGraham posts about the company

CenturyLink Inc Valuation – July 2017 $CTL
CenturyLink Inc Valuation – February 2016 $CTL
27 Companies in the Spotlight This Week – 12/20/14
CenturyLink Inc. Annual Valuation – 2014 $CTL

Other ModernGraham posts about related companies

American Tower Corp Valuation – June 2018 $AMT
Charter Communications Inc Valuation – May 2018 $CHTR
DISH Network Corp Valuation – Initial Coverage $DISH
AT&T Inc Valuation – April 2018 $T
Comcast Corporation Valuation – March 2018 $CMCSA
Spok Holdings Inc Valuation – March 2018 $SPOK
SBA Communications Corp Valuation – Initial Coverage $SBAC
Harris Corporation Valuation – February 2018 $HRS
Verizon Communications Inc Valuation – February 2018 $VZ
Mitel Networks Corp Valuation – Initial Coverage $TSE:MNW

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.

CenturyLink Inc Valuation – July 2017 $CTL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how CenturyLink Inc (CTL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CenturyLink, Inc. is an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. Its segments include business, which provides strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers, and consumer, which provides strategic and legacy products and services to residential customers. Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services. As of December 31, 2016, it served approximately 5.9 million broadband subscribers and 325,000 Prism TV subscribers.

CTL Chart

CTL data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTL – July 2017

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 $12,908,594,070 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.97 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 -49.80% Fail
6. Moderate PEmg Ratio PEmg < 20 15.38 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.95 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 0.97 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -142.03 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 $1.52
MG Growth Estimate 6.78%
MG Value $33.54
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $22.04
MG Value based on 0% Growth $12.92
Market Implied Growth Rate 3.44%
Current Price $23.37
% of Intrinsic Value 69.67%

Centurylink 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 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 Undervalued after growing its EPSmg (normalized earnings) from $1.05 in 2013 to an estimated $1.52 for 2017.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.44% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Centurylink Inc revealed the company was trading below its Graham Number of $34.99.  The company pays a dividend of $2.16 per share, for a yield of 9.2%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 15.38, which was below the industry average of 37.96, 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 $-52.31.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$52.31
Graham Number $34.99
PEmg 15.38
Current Ratio 0.97
PB Ratio 0.95
Current Dividend $2.16
Dividend Yield 9.24%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $4,968,000,000
Total Current Liabilities $5,096,000,000
Long-Term Debt $18,180,000,000
Total Assets $46,602,000,000
Intangible Assets $24,618,000,000
Total Liabilities $33,296,000,000
Shares Outstanding (Diluted Average) 541,522,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.22
Dec2016 $1.16
Dec2015 $1.58
Dec2014 $1.36
Dec2013 -$0.40
Dec2012 $1.25
Dec2011 $1.07
Dec2010 $3.13
Dec2009 $3.23
Dec2008 $3.52
Dec2007 $3.72
Dec2006 $3.07
Dec2005 $2.49
Dec2004 $2.41
Dec2003 $2.35
Dec2002 $5.61
Dec2001 $1.05
Dec2000 $0.90
Dec1999 $1.70
Dec1998 $1.64
Dec1997 $1.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.52
Dec2016 $1.11
Dec2015 $1.05
Dec2014 $0.95
Dec2013 $1.05
Dec2012 $1.99
Dec2011 $2.55
Dec2010 $3.31
Dec2009 $3.33
Dec2008 $3.27
Dec2007 $3.03
Dec2006 $2.86
Dec2005 $2.76
Dec2004 $2.75
Dec2003 $2.72
Dec2002 $2.67
Dec2001 $1.27

Recommended Reading:

Other ModernGraham posts about the company

CenturyLink Inc Valuation – February 2016 $CTL
27 Companies in the Spotlight This Week – 12/20/14
CenturyLink Inc. Annual Valuation – 2014 $CTL

Other ModernGraham posts about related companies

Windstream Holdings Inc Valuation – August 2016 $WIN
Verizon Communications Inc Valuation – July 2016 $VZ
AT&T Inc Valuation – July 2016 $T
Harris Corporation Valuation – February 2016 $HRS
CenturyLink Inc Valuation – February 2016 $CTL
Frontier Communications Corp Valuation – November 2015 Update $FTR
Harris Corporation Analysis – September 2015 Update $HRS
Arris Group Inc. Analysis – Initial Coverage $ARRS
Level 3 Communications Inc. Analysis – Initial Coverage $LVLT
Windstream Holdings Analysis – 2015 Update $WIN

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.

CenturyLink Inc Valuation – February 2016 $CTL

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 – February 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 CenturyLink Inc (CTL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CenturyLink, Inc. is an integrated communications company. The Company is engaged in providing an array of communications services to residential, business, governmental and wholesale customers. The Company’s communications services include local and long-distance, broadband, private line, Multi-Protocol Label Switching (MPLS), data integration, managed hosting, colocation, Ethernet, network access, video, wireless and other ancillary services. The Company operates in two segments: Business and Consumer. The Business segment provides strategic, legacy and data integration products and services to enterprise, wholesale and governmental customers, including other communication providers. The Consumer segment provides strategic and legacy products and services to residential customers.

[level-free]

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

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

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTL

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $17,419,472,023 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.58 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 -52.34% Fail
6. Moderate PEmg Ratio PEmg < 20 20.32 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.13 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.58 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -9.58 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

CTL value chart February 2016

EPSmg $1.41
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth $20.40
MG Value based on 0% Growth $11.96
Market Implied Growth Rate 5.91%
Current Price $28.59
% of Intrinsic Value N/A

Centurylink 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, 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 or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.99 in 2012 to an estimated $1.41 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

CTL charts February 2016

Net Current Asset Value (NCAV) -$55.66
Graham Number $34.37
PEmg 20.32
Current Ratio 0.58
PB Ratio 1.13
Dividend Yield 7.56%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $2,650,000,000
Total Current Liabilities $4,604,000,000
Long-Term Debt $18,722,000,000
Total Assets $47,604,000,000
Intangible Assets $26,885,000,000
Total Liabilities $33,544,000,000
Shares Outstanding (Diluted Average) 555,093,000

Earnings Per Share History

Next Fiscal Year Estimate $2.05
Dec2015 $1.58
Dec2014 $1.36
Dec2013 -$0.40
Dec2012 $1.25
Dec2011 $1.07
Dec2010 $3.13
Dec2009 $3.23
Dec2008 $3.52
Dec2007 $3.72
Dec2006 $3.07
Dec2005 $2.49
Dec2004 $2.41
Dec2003 $2.35
Dec2002 $5.61
Dec2001 $1.05
Dec2000 $0.90
Dec1999 $1.70
Dec1998 $1.64
Dec1997 $1.87
Dec1996 $0.95

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.41
Dec2015 $1.05
Dec2014 $0.95
Dec2013 $1.05
Dec2012 $1.99
Dec2011 $2.55
Dec2010 $3.31
Dec2009 $3.33
Dec2008 $3.27
Dec2007 $3.03
Dec2006 $2.86
Dec2005 $2.76
Dec2004 $2.75
Dec2003 $2.72
Dec2002 $2.67
Dec2001 $1.27
Dec2000 $1.39

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 12/20/14
CenturyLink Inc. Annual Valuation – 2014 $CTL

Other ModernGraham posts about related companies

Frontier Communications Corp Valuation – November 2015 Update $FTR
Harris Corporation Analysis – September 2015 Update $HRS
Arris Group Inc. Analysis – Initial Coverage $ARRS
Level 3 Communications Inc. Analysis – Initial Coverage $LVLT
Windstream Holdings Analysis – 2015 Update $WIN
Harris Corporation Analysis – June 2015 Update $HRS
Harris Corporation Quarterly Valuation – March 2015 $HRS
Verizon Communications Annual Valuation – 2015 $VZ
AT&T Inc. Annual Valuation – 2015 $T
CenturyLink Inc. Annual Valuation – 2014 $CTL

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.

CenturyLink Inc. Annual Valuation – 2014 $CTL

logoCenturyLinkBenjamin 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 CenturyLink Inc. (CTL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CenturyLink, Inc. (CenturyLink) is an integrated communications company. The Company is engaged primarily in providing a range of communications services to its residential, business, governmental and wholesale customers. The Company’s communications services include local and long-distance, network access, private line, public access, broadband, data, managed hosting (including cloud hosting), colocation, Wireless and video services. In certain local and regional markets, the Company also provides local access and fiber transport services to competitive local exchange carriers (CLECs) and security monitoring. The Company operates in four segments: Regional markets, Wholesale markets, Enterprise markets-network and Enterprise markets-data hosting. In November 2013, CenturyLink Inc acquired Tier 3 LLC.

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

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

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 1/5

  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 – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $39.48
MG Value $0.00
MG Opinion Overvalued
Value Based on 3% Growth $19.79
Value Based on 0% Growth $11.60
Market Implied Growth Rate 10.22%
Net Current Asset Value (NCAV) -$53.20
PEmg 28.93
Current Ratio 0.88
PB Ratio 1.36

Balance Sheet – September 2014

Current Assets $4,018,000,000
Current Liabilities $4,577,000,000
Total Debt $19,982,000,000
Total Assets $50,646,000,000
Intangible Assets $28,305,000,000
Total Liabilities $34,201,000,000
Outstanding Shares 567,400,000

Earnings Per Share

2014 (estimate) $2.61
2013 -$0.40
2012 $1.25
2011 $1.07
2010 $3.13
2009 $3.23
2008 $3.52
2007 $3.72
2006 $3.07
2005 $2.49
2004 $2.41

Earnings Per Share – ModernGraham

2014 (estimate) $1.36
2013 $1.05
2012 $1.99
2011 $2.55
2010 $3.31
2009 $3.33

Dividend History

Conclusion:

CenturyLink is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years, and the high PEmg ratio.  The Enterprising Investor is concerned with the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years.  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 overvalued after seeing its EPSmg (normalized earnings) drop from $3.31 in 2010 to an estimated $1.36 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 10.22% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on CenturyLink (CTL)?  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 CenturyLink (CTL) 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.

3M Co Valuation – April 2019 #MMM

Company Profile (excerpt from Reuters): 3M Company (3M), incorporated on June 25, 1929, is a technology company. The Company is a manufacturer and marketer of a range of products and services. The Company operates through five segments: Industrial; Safety and Graphics; Health Care, and Consumer. 3M products are sold through various distribution channels, including directly to users and through a range of wholesalers, retailers, jobbers, distributors and dealers in a range of trades in various countries around the world. As of December 31, 2016, the Company had operated 81 manufacturing facilities in 29 states. As of December 31, 2016, the Company had operated 122 manufacturing and converting facilities in 36 countries outside the United States.

Downloadable PDF version of this valuation:

ModernGraham Valuation of MMM – 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 $124,053,974,878 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.89 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 51.31% Pass
6. Moderate PEmg Ratio PEmg < 20 24.00 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 12.96 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 1.89 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.07 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $8.98
MG Growth Estimate 3.94%
MG Value $147.10
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $130.16
MG Value based on 0% Growth $76.30
Market Implied Growth Rate 7.75%
Current Price $215.41
% of Intrinsic Value 146.44%

3M Co 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 $7.11 in 2015 to an estimated $8.98 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.75% 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 3M Co revealed the company was trading above its Graham Number of $62.69. The company pays a dividend of $5.44 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24, which was below the industry average of 24.48, 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 $-21.84.

3M Co performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$21.84
Graham Number $62.69
PEmg 24.00
Current Ratio 1.89
PB Ratio 12.96
Current Dividend $5.44
Dividend Yield 2.53%
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 $13,709,000,000
Total Current Liabilities $7,244,000,000
Long-Term Debt $13,411,000,000
Total Assets $36,500,000,000
Intangible Assets $12,708,000,000
Total Liabilities $26,652,000,000
Shares Outstanding (Diluted Average) 592,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.28
Dec2018 $8.89
Dec2017 $7.93
Dec2016 $8.16
Dec2015 $7.58
Dec2014 $7.49
Dec2013 $6.72
Dec2012 $6.32
Dec2011 $5.96
Dec2010 $5.63
Dec2009 $4.52
Dec2008 $4.89
Dec2007 $5.60
Dec2006 $5.06
Dec2005 $3.98
Dec2004 $3.56
Dec2003 $3.02
Dec2002 $2.50
Dec2001 $1.79
Dec2000 $2.23
Dec1999 $2.19

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.98
Dec2018 $8.22
Dec2017 $7.78
Dec2016 $7.56
Dec2015 $7.11
Dec2014 $6.72
Dec2013 $6.17
Dec2012 $5.75
Dec2011 $5.42
Dec2010 $5.14
Dec2009 $4.87
Dec2008 $4.90
Dec2007 $4.69
Dec2006 $4.03
Dec2005 $3.33
Dec2004 $2.88
Dec2003 $2.47

Recommended Reading:

Other ModernGraham posts about the company

3M Co Valuation – November 2018 $MMM
3M Company Valuation – February 2018 $MMM
3M Co. Valuation – December 2016 $MMM
3M Company Valuation – August 2016 $MMM
3M Company Valuation – February 2016 Update $MMM

Other ModernGraham posts about related companies

Illinois Tool Works Inc Valuation – April 2019 #ITW
Honeywell International Inc Valuation – March 2019 #HON
Ingersoll-Rand PLC Valuation – January 2019 $IR
General Electric Co Valuation – November 2018 $GE
3M Co Valuation – November 2018 $MMM
ITT Inc Valuation – July 2018 $ITT
Illinois Tool Works Inc Valuation – June 2018 $ITW
Honeywell International Inc Valuation – June 2018 $HON
General Electric Co Valuation – February 2018 $GE
3M Company Valuation – February 2018 $MMM

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.

Advance Auto Parts Inc Valuation – March 2019 #AAP

Company Profile (excerpt from Reuters): Advance Auto Parts, Inc., incorporated on August 1, 2001, provides automotive aftermarket parts in North America, serving do-it-for-me (Professional) and do-it-yourself (DIY), customers. The Company’s stores and branches offer a selection of brand name, original equipment manufacturer (OEM) and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. The Company serves its Professional and DIY customers through various channels ranging from traditional brick and mortar store locations to self-serving e-commerce sites. As of December 31, 2016, the Company operated 5,062 total stores and 127 branches primarily under the trade names Advance Auto Parts, Autopart International, Carquest and Worldpac. As of December 31, 2016, the Company’s Advance Auto Parts operations consisted of three geographic divisions, which included the operations of the stores operating under the Advance Auto Parts, Carquest and Autopart International trade names. The Company’s e-commerce platforms, primarily consisting of its online Websites and Professional ordering platforms, are part of its integrated operating approach of serving its Professional and DIY customers. The Company’s online Websites allow its DIY customers to pick up merchandise at a store or have their purchases shipped directly to them. The majority of the Company’s online DIY sales are picked up at store locations. Through the Company’s online ordering platforms, Professional customers can place orders with a designated store location for delivery to their places of business or pick-up.

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAP – 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 $12,221,885,012 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.57 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 39.57% Pass
6. Moderate PEmg Ratio PEmg < 20 25.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.52 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 1.57 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.48 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 $6.66
MG Growth Estimate 1.58%
MG Value $77.67
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $96.55
MG Value based on 0% Growth $56.60
Market Implied Growth Rate 8.56%
Current Price $170.53
% of Intrinsic Value 219.56%

Advance Auto Parts, 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 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 $6.02 in 2015 to an estimated $6.66 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.56% 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 Advance Auto Parts, Inc. revealed the company was trading above its Graham Number of $92.34. The company pays a dividend of $0.24 per share, for a yield of 0.1% Its PEmg (price over earnings per share – ModernGraham) was 25.61, which was above the industry average of 22.49. Finally, the company was trading above its Net Current Asset Value (NCAV) of $8.08.

Advance Auto Parts, 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) $8.08
Graham Number $92.34
PEmg 25.61
Current Ratio 1.57
PB Ratio 3.52
Current Dividend $0.24
Dividend Yield 0.14%
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 $6,082,454,000
Total Current Liabilities $3,885,950,000
Long-Term Debt $1,045,720,000
Total Assets $9,040,648,000
Intangible Assets $1,540,830,000
Total Liabilities $5,489,835,000
Shares Outstanding (Diluted Average) 73,328,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.78
Dec2018 $5.73
Dec2017 $6.42
Dec2016 $6.20
Dec2015 $6.40
Dec2014 $6.71
Dec2013 $5.32
Dec2012 $5.22
Dec2011 $5.11
Dec2010 $3.95
Dec2009 $2.83
Dec2008 $2.49
Dec2007 $2.28
Dec2006 $2.16
Dec2005 $2.13
Dec2004 $1.66
Dec2003 $1.11
Dec2002 $0.60
Dec2001 $0.13
Dec2000 $0.23
Dec1999 -$0.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.66
Dec2018 $6.16
Dec2017 $6.32
Dec2016 $6.17
Dec2015 $6.02
Dec2014 $5.64
Dec2013 $4.90
Dec2012 $4.44
Dec2011 $3.81
Dec2010 $3.02
Dec2009 $2.49
Dec2008 $2.26
Dec2007 $2.06
Dec2006 $1.81
Dec2005 $1.46
Dec2004 $1.00
Dec2003 $0.57

Recommended Reading:

Other ModernGraham posts about the company

Advance Auto Parts Inc Valuation – June 2018 $AAP
Advance Auto Parts Inc Valuation – August 2017 $AAP
Advance Auto Parts Inc Valuation – November 2016 $AAP
Advance Auto Parts Inc. Analysis – Initial Coverage $AAP

Other ModernGraham posts about related companies

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BorgWarner Inc Valuation – February 2019 $BWA
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Ford Motor Co Valuation – February 2019 $F
General Motors Co Valuation – February 2019 $GM
O’Reilly Automotive Inc Valuation – February 2019 $ORLY
Goodyear Tire & Rubber Co Valuation – January 2019 $GT
Genuine Parts Co Valuation – January 2019 $GPC

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.

Kroger Co Valuation – March 2019 #KR

Company Profile (excerpt from Reuters): The Kroger Co. (Kroger), incorporated on April 3, 1902, manufactures and processes food for sale in its supermarkets. The Company operates supermarkets, multi-department stores, jewelry stores and convenience stores throughout the United States. As of February 3, 2018, it had operated approximately 3,900 owned or leased supermarkets, convenience stores, fine jewelry stores, distribution warehouses and food production plants through divisions, subsidiaries or affiliates. These facilities are located throughout the United States. As of February 3, 2018, Kroger operated, either directly or through its subsidiaries, 2,782 supermarkets under a range of local banner names, of which 2,268 had pharmacies and 1,489 had fuel centers. As of February 3, 2018, the Company offered ClickList and Harris Teeter ExpressLane, personalized, order online, pick up at the store services at 1,056 of its supermarkets. As of February 3, 2018, its supermarkets, on average, stocked over 15,000 private label items. Its corporate brand products are primarily produced and sold in three tiers. P$$T, Check This Out and Heritage Farm are the three brands. Its other brands include Simple Truth and Simple Truth Organic. As of February 3, 2018, it had operated 37 food production plants, which consisted of 17 dairies, 10 deli or bakery plants, five grocery product plants, two beverage plants, two meat plants and two cheese plants.

Downloadable PDF version of this valuation:

ModernGraham Valuation of KR – 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 $19,630,800,304 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.76 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 182.61% Pass
6. Moderate PEmg Ratio PEmg < 20 9.91 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.53 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 0.76 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.48 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.48
MG Growth Estimate 7.51%
MG Value $58.35
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $35.98
MG Value based on 0% Growth $21.09
Market Implied Growth Rate 0.71%
Current Price $24.60
% of Intrinsic Value 42.16%

Kroger Co qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.65 in 2016 to an estimated $2.48 for 2020. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.71% 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 Kroger Co revealed the company was trading above its Graham Number of $20.76. The company pays a dividend of $0.53 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 24.89, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.17.

Kroger Co performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.17
Graham Number $20.76
PEmg 9.91
Current Ratio 0.76
PB Ratio 2.53
Current Dividend $0.53
Dividend Yield 2.15%
Number of Consecutive Years of Dividend Growth 13

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 $10,803,000,000
Total Current Liabilities $14,274,000,000
Long-Term Debt $12,072,000,000
Total Assets $38,118,000,000
Intangible Assets $4,345,000,000
Total Liabilities $30,283,000,000
Shares Outstanding (Diluted Average) 806,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.95
Jan2019 $3.76
Jan2018 $2.09
Jan2017 $2.05
Jan2016 $2.06
Jan2015 $1.72
Jan2014 $1.45
Jan2013 $1.39
Jan2012 $0.51
Jan2011 $0.87
Jan2010 $0.06
Jan2009 $0.95
Jan2008 $0.85
Jan2007 $0.77
Jan2006 $0.66
Jan2005 -$0.07
Jan2004 $0.21
Jan2003 $0.76
Jan2002 $0.63
Jan2001 $0.52
Jan2000 $0.36

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.48
Jan2019 $2.61
Jan2018 $1.98
Jan2017 $1.86
Jan2016 $1.65
Jan2015 $1.36
Jan2014 $1.07
Jan2013 $0.84
Jan2012 $0.59
Jan2011 $0.66
Jan2010 $0.59
Jan2009 $0.78
Jan2008 $0.62
Jan2007 $0.50
Jan2006 $0.39
Jan2005 $0.30
Jan2004 $0.49

Recommended Reading:

Other ModernGraham posts about the company

Kroger Co Valuation – June 2018 $KR
10 Low PE Stock Picks for the Defensive Investor – August 2017
5 Undervalued Large Cap Stocks for Value Investors – August 2017
10 Best Stocks for Value Investors This Week – 7/22/17
Kroger Company Valuation – July 2017 $KR

Other ModernGraham posts about related companies

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The Kroger Co Valuation – August 2016 $KR
Whole Foods Market Inc Valuation – May 2016 $WFM
Whole Foods Market Inc. Valuation – October 2015 Update $WFM
Kroger Company Analysis – 2015 Update $KR

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.

Mattel Inc Valuation – March 2019 #MAT

Company Profile (excerpt from Reuters): Mattel, Inc., incorporated on March 6, 1968, designs, manufactures, and markets a range of toy products around the world, which are sold to its customers and directly to consumers. The Company’s segments are North America, which consists of the United States and Canada; International, and American Girl. The Company’s portfolio of brands and products are grouped into approximately four brand categories, including Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MAT – 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 $4,472,878,134 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.88 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 -182.75% Fail
6. Moderate PEmg Ratio PEmg < 20 -12.70 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.69 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.59 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$1.02
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$14.79
MG Value based on 0% Growth -$8.67
Market Implied Growth Rate -10.60%
Current Price $12.95
% of Intrinsic Value N/A

Mattel 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, 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 net current assets, and the lack of earnings stability or growth 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 seeing its EPSmg (normalized earnings) decline from $1.7 in 2015 to an estimated $-1.02 for 2019. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Mattel Inc revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -12.7, which was below the industry average of 28.42, 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 $-6.43.

Mattel 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) -$6.43
Graham Number $0.00
PEmg -12.70
Current Ratio 1.88
PB Ratio 6.69
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 $2,352,440,000
Total Current Liabilities $1,252,608,000
Long-Term Debt $2,851,723,000
Total Assets $5,243,465,000
Intangible Assets $1,973,952,000
Total Liabilities $4,574,000,000
Shares Outstanding (Diluted Average) 345,726,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.57
Dec2018 -$1.54
Dec2017 -$3.07
Dec2016 $0.92
Dec2015 $1.08
Dec2014 $1.45
Dec2013 $2.58
Dec2012 $2.22
Dec2011 $2.18
Dec2010 $1.86
Dec2009 $1.45
Dec2008 $1.05
Dec2007 $1.54
Dec2006 $1.53
Dec2005 $1.01
Dec2004 $1.35
Dec2003 $1.22
Dec2002 $0.52
Dec2001 $0.68
Dec2000 -$1.01
Dec1999 -$0.21

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$1.02
Dec2018 -$0.91
Dec2017 -$0.20
Dec2016 $1.38
Dec2015 $1.70
Dec2014 $2.03
Dec2013 $2.23
Dec2012 $1.96
Dec2011 $1.76
Dec2010 $1.52
Dec2009 $1.34
Dec2008 $1.29
Dec2007 $1.38
Dec2006 $1.25
Dec2005 $1.06
Dec2004 $0.90
Dec2003 $0.53

Recommended Reading:

Other ModernGraham posts about the company

Mattel Inc Valuation – June 2018 $MAT
Mattel Inc. Valuation – June 2017 $MAT
Mattel Inc Valuation – January 2016 Update $MAT
Mattel Inc. Analysis – September 2015 Update $MAT
30 Companies in the Spotlight This Week – 5/23/15

Other ModernGraham posts about related companies

Hasbro Inc Valuation – January 2019 $HAS
Electronic Arts Inc Valuation – November 2018 $EA
Activision Blizzard Inc Valuation – June 2018 $ATVI
Mattel Inc Valuation – June 2018 $MAT
Hasbro Inc Valuation – March 2018 $HAS
Electronic Arts Inc Valuation – February 2018 $EA
Mattel Inc. Valuation – June 2017 $MAT
Hasbro Inc Valuation – July 2016 $HAS
Electronic Arts Inc Valuation – May 2016 $EA
Mattel Inc Valuation – January 2016 Update $MAT

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.

Equinix Inc Valuation – March 2019 #EQIX

Company Profile (excerpt from Reuters): Equinix, Inc. (Equinix), incorporated on June 22, 1998, operates as a real estate investment trust (REIT). The Company connects various companies directly to their customers and partners inside interconnected data centers. The Company operates through three segments: Americas, EMEA and Asia-Pacific. The Company’s platform Equinix, combines a global footprint of International Business Exchange (IBX) data centers, a range of interconnection solutions, ecosystems and support. Its customers include carriers, mobile and other bandwidth providers, cloud and information technology (IT) services providers, content providers, financial companies and enterprises. It provides each customer access to a choice of business partners and solutions based on their colocation, interconnection and managed IT service needs. Its colocation offerings include operations space, storage space, cabinets and power for customers’ colocation needs inside Equinix’s IBX data centers. Its interconnection offerings include Equinix Cloud Exchange, which enables simultaneous, direct and secure connections to multiple clouds from a single port; Equinix Performance Hub, which takes enterprise IT inside any one of its global data centers, and Equinix Data Hub, which enables secure, compliant access to business-critical data and analytics wherever users are located around the globe.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EQIX – 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 $37,512,444,147 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.00 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 138.03% Pass
6. Moderate PEmg Ratio PEmg < 20 111.84 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.05 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 1.00 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 15,449.18 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.03
MG Growth Estimate 15.00%
MG Value $154.98
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $58.37
MG Value based on 0% Growth $34.22
Market Implied Growth Rate 51.67%
Current Price $450.19
% of Intrinsic Value 290.49%

Equinix Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.62 in 2015 to an estimated $4.03 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 51.67% 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 Equinix Inc revealed the company was trading above its Graham Number of $103.19. The company pays a dividend of $9.12 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 111.84, which was above the industry average of 61.92. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-142.24.

Equinix 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) -$142.24
Graham Number $103.19
PEmg 111.84
Current Ratio 1.00
PB Ratio 5.05
Current Dividend $9.12
Dividend Yield 2.03%
Number of Consecutive Years of Dividend Growth 4

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 $1,515,682,000
Total Current Liabilities $1,515,071,000
Long-Term Debt $9,439,448,000
Total Assets $20,244,638,000
Intangible Assets $7,169,684,000
Total Liabilities $13,025,359,000
Shares Outstanding (Diluted Average) 80,920,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.27
Dec2018 $4.56
Dec2017 $3.00
Dec2016 $1.79
Dec2015 $3.21
Dec2014 -$4.96
Dec2013 $1.89
Dec2012 $2.83
Dec2011 $1.74
Dec2010 $0.82
Dec2009 $1.75
Dec2008 $2.79
Dec2007 -$0.16
Dec2006 -$0.22
Dec2005 -$1.78
Dec2004 -$3.87
Dec2003 -$8.76
Dec2002 -$7.23
Dec2001 -$76.62
Dec2000 -$111.18
Dec1999 -$159.11

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.03
Dec2018 $2.78
Dec2017 $1.58
Dec2016 $0.90
Dec2015 $0.62
Dec2014 -$0.30
Dec2013 $1.96
Dec2012 $1.99
Dec2011 $1.51
Dec2010 $1.26
Dec2009 $1.15
Dec2008 $0.35
Dec2007 -$1.57
Dec2006 -$2.97
Dec2005 -$9.45
Dec2004 -$22.70
Dec2003 -$45.60

Recommended Reading:

Other ModernGraham posts about the company

Equinix Inc Valuation – June 2018 $EQIX
Equinix Inc Valuation – July 2017 $EQIX
5 of the Worst Stocks to Invest In – December 2016
Equinix Inc Valuation – August 2016 $EQIX
Equinix Inc. Analysis – Initial Coverage $EQIX

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Kimco Realty Corp Valuation – March 2019 #KIM
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Mid-America Apartment Communities Inc Valuation – March 2019 #MAA
Extra Space Storage Inc Valuation – March 2019 #EXR
Digital Realty Trust Inc Valuation – March 2019 #DLR
Equity Residential Valuation – March 2019 #EQR
Prologis Inc Valuation – March 2019 #PLD
Duke Realty Corp Valuation – March 2019 $DRE

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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