CVS Health Corp Valuation – March 2019 #CVS

Company Profile (excerpt from Reuters): CVS Health Corporation, incorporated on August 22, 1996, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Company delivers products and services by advising patients on their medications at its CVS Pharmacy locations; introducing programs for clients at CVS Caremark; delivering care to patients with complex conditions through CVS Specialty, and providing access to care at CVS MinuteClinic. As of December 31, 2016, the Company had more than 9,700 retail locations and more than 1,100 walk-in healthcare clinics.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVS – 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 $74,484,932,860 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.03 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 55.69% Pass
6. Moderate PEmg Ratio PEmg < 20 13.21 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.10 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 1.03 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 57.90 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 $4.33
MG Growth Estimate 1.58%
MG Value $50.55
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $62.85
MG Value based on 0% Growth $36.84
Market Implied Growth Rate 2.35%
Current Price $57.26
% of Intrinsic Value 113.27%

CVS Health Corp 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. 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 $3.92 in 2015 to an estimated $4.33 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.35% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into CVS Health Corp revealed the company was trading below its Graham Number of $82.45. The company pays a dividend of $2 per share, for a yield of 3.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.21, which was below the industry average of 27.69, 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 $-82.59.

CVS Health 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) -$82.59
Graham Number $82.45
PEmg 13.21
Current Ratio 1.03
PB Ratio 1.10
Current Dividend $2.00
Dividend Yield 3.49%
Number of Consecutive Years of Dividend Growth 15

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 $45,243,000,000
Total Current Liabilities $44,009,000,000
Long-Term Debt $71,444,000,000
Total Assets $196,456,000,000
Intangible Assets $115,202,000,000
Total Liabilities $137,913,000,000
Shares Outstanding (Diluted Average) 1,122,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.71
Dec2018 -$0.57
Dec2017 $6.44
Dec2016 $4.90
Dec2015 $4.63
Dec2014 $3.96
Dec2013 $3.74
Dec2012 $3.02
Dec2011 $2.57
Dec2010 $2.49
Dec2009 $2.55
Dec2008 $2.18
Dec2007 $1.92
Dec2006 $1.60
Dec2005 $1.45
Dec2004 $1.10
Dec2003 $1.03
Dec2002 $0.88
Dec2001 $0.50
Dec2000 $0.92
Dec1999 $0.78

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.33
Dec2018 $3.39
Dec2017 $5.16
Dec2016 $4.36
Dec2015 $3.92
Dec2014 $3.43
Dec2013 $3.07
Dec2012 $2.68
Dec2011 $2.45
Dec2010 $2.31
Dec2009 $2.13
Dec2008 $1.83
Dec2007 $1.57
Dec2006 $1.34
Dec2005 $1.13
Dec2004 $0.94
Dec2003 $0.85

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2018
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2018
CVS Health Corp Valuation – June 2018 $CVS
6 Best Stocks for Value Investors This Week – 3/26/17
CVS Health Corp Valuation – March 2017 $CVS

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Tapestry Inc Valuation – February 2019 $TPR
Dollar General Corp Valuation – February 2019 $DG
Tiffany & Co Valuation – February 2019 $TIF
Best Buy Co Inc Valuation – February 2019 $BBY
Macy’s Inc Valuation – January 2019 $M
Ross Stores Inc Valuation – January 2019 $ROST
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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.

CVS Health Corp Valuation – June 2018 $CVS

Company Profile (excerpt from Reuters): CVS Health Corporation, incorporated on August 22, 1996, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Company delivers products and services by advising patients on their medications at its CVS Pharmacy locations; introducing programs for clients at CVS Caremark; delivering care to patients with complex conditions through CVS Specialty, and providing access to care at CVS MinuteClinic. As of December 31, 2016, the Company had more than 9,700 retail locations and more than 1,100 walk-in healthcare clinics.

CVS Chart

CVS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVS – 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 $67,191,099,067 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.37 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 131.54% Pass
6. Moderate PEmg Ratio PEmg < 20 11.64 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.74 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.37 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.48 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 $5.67
MG Growth Estimate 9.80%
MG Value $159.44
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $82.24
MG Value based on 0% Growth $48.21
Market Implied Growth Rate 1.57%
Current Price $66.03
% of Intrinsic Value 41.41%

CVS Health Corp 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 is only concerned with the level of debt relative to the net 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 $3.43 in 2014 to an estimated $5.67 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.57% 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 CVS Health Corp revealed the company was trading below its Graham Number of $72.47. The company pays a dividend of $2 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.64, which was below the industry average of 37.1, 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 $-24.2.

CVS Health Corp fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.20
Graham Number $72.47
PEmg 11.64
Current Ratio 2.37
PB Ratio 1.74
Current Dividend $2.00
Dividend Yield 3.03%
Number of Consecutive Years of Dividend Growth 14

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 $71,798,000,000
Total Current Liabilities $30,248,000,000
Long-Term Debt $61,552,000,000
Total Assets $135,139,000,000
Intangible Assets $51,503,000,000
Total Liabilities $96,462,000,000
Shares Outstanding (Diluted Average) 1,019,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.28
Dec2017 $6.44
Dec2016 $4.90
Dec2015 $4.63
Dec2014 $3.96
Dec2013 $3.74
Dec2012 $3.02
Dec2011 $2.57
Dec2010 $2.49
Dec2009 $2.55
Dec2008 $2.18
Dec2007 $1.92
Dec2006 $1.60
Dec2005 $1.45
Dec2004 $1.10
Dec2003 $1.03
Dec2002 $0.88
Dec2001 $0.50
Dec2000 $0.92
Dec1999 $0.78
Dec1998 $0.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.67
Dec2017 $5.16
Dec2016 $4.36
Dec2015 $3.92
Dec2014 $3.43
Dec2013 $3.07
Dec2012 $2.68
Dec2011 $2.45
Dec2010 $2.31
Dec2009 $2.13
Dec2008 $1.83
Dec2007 $1.57
Dec2006 $1.34
Dec2005 $1.13
Dec2004 $0.94
Dec2003 $0.85
Dec2002 $0.74

Recommended Reading:

Other ModernGraham posts about the company

6 Best Stocks for Value Investors This Week – 3/26/17
CVS Health Corp Valuation – March 2017 $CVS
CVS Health Corp Valuation – December 2015 Update $CVS
22 Companies in the Spotlight This Week – 11/29/14
CVS Health Corporation Annual Valuation – 2014 $CVS

Other ModernGraham posts about related companies

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Dollar Tree Inc Valuation – May 2018 $DLTR
TJX Companies Inc Valuation – May 2018 $TJX
Tractor Supply Co Valuation – April 2018 $TSCO
Tapestry Inc Valuation – April 2018 $TPR
Dollar General Corp Valuation – April 2018 $DG
Tiffany & Co. Valuation – April 2018 $TIF
Best Buy Co Inc Valuation – April 2018 $BBY
Macy’s Inc Valuation – April 2018 $M

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.

CVS Health Corp Valuation – March 2017 $CVS

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 CVS Health Corp (CVS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CVS Health Corporation, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Pharmacy Services Segment provides a range of pharmacy benefit management (PBM) solutions to its clients. As of December 31, 2016, the Retail/LTC Segment included 9,709 retail locations (of which 7,980 were its stores that operated a pharmacy and 1,674 were its pharmacies located within Target Corporation (Target) stores), its online retail pharmacy Websites, CVS.com, Navarro.com and Onofre.com.br, 38 onsite pharmacy stores, its long-term care pharmacy operations and its retail healthcare clinics.

CVS Chart

CVS data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CVS – March 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 $79,961,439,547 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.18 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 112.33% Pass
6. Moderate PEmg Ratio PEmg < 20 15.91 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.30 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 1.18 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.35 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 $4.94
MG Growth Estimate 9.17%
MG Value $132.67
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $71.68
MG Value based on 0% Growth $42.02
Market Implied Growth Rate 3.70%
Current Price $78.63
% of Intrinsic Value 59.27%

CVS Health Corp 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 $3.07 in 2013 to an estimated $4.94 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.71% 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 CVS Health Corp revealed the company was trading above its Graham Number of $67.31. The company pays a dividend of $1.7 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 15.91, which was below the industry average of 50.09, 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 $-24.64.

CVS Health Corp performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.64
Graham Number $67.31
PEmg 15.91
Current Ratio 1.18
PB Ratio 2.30
Current Dividend $1.70
Dividend Yield 2.16%
Number of Consecutive Years of Dividend Growth 14

[/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 12/1/2016
Total Current Assets $31,042,000,000
Total Current Liabilities $26,250,000,000
Long-Term Debt $25,615,000,000
Total Assets $94,462,000,000
Intangible Assets $51,760,000,000
Total Liabilities $57,632,000,000
Shares Outstanding (Diluted Average) 1,079,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.80
Dec2016 $4.90
Dec2015 $4.63
Dec2014 $3.96
Dec2013 $3.74
Dec2012 $3.02
Dec2011 $2.57
Dec2010 $2.49
Dec2009 $2.55
Dec2008 $2.18
Dec2007 $1.92
Dec2006 $1.60
Dec2005 $1.45
Dec2004 $1.10
Dec2003 $1.03
Dec2002 $0.88
Dec2001 $0.50
Dec2000 $0.92
Dec1999 $0.78
Dec1998 $0.48
Dec1997 $0.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.94
Dec2016 $4.36
Dec2015 $3.92
Dec2014 $3.43
Dec2013 $3.07
Dec2012 $2.68
Dec2011 $2.45
Dec2010 $2.31
Dec2009 $2.13
Dec2008 $1.83
Dec2007 $1.57
Dec2006 $1.34
Dec2005 $1.13
Dec2004 $0.94
Dec2003 $0.85
Dec2002 $0.74
Dec2001 $0.64

Recommended Reading:

Other ModernGraham posts about the company

CVS Health Corp Valuation – December 2015 Update $CVS
22 Companies in the Spotlight This Week – 11/29/14
CVS Health Corporation Annual Valuation – 2014 $CVS
10 Companies in the Spotlight This Week – 11/30/2013
ModernGraham Valuation: CVS Caremark (CVS)

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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.

CVS Health Corp Valuation – December 2015 Update $CVS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how CVS Health Corp (CVS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CVS Health Corporation, together with its subsidiaries, is a pharmacy company. The Company operates through three business segments: Pharmacy Services, Retail Pharmacy and Corporate. The Pharmacy Services segment provides a range of pharmacy benefit management (PBM) services and operates under the CVS/caremark Pharmacy Services, Novologix and Navarro Health Services names. The Retail Pharmacy segment sells prescription drugs and an assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, photo finishing, seasonal merchandise and greeting cards through the Company’s retail stores, online retail pharmacy Websites and retail healthcare clinics. The Corporate segment provides management and administrative services to support the overall operations of the Company. The Company, through its wholly owned subsidiary, Omnicare, Inc., provides pharmacy services to long term care facilities.

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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.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CVS – December 2015

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $105,189,238,974 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.43 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 119.47% Pass
6. Moderate PEmg Ratio PEmg < 20 23.42 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.81 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.43 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.87 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

CVS value Chart December 2015

EPSmg $3.98
MG Growth Estimate 9.38%
MG Value $108.55
Opinion Fairly Valued
MG Value based on 3% Growth $57.73
MG Value based on 0% Growth $33.84
Market Implied Growth Rate 7.46%
Current Price $93.24
% of Intrinsic Value 85.90%

CVS Health Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.45 in 2011 to an estimated $3.98 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 7.46% 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 within a margin of safety relative to 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 CVS Health Corp (CVS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CVS Charts December 2015

Net Current Asset Value (NCAV) -$21.80
Graham Number $60.18
PEmg 23.42
Current Ratio 1.43
PB Ratio 2.81
Dividend Yield 1.42%
Number of Consecutive Years of Dividend Growth 12

 

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $30,753,000,000
Total Current Liabilities $21,434,000,000
Long-Term Debt $26,771,000,000
Total Assets $92,362,000,000
Intangible Assets $50,639,000,000
Total Liabilities $55,188,000,000
Shares Outstanding (Diluted Average) 1,121,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.81
Dec14 $3.96
Dec13 $3.74
Dec12 $3.02
Dec11 $2.57
Dec10 $2.49
Dec09 $2.55
Dec08 $2.18
Dec07 $1.92
Dec06 $1.60
Dec05 $1.45
Dec04 $1.10
Dec03 $1.03
Dec02 $0.88
Dec01 $0.50
Dec00 $0.92
Dec99 $0.78
Dec98 $0.48
Dec97 $0.10
Dec96 $0.26
Dec95 -$0.90

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.98
Dec14 $3.43
Dec13 $3.07
Dec12 $2.68
Dec11 $2.45
Dec10 $2.31
Dec09 $2.13
Dec08 $1.83
Dec07 $1.57
Dec06 $1.34
Dec05 $1.13
Dec04 $0.94
Dec03 $0.85
Dec02 $0.74
Dec01 $0.64
Dec00 $0.64
Dec99 $0.38

Recommended Reading:

Other ModernGraham posts about the company

22 Companies in the Spotlight This Week – 11/29/14
CVS Health Corporation Annual Valuation – 2014 $CVS
10 Companies in the Spotlight This Week – 11/30/2013
ModernGraham Valuation: CVS Caremark (CVS)

Other ModernGraham posts about related companies

Ross Stores Inc Valuation – December 2015 Update $ROST
Bed Bath & Beyond Inc. Valuation – November 2015 Update $BBBY
Kohl’s Corporation Valuation – November 2015 Update $KSS
Aaron’s Inc. Valuation – October 2015 Update $AAN
Nordstrom Inc. Valuation – October 2015 Update $JWN
Tractor Supply Company Valuation – October 2015 Update $TSCO
Coach Inc. Valuation – October 2015 Update $COH
Dollar Tree Stores Inc. Valuation – October 2015 Update $DLTR
TJX Companies Inc. Valuation – October 2015 Update $TJX
Dollar Tree Stores Inc. Valuation – October 2015 Update $DLTR

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.

CVS Health Corporation Annual Valuation – 2014 $CVS

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As shown by the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the high PEmg and PB ratios, while the Enterprising Investor has concerns with the high level of debt relative to the current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $2.31 in 2010 to an estimated $3.61 for 2014. This level of demonstrated growth is fairly strong, and is within a margin of safety relative to the market’s implied estimate of 8.35%. As a result, the company appears to be fairly valued at the present time.

Be sure to check out previous ModernGraham valuations of CVS Health Corpfor better perspective!

Read the full valuation on Seeking Alpha!

CVS Chart

CVS data by YCharts

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

ModernGraham Valuation: CVS Caremark (CVS)

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Company Profile (obtained from Google Finance): CVS Caremark Corporation (CVS Caremark), together with its subsidiaries, is a pharmacy health care provider in the United States. CVS Caremark provides pharmacy services through its pharmacy benefit management (PBM), mail order and specialty pharmacy division, CVS Caremark Pharmacy Services; approximately 7,300 CVS/pharmacy retail stores; retail-based health clinic subsidiary, MinuteClinic, and its online retail pharmacy, CVS.com. The Company operates in three business segments: Pharmacy Services, Retail Pharmacy and Corporate. Its corporate segment provides management and administrative services to support the overall operations of the Company. In April 2012, Health Net, Inc.’s subsidiary, Health Net Life Insurance Company, sold its Medicare stand-alone Prescription Drug Plan (Medicare PDP) business to a subsidiary of CVS Caremark. In February 2013, it bought Drogaria Onofre.

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

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  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 = 3/5

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

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $67
MG Opinion Fairly Valued
Value Based on 3% Growth $45
Value Based on 0% Growth $26
Market Implied Growth Rate 6.54%
Net Current Asset Value (NCAV) -$6.51
PEmg 21.59
Current Ratio 1.42
PB Ratio 2.09

Balance Sheet – 9/30/2013 

Current Assets $21,432,000,000
Current Liabilities $15,098,000,000
Total Debt $8,819,000,000
Total Assets $67,805,000,000
Intangible Assets $36,137,000,000
Total Liabilities $29,271,000,000
Outstanding Shares 1,204,000,000

Earnings Per Share – Diluted

2013 (estimate) $3.79
2012 $3.03
2011 $2.59
2010 $2.50
2009 $2.56
2008 $2.27
2007 $1.92
2006 $1.60
2005 $1.46
2004 $1.11
2003 $1.04
2002 $0.88

Earnings Per Share – Modern Graham (Calculating EPSmg)

2013 (estimate) $3.09
2012 $2.69
2011 $2.47
2010 $2.33
2009 $2.15
2008 $1.86

Conclusion:

CVS Caremark is a very good company, but it just barely does not qualify as suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low and the company is trading at a PEmg ratio above 20.  For the Enterprising Investor, the company has slightly too much debt, causing the debt to net current assets ratio to be too high as well as the current ratio.  From a valuation standpoint, the company fares well in the ModernGraham valuation model after having grown EPSmg (normalized earnings) from $1.86 in 2008 to an estimated $3.09 for 2013.  The market is implying a growth rate of 6.54%, which is in line with what the company has achieved in recent times.  Therefore, the company may be fairly valued at this time.  Any investor considering CVS Caremark should do considerable further research before deciding the company is right for an individual portfolio.

What do you think?  Is CVS Caremark fairly valued?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in CVS Caremark at the time of publication and had no intention of entering into a position in the next 72 hours.

Photo Credit:  Andrew Magill

Walgreens Boots Alliance Inc Valuation – December 2018 $WBA

Company Profile (excerpt from Reuters): Walgreens Boots Alliance, Inc., incorporated on September 2, 2014, is a holding company. The Company is a pharmacy-led health and wellbeing company. The Company along with equity method investments, has approximately 18,500 stores in 11 countries also has pharmaceutical wholesale and distribution networks with more than 390 distribution centers delivering to more than 230,000 pharmacies, doctors, health centers and hospitals each year in more than 20 countries. The Company operates through three segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale. The Retail Pharmacy USA segment consists of the Walgreen Co. (Walgreens) business, which includes the operation of retail drugstores, care clinics and providing specialty pharmacy services. The Retail Pharmacy International segment consists primarily of the Alliance Boots pharmacy-led health and beauty stores, optical practices and related contract manufacturing operations. The Pharmaceutical Wholesale segment consists of the Alliance Boots pharmaceutical wholesaling and distribution businesses. The Company’s portfolio of retail and business brands includes Walgreens, Duane Reade, Boots and Alliance Healthcare, as well as global health and beauty product brands, including No7, Botanics, Liz Earle and Soap & Glory.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WBA – December 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 $72,797,457,454 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.82 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 97.99% Pass
6. Moderate PEmg Ratio PEmg < 20 15.80 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.82 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 0.82 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.25 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 $4.87
MG Growth Estimate 10.03%
MG Value $139.17
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $70.64
MG Value based on 0% Growth $41.41
Market Implied Growth Rate 3.65%
Current Price $76.97
% of Intrinsic Value 55.30%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.92 in 2015 to an estimated $4.87 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.65% 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 Walgreens Boots Alliance Inc revealed the company was trading above its Graham Number of $60.62. The company pays a dividend of $1.64 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 15.8, which was below the industry average of 28.23, 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 $-24.11.

Walgreens Boots Alliance Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.11
Graham Number $60.62
PEmg 15.80
Current Ratio 0.82
PB Ratio 2.82
Current Dividend $1.64
Dividend Yield 2.13%
Number of Consecutive Years of Dividend Growth 15

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 8/1/2018
Total Current Assets $17,846,000,000
Total Current Liabilities $21,667,000,000
Long-Term Debt $12,431,000,000
Total Assets $68,124,000,000
Intangible Assets $28,697,000,000
Total Liabilities $41,435,000,000
Shares Outstanding (Diluted Average) 978,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.98
Aug2018 $5.05
Aug2017 $3.78
Aug2016 $3.82
Aug2015 $4.00
Aug2014 $2.00
Aug2013 $2.67
Aug2012 $2.42
Aug2011 $2.94
Aug2010 $2.12
Aug2009 $2.02
Aug2008 $2.17
Aug2007 $2.03
Aug2006 $1.72
Aug2005 $1.52
Aug2004 $1.31
Aug2003 $1.13
Aug2002 $0.99
Aug2001 $0.86
Aug2000 $0.76
Aug1999 $0.62

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.87
Aug2018 $4.12
Aug2017 $3.52
Aug2016 $3.26
Aug2015 $2.92
Aug2014 $2.40
Aug2013 $2.54
Aug2012 $2.43
Aug2011 $2.37
Aug2010 $2.06
Aug2009 $1.99
Aug2008 $1.90
Aug2007 $1.69
Aug2006 $1.46
Aug2005 $1.27
Aug2004 $1.10
Aug2003 $0.96

Recommended Reading:

Other ModernGraham posts about the company

Walgreens Boots Alliance Inc Valuation – March 2018 $WBA
Walgreens Boots Alliance Inc Valuation – July 2016 $WBA
47 Companies in the Spotlight This Week – 5/16/15
Walgreens Boots Alliance Inc. Annual Valuation – 2015 $WBA
40 Companies in the Spotlight This Week – 2/21/15

Other ModernGraham posts about related companies

Nordstrom Inc Valuation – December 2018 $JWN
Walmart Inc Valuation – November 2018 $WMT
Canadian Tire Corp Ltd Valuation – August 2018 $TSE:CTC.A
McKesson Corp Valuation – June 2018 $MCK
Big 5 Sporting Goods Corp Valuation – June 2018 $BGFV
Amazon.com Inc Valuation – June 2018 $AMZN
Fossil Group Inc Valuation – June 2018 $FOSL
Costco Wholesale Corp Valuation – June 2018 $COST
Lumber Liquidators Holdings Inc Valuation – June 2018 $LL
CVS Health Corp Valuation – June 2018 $CVS

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.

Nordstrom Inc Valuation – December 2018 $JWN

Company Profile (excerpt from Reuters): Nordstrom, Inc., incorporated on September 28, 1946, is a fashion specialty retailer in the United States. The Company’s segments include Retail and Credit. As of March 20, 2017, the Company operated 344 the United States stores located in 40 states as well as an e-commerce business through Nordstrom.com, Nordstromrack.com/HauteLook and TrunkClub.com. As of January 28, 2017, the Company operated approximately three Nordstrom full-line stores, including two in Canada, and 21 Nordstrom Rack stores. The Company also offers its customers a variety of payment products and services, including credit and debit cards.

JWN Chart

JWN data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JWN – December 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 $8,611,864,656 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 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 -0.38% Fail
6. Moderate PEmg Ratio PEmg < 20 17.84 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.28 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 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.89 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.85
MG Growth Estimate -2.94%
MG Value $7.48
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $41.32
MG Value based on 0% Growth $24.22
Market Implied Growth Rate 4.67%
Current Price $50.82
% of Intrinsic Value 679.67%

Nordstrom, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings 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 $3.54 in 2015 to an estimated $2.85 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.67% 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 Nordstrom, Inc. revealed the company was trading above its Graham Number of $20.71. The company pays a dividend of $1.48 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.84, which was below the industry average of 28.23, 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 $-18.61.

Nordstrom, 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) -$18.61
Graham Number $20.71
PEmg 17.84
Current Ratio 1.12
PB Ratio 7.28
Current Dividend $1.48
Dividend Yield 2.91%
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 10/1/2018
Total Current Assets $4,297,000,000
Total Current Liabilities $3,842,000,000
Long-Term Debt $2,678,000,000
Total Assets $8,709,000,000
Intangible Assets $249,000,000
Total Liabilities $7,506,000,000
Shares Outstanding (Diluted Average) 172,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.26
Jan2018 $2.59
Jan2017 $2.02
Jan2016 $3.15
Jan2015 $3.72
Jan2014 $3.71
Jan2013 $3.56
Jan2012 $3.14
Jan2011 $2.75
Jan2010 $2.01
Jan2009 $1.83
Jan2008 $2.88
Jan2007 $2.55
Jan2006 $1.98
Jan2005 $1.39
Jan2004 $0.88
Jan2003 $0.33
Jan2002 $0.46
Jan2001 $0.39
Jan2000 $0.73
Jan1999 $0.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.85
Jan2018 $2.78
Jan2017 $2.99
Jan2016 $3.47
Jan2015 $3.54
Jan2014 $3.31
Jan2013 $2.96
Jan2012 $2.62
Jan2011 $2.37
Jan2010 $2.21
Jan2009 $2.24
Jan2008 $2.28
Jan2007 $1.79
Jan2006 $1.28
Jan2005 $0.85
Jan2004 $0.57
Jan2003 $0.46

Recommended Reading:

Other ModernGraham posts about the company

Nordstrom Inc Valuation – February 2018 $JWN
Nordstrom Inc Valuation – May 2016 $JWN
10 Best Stocks For Value Investors This Week – 10/31/15
Nordstrom Inc. Valuation – October 2015 Update $JWN
The Best Companies of the Retail Industry – August 2015

Other ModernGraham posts about related companies

Walmart Inc Valuation – November 2018 $WMT
Canadian Tire Corp Ltd Valuation – August 2018 $TSE:CTC.A
McKesson Corp Valuation – June 2018 $MCK
Big 5 Sporting Goods Corp Valuation – June 2018 $BGFV
Amazon.com Inc Valuation – June 2018 $AMZN
Fossil Group Inc Valuation – June 2018 $FOSL
Costco Wholesale Corp Valuation – June 2018 $COST
Lumber Liquidators Holdings Inc Valuation – June 2018 $LL
CVS Health Corp Valuation – June 2018 $CVS
Target Corp Valuation – June 2018 $TGT

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.

Walmart Inc Valuation – November 2018 $WMT

Company Profile (excerpt from Reuters): Walmart Inc., formerly Wal-Mart Stores, Inc., incorporated on October 31, 1969, is engaged in the operation of retail, wholesale and other units in various formats around the world. The Company offers an assortment of merchandise and services at everyday low prices (EDLP). The Company operates through three segments: Walmart U.S., Walmart International and Sam’s Club. The Walmart U.S. segment includes the Company’s mass merchant concept in the United States operating under the Walmart brands, as well as digital retail. The Walmart International segment consists of the Company’s operations outside of the United States, including various retail Websites. The Sam’s Club segment includes the warehouse membership clubs in the United States, as well as samsclub.com. The Company operates approximately 11,600 stores under 59 banners in 28 countries and e-commerce Websites in 11 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WMT – November 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 $283,384,329,093 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.81 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 -6.14% Fail
6. Moderate PEmg Ratio PEmg < 20 23.52 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.58 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 0.81 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.65 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.12
MG Growth Estimate -2.37%
MG Value $15.47
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $59.69
MG Value based on 0% Growth $34.99
Market Implied Growth Rate 7.51%
Current Price $96.84
% of Intrinsic Value 625.79%

Walmart Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings 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 $4.89 in 2015 to an estimated $4.12 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.51% 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 Walmart Inc revealed the company was trading above its Graham Number of $50.28. The company pays a dividend of $2.04 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 23.52, which was below the industry average of 28.23, 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 $-26.41.

Walmart 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) -$26.41
Graham Number $50.28
PEmg 23.52
Current Ratio 0.81
PB Ratio 3.58
Current Dividend $2.04
Dividend Yield 2.11%
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 10/1/2018
Total Current Assets $69,446,000,000
Total Current Liabilities $85,751,000,000
Long-Term Debt $43,275,000,000
Total Assets $226,583,000,000
Intangible Assets $31,044,000,000
Total Liabilities $147,114,000,000
Shares Outstanding (Diluted Average) 2,941,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.26
Jan2018 $3.28
Jan2017 $4.38
Jan2016 $4.57
Jan2015 $5.05
Jan2014 $4.88
Jan2013 $5.02
Jan2012 $4.52
Jan2011 $4.47
Jan2010 $3.71
Jan2009 $3.39
Jan2008 $3.13
Jan2007 $2.71
Jan2006 $2.68
Jan2005 $2.41
Jan2004 $2.07
Jan2003 $1.79
Jan2002 $1.47
Jan2001 $1.40
Jan2000 $1.19
Jan1999 $0.99

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.12
Jan2018 $4.17
Jan2017 $4.67
Jan2016 $4.82
Jan2015 $4.89
Jan2014 $4.71
Jan2013 $4.49
Jan2012 $4.10
Jan2011 $3.76
Jan2010 $3.31
Jan2009 $3.02
Jan2008 $2.76
Jan2007 $2.50
Jan2006 $2.29
Jan2005 $2.00
Jan2004 $1.73
Jan2003 $1.49

Recommended Reading:

Other ModernGraham posts about the company

Walmart Inc Valuation – February 2018 $WMT
Wal-Mart Stores Inc Valuation – May 2016 $WMT
Dividend Growth Stocks for Intelligent Investors – February 2016
11 Best Stocks For Value Investors This Week – 11/21/15
Wal-Mart Stores Inc. Valuation – November 2015 Update $WMT

Other ModernGraham posts about related companies

Canadian Tire Corp Ltd Valuation – August 2018 $TSE:CTC.A
McKesson Corp Valuation – June 2018 $MCK
Big 5 Sporting Goods Corp Valuation – June 2018 $BGFV
Amazon.com Inc Valuation – June 2018 $AMZN
Fossil Group Inc Valuation – June 2018 $FOSL
Costco Wholesale Corp Valuation – June 2018 $COST
Lumber Liquidators Holdings Inc Valuation – June 2018 $LL
CVS Health Corp Valuation – June 2018 $CVS
Target Corp Valuation – June 2018 $TGT
Stamps.com Inc Valuation – June 2018 $STMP

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.

Canadian Tire Corp Ltd Valuation – August 2018 $TSE:CTC.A

Company Profile (excerpt from Reuters): Canadian Tire Corporation, Limited is a Canada-based company, which operates through a range of businesses. The Company’s segments include Retail, CT REIT and Financial Services. Its retail segment operates through its retail banners, including Canadian Tire, PartSource, Petroleum, Mark’s, and the various FGL Sports banners. CT REIT is engaged in owning, developing and leasing of income-producing commercial properties. It has a portfolio of properties, which consists of over 300 properties located across Canada totaling approximately 24.7 million square feet of gross leasable area. Financial Services markets a range of Canadian Tire-branded credit cards, including the Canadian Tire Options MasterCard, the Cash Advantage MasterCard and the Gas Advantage MasterCard. It also markets insurance and warranty products, processes credit card transactions for purchases made in Canadian Tire stores and Mark’s stores as well as at Petroleum outlets, and offers financing options.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CTC.A – August 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 $10,951,365,292 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.82 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 104.14% Pass
6. Moderate PEmg Ratio PEmg < 20 16.40 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.12 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 1.82 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.87 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.08
MG Growth Estimate 7.51%
MG Value $236.97
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $146.11
MG Value based on 0% Growth $85.65
Market Implied Growth Rate 3.95%
Current Price $165.27
% of Intrinsic Value 69.74%

Canadian Tire Corporation Limited Class A 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 no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.72 in 2014 to an estimated $10.08 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.95% 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 Canadian Tire Corporation Limited Class A revealed the company was trading above its Graham Number of $134.18. The company pays a dividend of $2.6 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 16.4, which was below the industry average of 30.61, 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 $-27.87.

Canadian Tire Corporation Limited Class A performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$27.87
Graham Number $134.18
PEmg 16.40
Current Ratio 1.82
PB Ratio 2.12
Current Dividend $2.60
Dividend Yield 1.57%
Number of Consecutive Years of Dividend Growth 7

 

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $8,394,800,000
Total Current Liabilities $4,608,100,000
Long-Term Debt $3,312,200,000
Total Assets $15,313,900,000
Intangible Assets $1,282,700,000
Total Liabilities $10,219,800,000
Shares Outstanding (Diluted Average) 65,489,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.20
Dec2017 $10.67
Dec2016 $9.22
Dec2015 $8.61
Dec2014 $7.59
Dec2013 $6.91
Dec2012 $6.10
Dec2011 $5.71
Dec2010 $5.42
Dec2009 $4.10
Dec2008 $4.60
Dec2007 $5.05
Dec2006 $4.31
Dec2005 $3.98
Dec2004 $3.53
Dec2003 $2.95
Dec2002 $2.53
Dec2001 $2.23
Dec2000 $1.89
Dec1999 $1.89
Dec1998 $2.09

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.08
Dec2017 $9.21
Dec2016 $8.22
Dec2015 $7.47
Dec2014 $6.72
Dec2013 $6.07
Dec2012 $5.49
Dec2011 $5.12
Dec2010 $4.78
Dec2009 $4.44
Dec2008 $4.51
Dec2007 $4.30
Dec2006 $3.77
Dec2005 $3.34
Dec2004 $2.89
Dec2003 $2.48
Dec2002 $2.21

Recommended Reading:

Other ModernGraham posts about the company

6 Best Stocks for Value Investors This Week – 3/11/17
Canadian Tire Corp Limited Valuation – Initial Coverage $TSE:CTC.A

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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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