Delta Air Lines Inc Valuation – January 2019 $DAL

Company Profile (excerpt from Reuters): Delta Air Lines, Inc., incorporated on March 16, 1967, provides scheduled air transportation for passengers and cargo throughout the United States and across the world. The Company’s segments include Airline and Refinery. The Company’s route network is centered around a system of hub, international gateway and airports that the Company operates in Amsterdam, Atlanta, Boston, Detroit, London-Heathrow, Los Angeles, Minneapolis-St. Paul, New York-LaGuardia, New York- John F Kennedy International Airport, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Each of these operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub or gateway to domestic and international cities and to other hubs or gateways. The Company’s route network includes its international joint ventures, its alliances with other foreign airlines, its membership in SkyTeam and agreements with multiple domestic regional carriers that operate as Delta Connection. Its subsidiaries include Monroe Energy, LLC and MIPC, LLC (collectively Monroe).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DAL – January 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $32,258,373,426 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.35 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 476.21% Pass
6. Moderate PEmg Ratio PEmg < 20 8.28 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.35 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 0.35 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -0.67 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.68
MG Growth Estimate 2.86%
MG Value $80.81
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $82.35
MG Value based on 0% Growth $48.27
Market Implied Growth Rate -0.11%
Current Price $47.04
% of Intrinsic Value 58.21%

Delta Air Lines, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.77 in 2015 to an estimated $5.68 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.11% annual earnings loss 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 Delta Air Lines, Inc. revealed the company was trading below its Graham Number of $52.28. The company pays a dividend of $1.31 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 8.28, which was below the industry average of 9.65, 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 $-58.71.

Delta Air Lines, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$58.71
Graham Number $52.28
PEmg 8.28
Current Ratio 0.35
PB Ratio 2.35
Current Dividend $1.31
Dividend Yield 2.78%
Number of Consecutive Years of Dividend Growth 6

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 $6,495,000,000
Total Current Liabilities $18,754,000,000
Long-Term Debt $8,270,000,000
Total Assets $60,270,000,000
Intangible Assets $14,610,000,000
Total Liabilities $46,593,000,000
Shares Outstanding (Diluted Average) 683,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.09
Dec2018 $5.67
Dec2017 $4.95
Dec2016 $5.79
Dec2015 $5.63
Dec2014 $0.78
Dec2013 $12.29
Dec2012 $1.19
Dec2011 $1.01
Dec2010 $0.70
Dec2009 -$1.50
Dec2008 -$19.08
Dec2007 $2.11
Dec2006 -$31.58
Dec2005 -$23.75
Dec2004 -$41.07
Dec2003 -$6.40
Dec2002 -$10.44
Dec2001 -$9.99
Jun2000 $8.15
Jun1999 $7.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.68
Dec2018 $5.17
Dec2017 $5.24
Dec2016 $5.31
Dec2015 $4.77
Dec2014 $3.96
Dec2013 $4.61
Dec2012 -$0.67
Dec2011 -$2.18
Dec2010 -$5.81
Dec2009 -$10.96
Dec2008 -$18.02
Dec2007 -$18.37
Dec2006 -$26.62
Dec2005 -$22.21
Dec2004 -$18.27
Dec2003 -$5.35

Recommended Reading:

Other ModernGraham posts about the company

Delta Air Lines Inc Valuation – March 2018 $DAL
Delta Air Lines Inc Valuation – July 2016 $DAL
40 Companies in the Spotlight This Week – 2/21/15
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
14 Companies in the Spotlight This Week – 2/22/14

Other ModernGraham posts about related companies

United Continental Holdings Inc Valuation – January 2019 $UAL
JetBlue Airways Corp Valuation – August 2018 $JBLU
SkyWest Inc Valuation – July 2018 $SKYW
American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL
American Airlines Group Inc Valuation – February 2017 $AAL
Southwest Airlines Co Valuation – February 2017 $LUV

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.

Lydall Inc Valuation – August 2018 $LDL

Company Profile (excerpt from Reuters): Lydall, Inc., incorporated on August 26, 1987, designs and manufactures specialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers for filtration/separation and thermal/acoustical applications. The Company’s segments are Performance Materials, Technical Nonwovens, Thermal/Acoustical Metals and Thermal/Acoustical Fibers. The Performance Materials segment includes filtration, thermal insulation and life sciences filtration businesses. The Technical Nonwovens segment includes its industrial filtration and advanced materials products. The Thermal/Acoustical Metals segment includes its metal parts and related tooling used in automotive applications. The Thermal/Acoustical Fibers segment includes its fiber parts business and related tooling used in automotive applications.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LDL – 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 $772,392,250 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.82 Pass
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 7420.00% Pass
6. Moderate PEmg Ratio PEmg < 20 17.67 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.05 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 2.82 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.40 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.48
MG Growth Estimate 15.00%
MG Value $95.30
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $35.89
MG Value based on 0% Growth $21.04
Market Implied Growth Rate 4.59%
Current Price $43.75
% of Intrinsic Value 45.91%

Lydall, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.05 in 2014 to an estimated $2.48 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.59% 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 Lydall, Inc. revealed the company was trading above its Graham Number of $33.93. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 17.67, which was below the industry average of 18.51, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.29.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $5.29
Graham Number $33.93
PEmg 17.67
Current Ratio 2.82
PB Ratio 2.05
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 6/1/2018
Total Current Assets $299,846,000
Total Current Liabilities $106,310,000
Long-Term Debt $76,784,000
Total Assets $578,774,000
Intangible Assets $103,351,000
Total Liabilities $208,059,000
Shares Outstanding (Diluted Average) 17,335,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.51
Dec2017 $2.85
Dec2016 $2.16
Dec2015 $2.71
Dec2014 $1.28
Dec2013 $1.14
Dec2012 $0.99
Dec2011 $0.82
Dec2010 $0.16
Dec2009 -$0.88
Dec2008 -$0.31
Dec2007 $0.55
Dec2006 $0.63
Dec2005 $0.32
Dec2004 -$0.03
Dec2003 $0.47
Dec2002 $0.69
Dec2001 $0.39
Dec2000 -$0.15
Dec1999 $0.68
Dec1998 $0.26

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.48
Dec2017 $2.31
Dec2016 $1.92
Dec2015 $1.66
Dec2014 $1.05
Dec2013 $0.77
Dec2012 $0.44
Dec2011 $0.14
Dec2010 -$0.13
Dec2009 -$0.16
Dec2008 $0.21
Dec2007 $0.44
Dec2006 $0.40
Dec2005 $0.31
Dec2004 $0.30
Dec2003 $0.44
Dec2002 $0.41

Recommended Reading:

Other ModernGraham posts about the company

11 Best Stocks for Value Investors This Week – 3/4/17
Lydall Inc Valuation – Initial Coverage $LDL

Other ModernGraham posts about related companies

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Standard Motor Products Inc Valuation – August 2018 $SMP
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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.

Delta Air Lines Inc Valuation – March 2018 $DAL

Company Profile (excerpt from Reuters): Delta Air Lines, Inc., incorporated on March 16, 1967, provides scheduled air transportation for passengers and cargo throughout the United States and across the world. The Company’s segments include Airline and Refinery. The Company’s route network is centered around a system of hub, international gateway and airports that the Company operates in Amsterdam, Atlanta, Boston, Detroit, London-Heathrow, Los Angeles, Minneapolis-St. Paul, New York-LaGuardia, New York- John F Kennedy International Airport, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Each of these operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub or gateway to domestic and international cities and to other hubs or gateways. The Company’s route network includes its international joint ventures, its alliances with other foreign airlines, its membership in SkyTeam and agreements with multiple domestic regional carriers that operate as Delta Connection. Its subsidiaries include Monroe Energy, LLC and MIPC, LLC (collectively Monroe).

DAL Chart

DAL data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DAL – March 2018

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $38,102,631,075 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.42 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 7728.57% Pass
6. Moderate PEmg Ratio PEmg < 20 10.40 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.76 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 0.42 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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 $5.18
MG Growth Estimate 4.64%
MG Value $92.12
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $75.12
MG Value based on 0% Growth $44.04
Market Implied Growth Rate 0.95%
Current Price $53.90
% of Intrinsic Value 58.51%

Delta Air Lines, 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. 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 $3.96 in 2014 to an estimated $5.18 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.95% 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 Delta Air Lines, Inc. revealed the company was trading above its Graham Number of $50.22. The company pays a dividend of $1.02 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 10.4, which was below the industry average of 16.61, 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 $-44.36.

Delta Air Lines, 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) -$44.36
Graham Number $50.22
PEmg 10.40
Current Ratio 0.42
PB Ratio 2.76
Current Dividend $1.02
Dividend Yield 1.88%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $7,844,000,000
Total Current Liabilities $18,573,000,000
Long-Term Debt $0
Total Assets $53,292,000,000
Intangible Assets $14,641,000,000
Total Liabilities $39,382,000,000
Shares Outstanding (Diluted Average) 711,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.70
Dec2017 $4.95
Dec2016 $5.79
Dec2015 $5.63
Dec2014 $0.78
Dec2013 $12.29
Dec2012 $1.19
Dec2011 $1.01
Dec2010 $0.70
Dec2009 -$1.50
Dec2008 -$19.08
Dec2007 $2.11
Dec2006 -$31.58
Dec2005 -$23.75
Dec2004 -$41.07
Dec2003 -$6.40
Dec2002 -$10.44
Dec2001 -$9.99
Jun2000 $8.15
Jun1999 $7.20
Jun1998 $6.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.18
Dec2017 $5.24
Dec2016 $5.31
Dec2015 $4.77
Dec2014 $3.96
Dec2013 $4.61
Dec2012 -$0.67
Dec2011 -$2.18
Dec2010 -$5.81
Dec2009 -$10.96
Dec2008 -$18.02
Dec2007 -$18.37
Dec2006 -$26.62
Dec2005 -$22.21
Dec2004 -$18.27
Dec2003 -$5.35
Dec2002 -$3.13

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
14 Companies in the Spotlight This Week – 2/22/14
Delta Air Lines Inc. (DAL) Annual Valuation

Other ModernGraham posts about related companies

United Continental Holdings Inc Valuation – Initial Coverage $UAL
American Airlines Group Inc Valuation – February 2017 $AAL
Southwest Airlines Co Valuation – February 2017 $LUV
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SkyWest Inc Valuation – Initial Coverage $SKYW
Alaska Air Group Inc Valuation – December 2016 $ALK
American Airlines Group Inc Valuation – August 2016 $AAL
Delta Air Lines Inc Valuation – July 2016 $DAL
Southwest Airlines Company Valuation – October 2015 Update $LUV
Alaska Air Group Inc. Analysis – Initial Coverage $ALK

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.

Lydall Inc Valuation – Initial Coverage $LDL

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 – February 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 Lydall Inc (LDL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lydall, Inc. (Lydall) designs and manufactures specialty engineered non-woven filtration media, industrial thermal insulating solutions, and thermal and acoustical barriers for filtration or separation and heat abatement, and sound dampening applications. The Company’s segments are Performance Materials, Industrial Filtration, Thermal/Acoustical Metals, and Thermal/Acoustical Fibers. The Performance Materials segment is engaged in the filtration, thermal insulation and life sciences filtration businesses. The Industrial Filtration segment is engaged in the Lydall’s industrial non-woven felt media and filter bag business. The Thermal/Acoustical Metals segment is engaged in the Lydall’s metal parts and related tooling. The Thermal/Acoustical Fibers segment is engaged in the Lydall’s fiber parts business and related tooling business for use in automotive applications. The Company’s products are sold to original equipment manufacturers and tier-one suppliers.

LDL Chart

LDL 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 LDL – 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 $884,724,960 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.83 Pass
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 -831.07% Fail
6. Moderate PEmg Ratio PEmg < 20 23.32 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.31 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.83 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.78 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.25
MG Growth Estimate 15.00%
MG Value $86.68
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $32.64
MG Value based on 0% Growth $19.14
Market Implied Growth Rate 7.41%
Current Price $52.50
% of Intrinsic Value 60.57%

Lydall, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.77 in 2013 to an estimated $2.25 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.41% 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 Lydall, Inc. revealed the company was trading above its Graham Number of $30.88. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 23.32, which was above the industry average of 22.25. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.12.

Lydall, 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) $0.12
Graham Number $30.88
PEmg 23.32
Current Ratio 2.83
PB Ratio 3.31
Current Dividend $0.00
Dividend Yield 0.00%
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 12/1/2016
Total Current Assets $255,606,000
Total Current Liabilities $90,444,000
Long-Term Debt $128,141,000
Total Assets $527,029,000
Intangible Assets $105,053,000
Total Liabilities $253,573,000
Shares Outstanding (Diluted Average) 17,241,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.66
Dec2016 $2.16
Dec2015 $2.71
Dec2014 $1.28
Dec2013 $1.14
Dec2012 $0.99
Dec2011 $0.82
Dec2010 $0.16
Dec2009 -$0.88
Dec2008 -$0.31
Dec2007 $0.55
Dec2006 $0.63
Dec2005 $0.32
Dec2004 -$0.03
Dec2003 $0.47
Dec2002 $0.69
Dec2001 $0.39
Dec2000 -$0.15
Dec1999 $0.68
Dec1998 $0.26
Dec1997 $1.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.25
Dec2016 $1.92
Dec2015 $1.66
Dec2014 $1.05
Dec2013 $0.77
Dec2012 $0.44
Dec2011 $0.14
Dec2010 -$0.13
Dec2009 -$0.16
Dec2008 $0.21
Dec2007 $0.44
Dec2006 $0.40
Dec2005 $0.31
Dec2004 $0.30
Dec2003 $0.44
Dec2002 $0.41
Dec2001 $0.35

Recommended Reading:

Other ModernGraham posts about the company

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

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AGCO Corporation Valuation – February 2017 $AGCO
PACCAR Inc Valuation – February 2017 $PCAR
Kaman Corporation Valuation – Initial Coverage $KAMN
John Bean Technologies Corp Valuation – Initial Coverage $JBT
W. W. Grainger Inc Valuation – January 2017 $GWW

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.

Delta Air Lines Inc Valuation – July 2016 $DAL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Delta Air Lines Inc (DAL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo throughout the United States and around the world. The Company’s operates through segments, including Airline Segment and Refinery Segment. The Airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the United States and around the world and other ancillary airline services. The Refinery Segment produces gasoline, diesel and jet fuel. Its wholly owned subsidiaries, Monroe Energy, LLC and MIPC, LLC operate the Trainer refinery and related assets located near Philadelphia, Pennsylvania. The Company also offers cargo services, aircraft maintenance, repair and overhaul (MRO), staffing services for third parties, vacation wholesale operations and private jet operations.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DAL – July 2016

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $29,474,625,613 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.51 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 -179.22% Fail
6. Moderate PEmg Ratio PEmg < 20 7.13 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.59 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 0.51 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -0.79 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

DAL value chart July 2016

EPSmg $5.24
MG Growth Estimate 15.00%
MG Value $201.82
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $76.01
MG Value based on 0% Growth $44.56
Market Implied Growth Rate -0.69%
Current Price $37.37
% of Intrinsic Value 18.52%

Delta Air Lines, 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. 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 $-0.67 in 2012 to an estimated $5.24 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.69% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Delta Air Lines, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

DAL charts July 2016

Net Current Asset Value (NCAV) -$42.03
Graham Number $42.87
PEmg 7.13
Current Ratio 0.51
PB Ratio 2.59
Current Dividend $0.50
Dividend Yield 1.32%
Number of Consecutive Years of Dividend Growth 4

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $9,306,000,000
Total Current Liabilities $18,108,000,000
Long-Term Debt $6,920,000,000
Total Assets $53,342,000,000
Intangible Assets $14,650,000,000
Total Liabilities $42,090,000,000
Shares Outstanding (Diluted Average) 780,000,000

Earnings Per Share History

Next Fiscal Year Estimate $5.60
Dec2015 $5.63
Dec2014 $0.78
Dec2013 $12.29
Dec2012 $1.19
Dec2011 $1.01
Dec2010 $0.70
Dec2009 -$1.50
Dec2008 -$19.08
Dec2007 $5.42
Dec2006 -$31.58
Dec2005 -$23.75
Dec2004 -$41.07
Dec2003 -$6.40
Dec2002 -$10.44
Dec2001 -$9.99
Jun2000 $9.42
Jun1999 $7.20
Jun1998 $12.68
Jun1997 $11.01
Jun1996 $1.42

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.24
Dec2015 $4.77
Dec2014 $3.96
Dec2013 $4.61
Dec2012 -$0.67
Dec2011 -$1.96
Dec2010 -$5.37
Dec2009 -$10.30
Dec2008 -$17.14
Dec2007 -$17.27
Dec2006 -$26.62
Dec2005 -$22.21
Dec2004 -$18.19
Dec2003 -$5.18
Dec2002 -$2.45
Dec2001 $3.05
Jun2000 $9.16

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
14 Companies in the Spotlight This Week – 2/22/14
Delta Air Lines Inc. (DAL) Annual Valuation

Other ModernGraham posts about related companies

Southwest Airlines Company Valuation – October 2015 Update $LUV
Alaska Air Group Inc. Analysis – Initial Coverage $ALK
American Airlines Group Analysis – 2015 Initial Coverage $AAL
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
Southwest Airlines Company Annual Valuation – 2014 $LUV

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.

Delta Air Lines Inc. Annual Valuation – 2015 $DAL

500px-Delta_logo.svg

After reviewing 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, insufficient earnings stability or growth over the last ten years, and the short dividend history, 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 investor 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 a loss of $5.81 in 2010 to a gain of $3.96 for 2014. This level of demonstrated growth is very strong and significantly higher than the market’s implied estimate of only 1.47% annual earnings growth. As a result, the company appears to be significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of Delta Air Lines Inc. (DAL) for greater perspective!

Read the full valuation on Seeking Alpha!

DAL Chart

DAL data by YCharts

Disclaimer:  The author did not hold a position in Delta Air Lines Inc. (DAL) 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.

Delta Air Lines Inc. (DAL) Annual Valuation

500px-Delta_logo.svg

Once a company emerges from bankruptcy, it can be easy for investors to jump right on board, assuming that the company is immediately much better than it was before the bankruptcy and therefore it must be a good time to invest.  But this is speculation which Benjamin Graham encouraged Intelligent Investors to avoid.  Intelligent Investors know that investment analysis requires a review of the financial statements to determine the company’s risk level and intrinsic value.  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.  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 Delta Air Lines fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Delta Air Lines, Inc. (Delta) provides scheduled air transportation for passengers and cargo throughout the United States and around the world. The Company’s route network gives it a presence in every domestic and international market. Delta’s route network is centered around the hub system it operate at airports in Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York-JFK, Paris-Charles de Gaulle, Salt Lake City and Tokyo-Narita. Each of these hub operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub to domestic and international cities and to other hubs. The Company’s network is supported by a fleet of aircraft that is varied in terms of size and capabilities. In June 2013, Delta Air Lines Inc acquired a 49% stake in Virgin Atlantic Airways Ltd.

DAL Chart

DAL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

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

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

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

Valuation Summary

Key Data:

Recent Price $31.34
MG Value $60.80
MG Opinion Undervalued
Value Based on 3% Growth $22.90
Value Based on 0% Growth $13.42
Market Implied Growth Rate 5.67%
NCAV -$43.14
PEmg 19.84
Current Ratio 0.63
PB Ratio 195.71

Balance Sheet – 9/30/2013

Current Assets $8,951,000,000
Current Liabilities $14,134,000,000
Total Debt $10,077,000,000
Total Assets $45,997,000,000
Intangible Assets $14,469,000,000
Total Liabilities $45,860,000,000
Outstanding Shares 855,550,000

Earnings Per Share

2013 $3.20
2012 $1.19
2011 $1.01
2010 $0.70
2009 -$1.50
2008 -$19.06
2007 $5.42
2006 -$31.58
2005 -$23.75
2004 -$41.07
2003 -$6.40

Earnings Per Share – ModernGraham 

2013 $1.58
2012 -$0.66
2011 -$1.96
2010 -$5.36
2009 -$10.29
2008 -$17.13

 

Conclusion:

Delta Air Lines does not qualify for either the Defensive Investor or the Enterprising Investor.  The company needs more time to demonstrate stable earnings and growth in the post-bankruptcy period.  Though the company is showing some very encouraging signs of stability (four straight years of positive earnings), it will still take a couple more years before Intelligent Investors should be interested in the company as an investment.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should seek out some other opportunities, such as through a review of 5 Undervalued Companies for the Enterprising Investor or 5 Outstanding Dow Components. From strictly a valuation perspective, the company does look undervalued; however it is important to note that the results are affected by the massive write-offs the company recorded as it went through the bankruptcy process.  EPSmg (normalized earnings) grew from -$17.13 in 2008 to $1.58 for 2013.  This level of growth would more than support the market’s implied growth estimate of 5.67%, and based on the demonstrated growth from the bankruptcy years to today, the ModernGraham valuation model returns an intrinsic value greater than the market 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 Delta Air Lines Inc. (DAL)?  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.

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

Disclaimer:  The author did not hold a position in Delta Air Lines Inc. (DAL) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

American Airlines Group Inc Valuation – March 2019 #AAL

Company Profile (excerpt from Reuters): American Airlines Group Inc., incorporated on February 16, 1982, is a holding company. The Company’s primary business activity is the operation of a network air carrier, providing scheduled air transportation for passengers and cargo. The Company operates through American segment, which provides air transportation for passengers and cargo. Together with its regional airline subsidiaries and third-party regional carriers operating as American Eagle, its airline operated an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries, principally from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, District of Columbia, as of December 31, 2016. In the fiscal year ended December 31, 2016, approximately 199 million passengers boarded its mainline and regional flights.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAL – 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 $14,392,244,457 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 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 -141.07% Fail
6. Moderate PEmg Ratio PEmg < 20 7.09 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.26 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 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.67 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 $4.52
MG Growth Estimate 15.00%
MG Value $174.07
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $65.56
MG Value based on 0% Growth $38.43
Market Implied Growth Rate -0.71%
Current Price $32.04
% of Intrinsic Value 18.41%

American Airlines Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $1.37 in 2015 to an estimated $4.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.71% annual earnings loss 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 American Airlines Group Inc revealed the company was trading below its Graham Number of $55.21. The company pays a dividend of $0.4 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 7.09, which was below the industry average of 10.49, 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 $-86.27.

American Airlines Group Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$86.27
Graham Number $55.21
PEmg 7.09
Current Ratio 1.12
PB Ratio 1.26
Current Dividend $0.40
Dividend Yield 1.25%
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 $19,257,000,000
Total Current Liabilities $17,121,000,000
Long-Term Debt $20,650,000,000
Total Assets $70,878,000,000
Intangible Assets $15,322,000,000
Total Liabilities $59,108,000,000
Shares Outstanding (Diluted Average) 461,916,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.50
Dec2018 $3.03
Dec2017 $2.61
Dec2016 $4.65
Dec2015 $11.07
Dec2014 $3.93
Dec2013 -$6.54
Dec2012 -$7.52
Dec2011 -$15.83
Dec2010 -$3.78
Dec2009 -$13.36
Dec2008 -$21.85
Dec2007 $4.77
Dec2006 $2.62
Dec2005 -$13.87
Dec2004 -$12.69
Dec2003 -$20.78
Dec2002 -$60.46
Dec2001 -$30.60
Dec2000 $13.47
Dec1999 $16.76

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.52
Dec2018 $4.37
Dec2017 $4.41
Dec2016 $3.91
Dec2015 $1.37
Dec2014 -$4.30
Dec2013 -$8.75
Dec2012 -$10.72
Dec2011 -$11.55
Dec2010 -$8.38
Dec2009 -$9.90
Dec2008 -$8.18
Dec2007 -$3.56
Dec2006 -$12.16
Dec2005 -$22.26
Dec2004 -$25.04
Dec2003 -$26.25

Recommended Reading:

Other ModernGraham posts about the company

American Airlines Group Inc Valuation – May 2018 $AAL
American Airlines Group Inc Valuation – February 2017 $AAL
American Airlines Group Inc Valuation – August 2016 $AAL
American Airlines Group Analysis – 2015 Initial Coverage $AAL

Other ModernGraham posts about related companies

Alaska Air Group Inc Valuation – February 2019 $ALK
Delta Air Lines Inc Valuation – January 2019 $DAL
United Continental Holdings Inc Valuation – January 2019 $UAL
JetBlue Airways Corp Valuation – August 2018 $JBLU
SkyWest Inc Valuation – July 2018 $SKYW
American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL

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.

Southwest Airlines Co Valuation – March 2019 #LUV

Company Profile (excerpt from Reuters): Southwest Airlines Co. (Southwest), incorporated on March 9, 1967, operates Southwest Airlines, a passenger airline that provides scheduled air transportation in the United States and near-international markets. Southwest provides point-to-point service. As of December 31, 2016, Southwest operated a total of 723 Boeing 737 aircraft and served 101 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and eight near-international countries: Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize and Cuba. During the fiscal year ended December 31, 2016, the Company commenced international service out of Los Angeles International Airport by introducing service to Liberia, Costa Rica, and later to three airports in Mexico’s coastal regions: Cancun, San Jose del Cabo/Los Cabos and Puerto Vallarta. Southwest bundles fares into three categories: Wanna Get Away, Anytime and Business Select.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LUV – 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 $28,679,031,872 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.64 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 922.14% Pass
6. Moderate PEmg Ratio PEmg < 20 11.74 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.94 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 0.64 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -0.96 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 $4.42
MG Growth Estimate 15.00%
MG Value $170.14
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $64.08
MG Value based on 0% Growth $37.56
Market Implied Growth Rate 1.62%
Current Price $51.88
% of Intrinsic Value 30.49%

Southwest Airlines 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 $1.83 in 2015 to an estimated $4.42 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.62% 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 Southwest Airlines Co revealed the company was trading above its Graham Number of $41.89. The company pays a dividend of $0.61 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 11.74, which was above the industry average of 10.49. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.33.

Southwest Airlines Co performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.33
Graham Number $41.89
PEmg 11.74
Current Ratio 0.64
PB Ratio 2.94
Current Dividend $0.61
Dividend Yield 1.17%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $5,028,000,000
Total Current Liabilities $7,905,000,000
Long-Term Debt $2,771,000,000
Total Assets $26,243,000,000
Intangible Assets $1,369,000,000
Total Liabilities $16,390,000,000
Shares Outstanding (Diluted Average) 559,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.45
Dec2018 $4.29
Dec2017 $5.57
Dec2016 $3.45
Dec2015 $3.27
Dec2014 $1.64
Dec2013 $1.05
Dec2012 $0.56
Dec2011 $0.23
Dec2010 $0.61
Dec2009 $0.13
Dec2008 $0.24
Dec2007 $0.84
Dec2006 $0.61
Dec2005 $0.60
Dec2004 $0.38
Dec2003 $0.46
Dec2002 $0.23
Dec2001 $0.63
Dec2000 $0.79
Dec1999 $0.59

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.42
Dec2018 $4.15
Dec2017 $3.72
Dec2016 $2.53
Dec2015 $1.83
Dec2014 $1.01
Dec2013 $0.64
Dec2012 $0.40
Dec2011 $0.35
Dec2010 $0.44
Dec2009 $0.40
Dec2008 $0.53
Dec2007 $0.64
Dec2006 $0.52
Dec2005 $0.47
Dec2004 $0.43
Dec2003 $0.49

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Investor – June 2018
Southwest Airlines Co Valuation – May 2018 $LUV
Southwest Airlines Co Valuation – February 2017 $LUV
Southwest Airlines Company Valuation – October 2015 Update $LUV
18 Companies in the Spotlight This Week – 10/25/14

Other ModernGraham posts about related companies

Alaska Air Group Inc Valuation – February 2019 $ALK
Delta Air Lines Inc Valuation – January 2019 $DAL
United Continental Holdings Inc Valuation – January 2019 $UAL
JetBlue Airways Corp Valuation – August 2018 $JBLU
SkyWest Inc Valuation – July 2018 $SKYW
American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL

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.

AbbVie Inc Valuation – March 2019 #ABBV

Company Profile (excerpt from Reuters): AbbVie Inc. (AbbVie), incorporated on April 10, 2012, is a research-based biopharmaceutical company. The Company is engaged in the discovery, development, manufacture and sale of a range of pharmaceutical products. Its products are focused on treating conditions, such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C virus (HCV) and human immunodeficiency virus (HIV); neurological disorders, such as Parkinson’s disease and multiple sclerosis; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis, and other serious health conditions. It offers products in various categories, including HUMIRA (adalimumab), Oncology products, Virology Products, Additional Virology products, Metabolics/Hormones products, Endocrinology products and other products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ABBV – 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 $118,154,226,149 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.98 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 363.28% Pass
6. Moderate PEmg Ratio PEmg < 20 15.46 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -14.24 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 0.98 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -119.05 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 $5.18
MG Growth Estimate 15.00%
MG Value $199.51
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $75.14
MG Value based on 0% Growth $44.05
Market Implied Growth Rate 3.48%
Current Price $80.10
% of Intrinsic Value 40.15%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.3 in 2015 to an estimated $5.18 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.48% 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 AbbVie Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $3.59 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.46, which was below the industry average of 47.6, 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 $-33.88.

AbbVie 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) -$33.88
Graham Number $0.00
PEmg 15.46
Current Ratio 0.98
PB Ratio -14.24
Current Dividend $3.59
Dividend Yield 4.48%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $16,945,000,000
Total Current Liabilities $17,239,000,000
Long-Term Debt $35,002,000,000
Total Assets $59,352,000,000
Intangible Assets $36,896,000,000
Total Liabilities $67,798,000,000
Shares Outstanding (Diluted Average) 1,501,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.56
Dec2018 $3.66
Dec2017 $3.30
Dec2016 $3.63
Dec2015 $3.13
Dec2014 $1.10
Dec2013 $2.56
Dec2012 $3.35

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.18
Dec2018 $3.32
Dec2017 $3.01
Dec2016 $2.83
Dec2015 $2.30
Dec2014 $1.72
Dec2013 $1.75
Dec2012 $1.12

Recommended Reading:

Other ModernGraham posts about the company

10 Best Dividend Paying Stocks for the Enterprising Investor – May 2018
AbbVie Inc Valuation – April 2018 $ABBV
10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017
9 Best Stocks For Value Investors This Week – 7/23/16
AbbVie Inc Valuation – July 2016 $ABBV

Other ModernGraham posts about related companies

Allergan PLC Valuation – February 2019 $AGN
Incyte Corp Valuation – February 2019 $INCY
Regeneron Pharmaceuticals Inc Valuation – February 2019 $REGN
Alexion Pharmaceuticals Inc Valuation – February 2019 $ALXN
Vertex Pharmaceuticals Inc Valuation – February 2019 $VRTX
Perrigo Company Valuation – February 2019 $PRGO
Eli Lilly and Co Valuation – January 2019 $LLY
Zoetis Inc Valuation – January 2019 $ZTS
Gilead Sciences Inc Valuation – January 2019 $GILD
Pfizer Inc Valuation – November 2018 $PFE

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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