Home Depot Inc Valuation – April 2019 #HD

Company Profile (excerpt from Reuters): The Home Depot, Inc. (The Home Depot), incorporated on June 29, 1978, is a home improvement retailer. The Company sells an assortment of building materials, home improvement products, and lawn and garden products, and provides various services. The Home Depot stores averaged approximately 104,000 square feet of enclosed space, with over 24,000 additional square feet of outside garden area, as of January 29, 2017. The Home Depot stores serve three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. The Company had approximately 2,278 stores located throughout the United States, including the Commonwealth of Puerto Rico and the territories of the United States Virgin Islands and Guam, Canada and Mexico, as of January 29, 2017.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HD – April 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $223,054,839,544 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 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 257.09% Pass
6. Moderate PEmg Ratio PEmg < 20 23.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -120.72 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 14.79 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

EPSmg $8.51
MG Growth Estimate 14.05%
MG Value $311.32
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $123.35
MG Value based on 0% Growth $72.31
Market Implied Growth Rate 7.63%
Current Price $202.06
% of Intrinsic Value 64.90%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.39 in 2016 to an estimated $8.51 for 2020. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.63% 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 Home Depot Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $4.12 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 23.75, which was above the industry average of 21.52. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.38.

Home Depot 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) -$24.38
Graham Number $0.00
PEmg 23.75
Current Ratio 1.11
PB Ratio -120.72
Current Dividend $4.12
Dividend Yield 2.04%
Number of Consecutive Years of Dividend Growth 9

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2019
Total Current Assets $18,529,000,000
Total Current Liabilities $16,716,000,000
Long-Term Debt $26,807,000,000
Total Assets $44,003,000,000
Intangible Assets $2,252,000,000
Total Liabilities $45,881,000,000
Shares Outstanding (Diluted Average) 1,122,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.69
Jan2019 $9.73
Jan2018 $7.29
Jan2017 $6.45
Jan2016 $5.46
Jan2015 $4.71
Jan2014 $3.76
Jan2013 $3.00
Jan2012 $2.47
Jan2011 $2.01
Jan2010 $1.57
Jan2009 $1.34
Jan2008 $2.37
Jan2007 $2.79
Jan2006 $2.72
Jan2005 $2.26
Jan2004 $1.88
Jan2003 $1.56
Jan2002 $1.29
Jan2001 $1.10
Jan2000 $1.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.51
Jan2019 $7.52
Jan2018 $6.12
Jan2017 $5.25
Jan2016 $4.39
Jan2015 $3.64
Jan2014 $2.92
Jan2013 $2.36
Jan2012 $2.01
Jan2011 $1.86
Jan2010 $1.91
Jan2009 $2.15
Jan2008 $2.50
Jan2007 $2.46
Jan2006 $2.18
Jan2005 $1.81
Jan2004 $1.51

Recommended Reading:

Other ModernGraham posts about the company

Home Depot Inc Valuation – November 2018 $HD
Home Depot Inc Valuation – February 2018 $HD
Home Depot Inc Valuation – February 2017 $HD
Home Depot Inc. Valuation – November 2015 Update $HD
30 Companies in the Spotlight This Week – 11/15/14

Other ModernGraham posts about related companies

Lowe’s Companies Inc Valuation – March 2019 #LOW
Quanta Services Inc Valuation – March 2019 #PWR
Mohawk Industries Inc Valuation – March 2019 #MHK
Jacobs Engineering Group Inc Valuation – March 2019 #JEC
Masco Corp Valuation – February 2019 $MAS
D.R. Horton Inc Valuation – February 2019 $DHI
Martin Marietta Materials Inc Valuation – February 2019 $MLM
Fluor Corp Valuation – February 2019 $FLR
Lennar Corp Valuation – February 2019 $LEN
Vulcan Materials Co Valuation – February 2019 $VMC

Disclaimer:

The author held a long position in HD but did not hold a position 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.  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.

Home Depot Inc Valuation – November 2018 $HD

Company Profile (excerpt from Reuters): The Home Depot, Inc. (The Home Depot), incorporated on June 29, 1978, is a home improvement retailer. The Company sells an assortment of building materials, home improvement products, and lawn and garden products, and provides various services. The Home Depot stores averaged approximately 104,000 square feet of enclosed space, with over 24,000 additional square feet of outside garden area, as of January 29, 2017. The Home Depot stores serve three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. The Company had approximately 2,278 stores located throughout the United States, including the Commonwealth of Puerto Rico and the territories of the United States Virgin Islands and Guam, Canada and Mexico, as of January 29, 2017.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HD – 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 $202,535,298,071 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.09 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 288.26% Pass
6. Moderate PEmg Ratio PEmg < 20 23.52 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 153.02 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 1.09 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 14.46 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 $7.53
MG Growth Estimate 15.00%
MG Value $289.75
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $109.13
MG Value based on 0% Growth $63.97
Market Implied Growth Rate 7.51%
Current Price $177.02
% of Intrinsic Value 61.09%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.64 in 2015 to an estimated $7.53 for 2019. This level of demonstrated earnings growth outpaces 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 above the price.

At the time of valuation, further research into Home Depot Inc revealed the company was trading above its Graham Number of $16.6. The company pays a dividend of $3.56 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 23.52, which was above the industry average of 20.63. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-21.1.

Home Depot 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) -$21.10
Graham Number $16.60
PEmg 23.52
Current Ratio 1.09
PB Ratio 153.02
Current Dividend $3.56
Dividend Yield 2.01%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $19,809,000,000
Total Current Liabilities $18,196,000,000
Long-Term Debt $23,332,000,000
Total Assets $45,200,000,000
Intangible Assets $2,258,000,000
Total Liabilities $43,880,000,000
Shares Outstanding (Diluted Average) 1,141,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.75
Jan2018 $7.29
Jan2017 $6.45
Jan2016 $5.46
Jan2015 $4.71
Jan2014 $3.76
Jan2013 $3.00
Jan2012 $2.47
Jan2011 $2.01
Jan2010 $1.57
Jan2009 $1.34
Jan2008 $2.37
Jan2007 $2.79
Jan2006 $2.72
Jan2005 $2.26
Jan2004 $1.88
Jan2003 $1.56
Jan2002 $1.29
Jan2001 $1.10
Jan2000 $1.00
Jan1999 $0.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.53
Jan2018 $6.12
Jan2017 $5.25
Jan2016 $4.39
Jan2015 $3.64
Jan2014 $2.92
Jan2013 $2.36
Jan2012 $2.01
Jan2011 $1.86
Jan2010 $1.91
Jan2009 $2.15
Jan2008 $2.50
Jan2007 $2.46
Jan2006 $2.18
Jan2005 $1.81
Jan2004 $1.51
Jan2003 $1.26

Recommended Reading:

Other ModernGraham posts about the company

Home Depot Inc Valuation – February 2018 $HD
Home Depot Inc Valuation – February 2017 $HD
Home Depot Inc. Valuation – November 2015 Update $HD
30 Companies in the Spotlight This Week – 11/15/14
Home Depot Inc. Annual Valuation – 2014 $HD

Other ModernGraham posts about related companies

Cavco Industries Inc Valuation – September 2018 $CVCO
LGI Homes Inc Valuation – September 2018 $LGIH
Stantec Inc Valuation – August 2018 $TSE-STN
Simpson Manufacturing Co Inc Valuation – August 2018 $SSD
KBR Inc Valuation – August 2018 $KBR
KB Home Valuation – August 2018 $KBH
SNC-Lavalin Group Inc Valuation – August 2018 $TSE:SNC
Stella-Jones Inc Valuation – July 2018 $TSE-SJ
Aecon Group Inc Valuation – July 2018 $TSE:ARE
Aecom Valuation – July 2018 $ACM

Disclaimer:

The author held a long position in HD but did not hold a position 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.  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.

Home Depot Inc Valuation – February 2018 $HD

Company Profile (obtained from Marketwatch): Home Depot, Inc. is a home improvement retailer that sells building materials and home improvement products. It operates The Home Depot stores, which provides full-service, warehouse-style stores that sells a wide assortment of building materials, home improvement products and lawn and garden products and provide a number of services. The company offers national installation services through pre-screened independent contractors for products ranging from floors to roofs, windows to water heaters, and kitchen cabinets to vinyl siding. Its retail stores offer professional customers, including repair and remodel contractors, special services and support to make them more successful on the job site. The company serves professional remodelers, general contractors, repairmen, small business owners, and tradesmen. Home Depot was founded by Bernard Marcus, Arthur M. Blank, Kenneth Gerald Langone and Pat Farrah on June 29, 1978 and is headquartered at Atlanta, GA.

HD Chart

HD data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HD – February 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 $219,945,507,169 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.17 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 268.93% Pass
6. Moderate PEmg Ratio PEmg < 20 26.39 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 151.17 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 1.17 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.86 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 $7.14
MG Growth Estimate 14.44%
MG Value $266.73
Opinion Undervalued
MG Grade D+
MG Value based on 3% Growth $103.47
MG Value based on 0% Growth $60.66
Market Implied Growth Rate 8.95%
Current Price $188.35
% of Intrinsic Value 70.61%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.64 in 2015 to an estimated $7.14 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.95% 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 Home Depot Inc revealed the company was trading above its Graham Number of $15.4. The company pays a dividend of $3.56 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 26.39, which was above the industry average of 25.98. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.69.

Home Depot 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) -$20.69
Graham Number $15.40
PEmg 26.39
Current Ratio 1.17
PB Ratio 151.17
Current Dividend $3.56
Dividend Yield 1.89%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $18,933,000,000
Total Current Liabilities $16,194,000,000
Long-Term Debt $24,267,000,000
Total Assets $44,529,000,000
Intangible Assets $2,275,000,000
Total Liabilities $43,075,000,000
Shares Outstanding (Diluted Average) 1,167,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.58
Jan2018 $7.29
Jan2017 $6.45
Jan2016 $5.46
Jan2015 $4.71
Jan2014 $3.76
Jan2013 $3.00
Jan2012 $2.47
Jan2011 $2.01
Jan2010 $1.57
Jan2009 $1.34
Jan2008 $2.37
Jan2007 $2.79
Jan2006 $2.72
Jan2005 $2.26
Jan2004 $1.88
Jan2003 $1.56
Jan2002 $1.29
Jan2001 $1.10
Jan2000 $1.00
Jan1999 $0.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.14
Jan2018 $6.12
Jan2017 $5.25
Jan2016 $4.39
Jan2015 $3.64
Jan2014 $2.92
Jan2013 $2.36
Jan2012 $2.01
Jan2011 $1.86
Jan2010 $1.91
Jan2009 $2.15
Jan2008 $2.50
Jan2007 $2.46
Jan2006 $2.18
Jan2005 $1.81
Jan2004 $1.51
Jan2003 $1.26

Recommended Reading:

Other ModernGraham posts about the company

Home Depot Inc Valuation – February 2017 $HD
Home Depot Inc. Valuation – November 2015 Update $HD
30 Companies in the Spotlight This Week – 11/15/14
Home Depot Inc. Annual Valuation – 2014 $HD
ModernGraham Valuation: Home Depot (HD)

Other ModernGraham posts about related companies

Caterpillar Inc Valuation – February 2018 $CAT
Eagle Materials Inc Valuation – Initial Coverage $EXP
Louisiana-Pacific Corp Valuation – Initial Coverage $LPX
Lowe’s Companies Inc Valuation – March 2017 $LOW
Cavco Industries Inc Valuation – Initial Coverage $CVCO
LGI Homes Inc Valuation – Initial Coverage $LGIH
Fortune Brands Home & Security Inc Valuation – Initial Coverage $FBHS
Acuity Brands Inc Valuation – Initial Coverage $AYI
Stantec Inc Valuation – Initial Coverage $TSE:STN
Home Depot Inc Valuation – February 2017 $HD

Disclaimer:

The author held a long position in HD but did not hold a position 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.  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.

Depomed Inc Valuation – Initial Coverage $DEPO

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 Undervalued Stocks for the Enterprising Investor – August 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 Depomed Inc (DEPO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Depomed, Inc. is a specialty pharmaceutical company. The Company focuses on pain and other central nervous system (CNS) conditions. Its products include NUCYNTA ER (tapentadol extended release tablets), NUCYNTA IR (NUCYNTA) (tapentadol), Gralise (gabapentin), CAMBIA (diclofenac potassium for oral solution), Zipsor (diclofenac potassium) and Lazanda (fentanyl). Its NUCYNTA ER (tapentadol extended release tablets) is a product for the management of pain severe enough to require daily long term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy in adults, and its NUCYNTA (tapentadol) is a product for the management of moderate to severe acute pain in adults. Its Gralise (gabapentin) is a once-daily product for the management of postherpetic neuralgia. Its CAMBIA (diclofenac potassium for oral solution) is a product for the acute treatment of migraine attacks.

DEPO Chart

DEPO data by YCharts

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

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. 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.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of DEPO – August 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 $372,264,874 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.79 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 354.41% Pass
6. Moderate PEmg Ratio PEmg < 20 -13.37 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.75 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 0.79 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -9.55 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg -$0.44
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$6.41
MG Value based on 0% Growth -$3.76
Market Implied Growth Rate -10.94%
Current Price $5.91
% of Intrinsic Value N/A

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

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.34 in 2013 to an estimated $-0.44 for 2017.  This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Depomed Inc revealed the company was trading above its Graham Number of $0.  The company does not pay a dividend.  Its PEmg (price over earnings per share – ModernGraham) was -13.37, which was below the industry average of 28.67, 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 $-10.48.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$10.48
Graham Number $0.00
PEmg -13.37
Current Ratio 0.79
PB Ratio 1.75
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 6/1/2017
Total Current Assets $219,043,000
Total Current Liabilities $278,941,000
Long-Term Debt $572,050,000
Total Assets $1,085,600,000
Intangible Assets $850,679,000
Total Liabilities $874,204,000
Shares Outstanding (Diluted Average) 62,532,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.38
Dec2016 -$1.45
Dec2015 -$1.26
Dec2014 $2.05
Dec2013 $0.75
Dec2012 -$0.53
Dec2011 $1.26
Dec2010 $0.07
Dec2009 -$0.43
Dec2008 -$0.32
Dec2007 $1.05
Dec2006 -$0.97
Dec2005 -$0.64
Dec2004 -$0.78
Dec2003 -$1.23
Dec2002 -$0.92
Dec2001 -$1.81
Dec2000 -$1.43
Dec1999 -$0.80
Dec1998 -$0.44
Dec1997 -$0.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.44
Dec2016 -$0.34
Dec2015 $0.29
Dec2014 $0.95
Dec2013 $0.34
Dec2012 $0.09
Dec2011 $0.38
Dec2010 -$0.08
Dec2009 -$0.19
Dec2008 -$0.16
Dec2007 -$0.22
Dec2006 -$0.88
Dec2005 -$0.91
Dec2004 -$1.11
Dec2003 -$1.26
Dec2002 -$1.21
Dec2001 -$1.23

Recommended Reading:

Other ModernGraham posts about the company

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

Other ModernGraham posts about related companies

Endo International PLC Valuation – July 2017 $ENDP
Biogen Inc Valuation – July 2017 $BIIB
Mylan NV Valuation – March 2017 $MYL
Amgen Inc Valuation – March 2017 $AMGN
Celgene Corporation Valuation – March 2017 $CELG
Ligand Pharmaceuticals Inc Valuation – Initial Coverage $LGND
Pfizer Inc Valuation – March 2017 $PFE
Supernus Pharmaceuticals Inc Valuation – Initial Coverage $SUPN
Lannett Company Inc Valuation – Initial Coverage $LCI
Spectrum Pharmaceuticals Inc Valuation – Initial Coverage $SPPI

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.

Home Depot Inc Valuation – February 2017 $HD

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 Home Depot Inc (HD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Company sells an assortment of building materials, home improvement products, and lawn and garden products, and provides various services. The Home Depot stores serve three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. Its DIY customers are home owners who purchase products and complete their own projects and installations. The Company assists these customers with specific product and installation questions both in its stores and through online resources and other media designed to provide product and project knowledge. Its DIFM customers are home owners who purchase materials themselves and hire third parties to complete the project or installation. Professional Customers are primarily professional renovators/remodelers, general contractors, repairmen, installers, small business owners and tradesmen.

HD Chart

HD data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HD – February 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 $179,066,664,798 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 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 216.67% Pass
6. Moderate PEmg Ratio PEmg < 20 27.44 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 31.69 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.54 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 $5.28
MG Growth Estimate 15.00%
MG Value $203.38
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $76.60
MG Value based on 0% Growth $44.90
Market Implied Growth Rate 9.47%
Current Price $144.95
% of Intrinsic Value 71.27%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.36 in 2013 to an estimated $5.28 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.47% 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 Home Depot Inc revealed the company was trading above its Graham Number of $26.06. The company pays a dividend of $2.66 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 27.44, which was below the industry average of 28.49, 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 $-15.89.

Home Depot 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) -$15.89
Graham Number $26.06
PEmg 27.44
Current Ratio 1.34
PB Ratio 31.69
Current Dividend $2.66
Dividend Yield 1.84%
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 10/1/2016
Total Current Assets $19,348,000,000
Total Current Liabilities $14,431,000,000
Long-Term Debt $22,338,000,000
Total Assets $44,502,000,000
Intangible Assets $2,095,000,000
Total Liabilities $38,880,000,000
Shares Outstanding (Diluted Average) 1,229,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.55
Jan2016 $5.46
Jan2015 $4.71
Jan2014 $3.76
Jan2013 $3.00
Jan2012 $2.47
Jan2011 $2.01
Jan2010 $1.57
Jan2009 $1.34
Jan2008 $2.37
Jan2007 $2.79
Jan2006 $2.72
Jan2005 $2.26
Jan2004 $1.88
Jan2003 $1.56
Jan2002 $1.29
Jan2001 $1.10
Jan2000 $1.00
Jan1999 $0.71
Jan1998 $0.52
Jan1997 $0.43

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.28
Jan2016 $4.39
Jan2015 $3.64
Jan2014 $2.92
Jan2013 $2.36
Jan2012 $2.01
Jan2011 $1.86
Jan2010 $1.91
Jan2009 $2.15
Jan2008 $2.50
Jan2007 $2.46
Jan2006 $2.18
Jan2005 $1.81
Jan2004 $1.51
Jan2003 $1.26
Jan2002 $1.05
Jan2001 $0.87

Recommended Reading:

Other ModernGraham posts about the company

Home Depot Inc. Valuation – November 2015 Update $HD
30 Companies in the Spotlight This Week – 11/15/14
Home Depot Inc. Annual Valuation – 2014 $HD
ModernGraham Valuation: Home Depot (HD)

Other ModernGraham posts about related companies

Quanta Services Inc Valuation – August 2016 $PWR
Jacobs Engineering Group Inc Valuation – August 2016 $JEC
PPG Industries Inc Valuation – August 2016 $PPG
D.R. Horton Inc Valuation – August 2016 $DHI
Martin Marietta Materials Inc Valuation – August 2016 $MLM
Fluor Corporation Valuation – August 2016 $FLR
Vulcan Materials Co Valuation – July 2016 $VMC
PulteGroup Inc Valuation – July 2016 $PHM
Sherwin-Williams Co Valuation – July 2016 $SHW
Cummins Inc Valuation – July 2016 $CMI

Disclaimer:

The author held a long position in Home Depot (HD) but did not hold a position 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.  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.

Home Depot Inc. Valuation – November 2015 Update $HD

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 – October 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 Home Depot Inc. (HD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Home Depot stores sell an assortment of building materials, home improvement products and lawn and garden products and provide services. The Home Depot stores average approximately 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. The Home Depot stores serve three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. As of December 31, 2014, the Company had 2,269 The Home Depot stores, which included 1,977 stores in the United States, including the Commonwealth of Puerto Rico and the territories of the United States Virgin Islands and Guam; 181 stores in Canada, and 111 stores in Mexico.

[level-free]

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

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

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of HD – November 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 $159,485,695,961 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.19 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 111.23% Pass
6. Moderate PEmg Ratio PEmg < 20 28.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 18.54 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 1.19 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.21 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

HD value Chart November 2015

EPSmg $4.33
MG Growth Estimate 15.00%
MG Value $166.55
Opinion Undervalued
MG Value based on 3% Growth $62.73
MG Value based on 0% Growth $36.77
Market Implied Growth Rate 10.11%
Current Price $124.21
% of Intrinsic Value 74.58%

Home Depot Inc. 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 undervalued after growing its EPSmg (normalized earnings) from $2.01 in 2012 to an estimated $4.33 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 10.11% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

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 Home Depot Inc. (HD)?  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

HD Charts November 2015

Net Current Asset Value (NCAV) -$12.13
Graham Number $28.22
PEmg 28.71
Current Ratio 1.19
PB Ratio 18.54
Dividend Yield 1.71%
Number of Consecutive Years of Dividend Growth 6

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

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

Most Recent Balance Sheet Figures

Total Current Assets $19,531,000,000
Total Current Liabilities $16,399,000,000
Long-Term Debt $16,318,000,000
Total Assets $43,798,000,000
Intangible Assets $1,340,000,000
Total Liabilities $35,161,000,000
Shares Outstanding (Diluted Average) 1,289,000,000

Earnings Per Share History

Next Fiscal Year Estimate $5.26
Jan15 $4.71
Jan14 $3.76
Jan13 $3.00
Jan12 $2.47
Jan11 $2.01
Jan10 $1.57
Jan09 $1.34
Jan08 $2.37
Jan07 $2.79
Jan06 $2.72
Jan05 $2.26
Jan04 $1.88
Jan03 $1.56
Jan02 $1.29
Jan01 $1.10
Jan00 $1.00
Jan99 $0.71
Jan98 $0.52
Jan97 $0.43
Jan96 $0.34

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.33
Jan15 $3.64
Jan14 $2.92
Jan13 $2.36
Jan12 $2.01
Jan11 $1.86
Jan10 $1.91
Jan09 $2.15
Jan08 $2.50
Jan07 $2.46
Jan06 $2.18
Jan05 $1.81
Jan04 $1.51
Jan03 $1.26
Jan02 $1.05
Jan01 $0.87
Jan00 $0.71

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 11/15/14
Home Depot Inc. Annual Valuation – 2014 $HD
ModernGraham Valuation: Home Depot (HD)

Other ModernGraham posts about related companies

Quanta Services Inc. Valuation – October 2015 Update $PWR
Fluor Corporation Valuation – October 2015 Update $FLR
Martin Marietta Materials Inc. Valuation – October 2015 Update $MLM
Jacobs Engineering Group Analysis – October 2015 Update $JEC
D.R. Horton Inc. Analysis – October 2015 Update $DHI
The Best Companies of the Construction Industry – October 2015
Mohawk Industries Inc. Analysis – October 2015 Update $MHK
PulteGroup Inc. Analysis – October 2015 Update $PHM
Masco Corporation Analysis – September 2015 Update $MAS
Flowserve Corporation Analysis – August 2015 Update $FLS

Disclaimer:

The author held a long position in Home Depot Inc. (HD) but did not hold a position 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.  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.

Home Depot Inc. Annual Valuation – 2014 $HD

145px-TheHomeDepot.svgAfter 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 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 $1.86 in 2011 to an estimated $3.55 for 2015. This level of demonstrated growth is fairly strong, and is within a margin of safety relative to the market’s implied estimate of 9.51%. As a result, the company appears to be fairly valued at the present time.

Be sure to check out previous ModernGraham valuations of Home Depot for better perspective!

Read the full valuation on Seeking Alpha!

HD Chart

HD data by YCharts

Disclaimer:  The author held a long position in Home Depot Inc. (HD) 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: Home Depot (HD)

money

Company Profile (obtained from Google Finance): The Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Company operates The Home Depot stores, which are full-service, warehouse-style stores. The Home Depot stores sell an assortment of building materials, home improvement and lawn and garden products and provide a number of services. The Home Depot stores average approximately 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. The Home Depot stores serve three primary customer groups: do-it-yourself (D-I-Y) customers, do-it-for-me (D-I-F-M) customers and professional customers. As of January 29, 2012, it had 2,252 The Home Depot stores located throughout the United States including the Commonwealth of Puerto Rico and the territories of the United States, Virgin Islands and Guam, Canada, China and Mexico. In October 2012, U.S. Home Systems, Inc. became an indirect wholly owned subsidiary of The Home Depot. In February 2013, it acquired Measurecomp LLC.

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 = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – 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 – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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

MG Value $68.76
MG Opinion Overvalued
Value Based on 3% Growth $41.55
Value Based on 0% Growth $24.36
Market Implied Growth Rate 9.09%
NCAV -$6.84
PEmg 26.67
Current Ratio 1.30
PB Ratio 7.09

Key Data:

Balance Sheet – 8/4/2013 (an Introduction to the Balance Sheet)

Current Assets $16,895,000,000
Current Liabilities $12,995,000,000
Total Debt $11,450,000,000
Total Assets $42,192,000,000
Intangible Assets $1,170,000,000
Total Liabilities $26,714,000,000
Outstanding Shares 1,435,000,000

 

Earnings Per Share – Diluted

2013 (estimate) $3.6
2012 $3
2011 $2.47
2010 $2.01
2009 $1.55
2008 $1.37
2007 $2.27
2006 $2.79
2005 $2.72
2004 $2.26
2003 $1.88
2002 $1.29

Earnings Per Share – Modern Graham

2013 (estimate) $2.87
2012 $2.36
2011 $2.00
2010 $1.85
2009 $1.89
2008 $2.13

Conclusion:

Home Depot appears to be significantly overvalued at this time.  The company’s earnings on the surface seem to be improving the last few years, but when you look at the normalized earnings (EPSmg), there has been only a slight improvement over the longer historical period.  As a result, the growth rate the company has exhibited historically is much less than the 9% the market is implying.  In addition, the PEmg ratio is very high, along with the PB ratio, both of which also indicate the current price may be higher than the intrinsic value.  Finally, the company currently does not have a strong financial condition, having both a low current ratio and a low debt to net current assets ratio.  As a result, the company fails to fulfill the requirements of either the Defensive or Enterprising Investor.  Any investor considering making a purchase of Home Depot should do considerably further research.

What do you think?  Is Home Depot overvalued or does Mr. Market have it right?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author held a position in Home Depot at the time of publication.

Photo Credit:  Andrew Magill

Jack Henry & Associates Inc Valuation – April 2019 #JKHY

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

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JKHY – April 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,937,524,534 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.07 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 142.89% Pass
6. Moderate PEmg Ratio PEmg < 20 38.72 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.88 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.07 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.66
MG Growth Estimate 10.26%
MG Value $106.22
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $53.07
MG Value based on 0% Growth $31.11
Market Implied Growth Rate 15.11%
Current Price $141.73
% of Intrinsic Value 133.43%

Jack Henry & Associates, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.17 in 2015 to an estimated $3.66 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 15.11% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Jack Henry & Associates, Inc. revealed the company was trading above its Graham Number of $35.7. The company pays a dividend of $1.36 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 38.72, which was above the industry average of 32.68. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.81.

Jack Henry & Associates, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.81
Graham Number $35.70
PEmg 38.72
Current Ratio 1.07
PB Ratio 7.88
Current Dividend $1.36
Dividend Yield 0.96%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $362,639,000
Total Current Liabilities $340,074,000
Long-Term Debt $0
Total Assets $1,971,777,000
Intangible Assets $1,113,794,000
Total Liabilities $579,822,000
Shares Outstanding (Diluted Average) 77,409,000

Earnings Per Share History

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

Earnings Per Share – ModernGraham History

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

Recommended Reading:

Other ModernGraham posts about the company

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

Other ModernGraham posts about related companies

United Rentals Inc Valuation – April 2019 #URI
Verisk Analytics Inc Valuation – March 2019 #VRSK
Global Payments Inc Valuation – March 2019 #GPN
Robert Half International Inc Valuation – March 2019 #RHI
Alliance Data Systems Corp Valuation – March 2019 #ADS
IHS Markit Ltd Valuation – February 2019 $INFO
Automatic Data Processing Inc Valuation – February 2019 $ADP
Fiserv Inc Valuation – February 2019 $FISV
Rollins Inc Valuation – February 2019 $ROL
Iron Mountain Inc Valuation – February 2019 $IRM

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.

Lam Research Corp Valuation – April 2019 #LRCX

Company Profile (excerpt from Reuters): Lam Research Corporation, incorporated on October 8, 1989, is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes and services semiconductor processing systems that are used in the fabrication of integrated circuits (ICs). The Company operates through manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment. The Company’s products are designed to enable its customers build a range of devices that are used in a range of electronic products, including cell phones, tablets, computers, storage devices and networking equipment. The Company’s customer base includes semiconductor memory, foundry and integrated device manufacturers (IDMs) that make products, such as dynamic random-access memory (DRAM), negative-AND (NAND) memory and logic devices. The Company offers a portfolio of products that are used in several areas of the semiconductor manufacturing process flow, including thin film deposition, plasma etch and single-wafer clean. The Company also offers a range of services, including customer service, spares, upgrades, and refurbishment of its deposition, etch and clean products. The Company also provides refurbished legacy products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LRCX – April 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $29,332,951,738 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.39 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 259.29% Pass
6. Moderate PEmg Ratio PEmg < 20 18.10 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.34 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 3.39 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.35 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 $10.63
MG Growth Estimate 15.00%
MG Value $409.23
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $154.13
MG Value based on 0% Growth $90.35
Market Implied Growth Rate 4.80%
Current Price $192.35
% of Intrinsic Value 47.00%

Lam Research Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.9 in 2015 to an estimated $10.63 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.8% 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 Lam Research Corporation revealed the company was trading above its Graham Number of $110.67. The company pays a dividend of $2.55 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 18.1, which was below the industry average of 35.4, 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 $14.98.

Lam Research Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $14.98
Graham Number $110.67
PEmg 18.10
Current Ratio 3.39
PB Ratio 5.34
Current Dividend $2.55
Dividend Yield 1.33%
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 12/1/2018
Total Current Assets $7,355,845,000
Total Current Liabilities $2,166,837,000
Long-Term Debt $1,813,190,000
Total Assets $10,768,458,000
Intangible Assets $1,736,468,000
Total Liabilities $4,927,086,000
Shares Outstanding (Diluted Average) 162,170,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.98
Jun2018 $13.17
Jun2017 $9.24
Jun2016 $5.22
Jun2015 $3.70
Jun2014 $3.62
Jun2013 $0.66
Jun2012 $1.35
Jun2011 $5.79
Jun2010 $2.71
Jun2009 -$2.41
Jun2008 $3.47
Jun2007 $4.85
Jun2006 $2.33
Jun2005 $2.09
Jun2004 $0.54
Jun2003 -$0.06
Jun2002 -$0.71
Jun2001 $0.39
Jun2000 $1.53
Jun1999 -$0.98

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.63
Jun2018 $8.63
Jun2017 $5.74
Jun2016 $3.63
Jun2015 $2.90
Jun2014 $2.61
Jun2013 $1.94
Jun2012 $2.45
Jun2011 $2.96
Jun2010 $1.76
Jun2009 $1.54
Jun2008 $3.23
Jun2007 $2.72
Jun2006 $1.39
Jun2005 $0.76
Jun2004 $0.18
Jun2003 $0.01

Recommended Reading:

Other ModernGraham posts about the company

Lam Research Corp Valuation – June 2018 $LRCX
Lam Research Corp Valuation – September 2017 $LRCX
12 Best Stocks For Value Investors This Week – 7/1/16
Lam Research Corp Valuation – June 2016 $LRCX
19 Best Stocks For Value Investors This Week – 1/9/16

Other ModernGraham posts about related companies

Skyworks Solutions Inc Valuation – March 2019 #SWKS
Garmin Ltd Valuation – March 2019 #GRMN
Hewlett Packard Enterprise Co Valuation – March 2019 #HPE
Fortive Corp Valuation – March 2019 #FTV
Analog Devices Inc Valuation – March 2019 #ADI
IPG Photonics Corp Valuation – March 2019 #IPGP
Micron Technology Inc Valuation – March 2019 #MU
Amphenol Corp Valuation – March 2019 #APH
Xilinx Inc Valuation – March 2019 #XLNX
Western Digital Corp Valuation – March 2019 #WDC

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.

Back To Top