Emerson Electric Co Valuation – April 2019 #EMR

Company Profile (excerpt from Reuters): Emerson Electric Co., incorporated on September 24, 1890, is a diversified global manufacturing company, which provides solutions to customers by bringing technology and engineering together in the industrial, commercial and consumer markets around the world. The Company operates through four segments based on the nature of the products and services rendered: Process Management, Industrial Automation, Climate Technologies and Commercial & Residential Solutions. The Company’s principal production operations are electronics assembly, metal stamping, forming, casting, machining, welding, plating, heat treating, painting and assembly. In addition, the Company uses specialized production operations, including automatic and semiautomatic testing, automated material handling and storage, ferrous and nonferrous machining, and special furnaces for heat treating and foundry applications.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EMR – 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 $42,765,260,725 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.88 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 7.18% Fail
6. Moderate PEmg Ratio PEmg < 20 21.78 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.28 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.88 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.99 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.19
MG Growth Estimate -0.32%
MG Value $25.12
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $46.32
MG Value based on 0% Growth $27.15
Market Implied Growth Rate 6.64%
Current Price $69.58
% of Intrinsic Value 277.00%

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

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.26 in 2015 to an estimated $3.19 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.64% 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 Emerson Electric Co. revealed the company was trading above its Graham Number of $33.94. The company pays a dividend of $1.94 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 21.78, 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 $-8.75.

Emerson Electric Co. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$8.75
Graham Number $33.94
PEmg 21.78
Current Ratio 0.88
PB Ratio 5.28
Current Dividend $1.94
Dividend Yield 2.79%
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 $6,658,000,000
Total Current Liabilities $7,540,000,000
Long-Term Debt $2,641,000,000
Total Assets $20,429,000,000
Intangible Assets $9,182,000,000
Total Liabilities $12,153,000,000
Shares Outstanding (Diluted Average) 627,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.60
Sep2018 $3.46
Sep2017 $2.35
Sep2016 $2.52
Sep2015 $3.99
Sep2014 $3.03
Sep2013 $2.76
Sep2012 $2.67
Sep2011 $3.27
Sep2010 $2.84
Sep2009 $2.27
Sep2008 $3.06
Sep2007 $2.66
Sep2006 $2.24
Sep2005 $1.70
Sep2004 $1.49
Sep2003 $1.30
Sep2002 $0.15
Sep2001 $1.20
Sep2000 $1.65
Sep1999 $1.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.19
Sep2018 $3.02
Sep2017 $2.84
Sep2016 $3.06
Sep2015 $3.26
Sep2014 $2.91
Sep2013 $2.82
Sep2012 $2.84
Sep2011 $2.89
Sep2010 $2.67
Sep2009 $2.52
Sep2008 $2.50
Sep2007 $2.11
Sep2006 $1.68
Sep2005 $1.32
Sep2004 $1.14
Sep2003 $1.03

Recommended Reading:

Other ModernGraham posts about the company

Emerson Electric Co Valuation – June 2018 $EMR
Emerson Electric Co Valuation – August 2017 $EMR
Emerson Electric Co Valuation – February 2016 $EMR
5 Speculative and Overvalued Companies to Avoid – January 2015
15 Companies in the Spotlight This Week – 12/27/14

Other ModernGraham posts about related companies

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
Texas Instruments Inc Valuation – March 2019 #TXN

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.

Emerson Electric Co Valuation – June 2018 $EMR

Company Profile (excerpt from Reuters): Emerson Electric Co., incorporated on September 24, 1890, is a diversified global manufacturing company, which provides solutions to customers by bringing technology and engineering together in the industrial, commercial and consumer markets around the world. The Company operates through four segments based on the nature of the products and services rendered: Process Management, Industrial Automation, Climate Technologies and Commercial & Residential Solutions. The Company’s principal production operations are electronics assembly, metal stamping, forming, casting, machining, welding, plating, heat treating, painting and assembly. In addition, the Company uses specialized production operations, including automatic and semiautomatic testing, automated material handling and storage, ferrous and nonferrous machining, and special furnaces for heat treating and foundry applications.

EMR Chart

EMR data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EMR – June 2018

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $43,470,058,376 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 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 -4.53% Fail
6. Moderate PEmg Ratio PEmg < 20 23.59 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.11 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 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.89 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.91
MG Growth Estimate 0.01%
MG Value $24.80
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $42.17
MG Value based on 0% Growth $24.72
Market Implied Growth Rate 7.54%
Current Price $68.59
% of Intrinsic Value 276.59%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.91 in 2014 to an estimated $2.91 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.54% 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 Emerson Electric Co. revealed the company was trading above its Graham Number of $30.93. The company pays a dividend of $1.92 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 23.59, which was below the industry average of 55.37, 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 $-5.54.

Emerson Electric Co. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.54
Graham Number $30.93
PEmg 23.59
Current Ratio 1.30
PB Ratio 5.11
Current Dividend $1.92
Dividend Yield 2.80%
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 3/1/2018
Total Current Assets $7,725,000,000
Total Current Liabilities $5,945,000,000
Long-Term Debt $3,357,000,000
Total Assets $19,785,000,000
Intangible Assets $8,024,000,000
Total Liabilities $11,248,000,000
Shares Outstanding (Diluted Average) 636,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.13
Sep2017 $2.35
Sep2016 $2.52
Sep2015 $3.99
Sep2014 $3.03
Sep2013 $2.76
Sep2012 $2.67
Sep2011 $3.27
Sep2010 $2.84
Sep2009 $2.27
Sep2008 $3.06
Sep2007 $2.66
Sep2006 $2.24
Sep2005 $1.70
Sep2004 $1.49
Sep2003 $1.30
Sep2002 $0.15
Sep2001 $1.20
Sep2000 $1.65
Sep1999 $1.50
Sep1998 $1.39

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.91
Sep2017 $2.84
Sep2016 $3.06
Sep2015 $3.26
Sep2014 $2.91
Sep2013 $2.82
Sep2012 $2.84
Sep2011 $2.89
Sep2010 $2.67
Sep2009 $2.52
Sep2008 $2.50
Sep2007 $2.11
Sep2006 $1.68
Sep2005 $1.32
Sep2004 $1.14
Sep2003 $1.03
Sep2002 $0.99

Recommended Reading:

Other ModernGraham posts about the company

Emerson Electric Co Valuation – August 2017 $EMR
Emerson Electric Co Valuation – February 2016 $EMR
5 Speculative and Overvalued Companies to Avoid – January 2015
15 Companies in the Spotlight This Week – 12/27/14
Emerson Electric Company Annual Valuation – 2014 $EMR

Other ModernGraham posts about related companies

Skyworks Solutions Inc Valuation – June 2018 $SWKS
Garmin Ltd Valuation – June 2018 $GRMN
Hewlett Packard Enterprise Co Valuation – June 2018 $HPE
Fortive Corp Valuation – June 2018 $FTV
Analog Devices Inc Valuation – June 2018 $ADI
IPG Photonics Corp Valuation – June 2018 $IPGP
Micron Technology Inc Valuation – May 2018 $MU
Amphenol Corp Valuation – May 2018 $APH
Xilinx Inc Valuation – May 2018 $XLNX
Western Digital Corp Valuation – May 2018 $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.

Emerson Electric Co Valuation – August 2017 $EMR

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 Emerson Electric Co (EMR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Emerson Electric Co. is a diversified global manufacturing company, which provides solutions to customers by bringing technology and engineering together in the industrial, commercial and consumer markets around the world. The Company operates through four segments based on the nature of the products and services rendered: Process Management, Industrial Automation, Climate Technologies and Commercial & Residential Solutions. The Company’s principal production operations are electronics assembly, metal stamping, forming, casting, machining, welding, plating, heat treating, painting and assembly. In addition, the Company uses specialized production operations, including automatic and semiautomatic testing, automated material handling and storage, ferrous and nonferrous machining, and special furnaces for heat treating and foundry applications. The Company provides measurement, control and diagnostic technologies for automated industrial processes.

EMR Chart

EMR 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 EMR – 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 $37,121,139,990 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.59 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 9.18% Fail
6. Moderate PEmg Ratio PEmg < 20 20.27 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.69 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 1.59 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.19 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.86
MG Growth Estimate 0.24%
MG Value $25.70
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $41.49
MG Value based on 0% Growth $24.32
Market Implied Growth Rate 5.89%
Current Price $58.00
% of Intrinsic Value 225.65%

Emerson Electric Co. is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.82 in 2013 to an estimated $2.86 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 5.89% 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 Emerson Electric Co. revealed the company was trading above its Graham Number of $25.27.  The company pays a dividend of $1.9 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 20.27, which was below the industry average of 41.95, 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 $-4.48.

Emerson Electric Co. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.48
Graham Number $25.27
PEmg 20.27
Current Ratio 1.59
PB Ratio 4.69
Current Dividend $1.90
Dividend Yield 3.28%
Number of Consecutive Years of Dividend Growth 20

[/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 $8,554,000,000
Total Current Liabilities $5,370,000,000
Long-Term Debt $3,797,000,000
Total Assets $19,402,000,000
Intangible Assets $7,164,000,000
Total Liabilities $11,436,000,000
Shares Outstanding (Diluted Average) 643,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.41
Sep2016 $2.52
Sep2015 $3.99
Sep2014 $3.03
Sep2013 $2.76
Sep2012 $2.67
Sep2011 $3.27
Sep2010 $2.84
Sep2009 $2.27
Sep2008 $3.06
Sep2007 $2.66
Sep2006 $2.24
Sep2005 $1.70
Sep2004 $1.49
Sep2003 $1.30
Sep2002 $0.15
Sep2001 $1.20
Sep2000 $1.65
Sep1999 $1.50
Sep1998 $1.39
Sep1997 $1.26

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.86
Sep2016 $3.06
Sep2015 $3.26
Sep2014 $2.91
Sep2013 $2.82
Sep2012 $2.84
Sep2011 $2.89
Sep2010 $2.67
Sep2009 $2.52
Sep2008 $2.50
Sep2007 $2.11
Sep2006 $1.68
Sep2005 $1.32
Sep2004 $1.14
Sep2003 $1.03
Sep2002 $0.99
Sep2001 $1.41

Recommended Reading:

Other ModernGraham posts about the company

Emerson Electric Co Valuation – February 2016 $EMR
5 Speculative and Overvalued Companies to Avoid – January 2015
15 Companies in the Spotlight This Week – 12/27/14
Emerson Electric Company Annual Valuation – 2014 $EMR
10 Companies in the Spotlight This Week – 12/21/13

Other ModernGraham posts about related companies

3D Systems Corp Valuation – Initial Coverage $DDD
Teradyne Inc Valuation – Initial Coverage $TER
Diebold Nixdorf Inc Valuation – Initial Coverage $DBD
Tech Data Corp Valuation – Initial Coverage $TECD
Teledyne Technologies Inc Valuation – Initial Coverage $TDY
Skyworks Solutions Inc Valuation – April 2017 $SWKS
Daktronics Inc Valuation – Initial Coverage $DAKT
Cypress Semiconductor Corp Valuation – Initial Coverage $CY
Littelfuse Inc Valuation – Initial Coverage $LFUS
CTS Corporation Valuation – Initial Coverage $CTS

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.

Emerson Electric Co Valuation – February 2016 $EMR

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

Company Profile (obtained from Google Finance): Emerson Electric Co. is engaged in offering technology and engineering together that provides solutions for customers in industrial, commercial, and consumer markets around the world. The company operates through five business segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial & Residential Solutions. The Process Management segment provides measurement, control and diagnostic capabilities for automated industrial processes. The Industrial Automation segment provides integrated manufacturing solutions to its customers at the source of manufacturing their own products. The Network Power segment designs, manufactures, installs and maintains products providing grid-to-chip electric power conditioning. The Climate Technologies segment provides products and services for the climate control industry. The Company’s Commercial & Residential Solutions segment offers a range of tools, storage products and appliance solutions.

[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]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of EMR

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 $29,376,334,887 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.18 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 23.90% Fail
6. Moderate PEmg Ratio PEmg < 20 14.49 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.03 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 1.18 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.71 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

EMR value chart February 2016

EPSmg $3.18
MG Growth Estimate 1.79%
MG Value $38.39
Opinion Overvalued
MG Value based on 3% Growth $46.05
MG Value based on 0% Growth $27.00
Market Implied Growth Rate 2.99%
Current Price $46.02
% of Intrinsic Value 119.86%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.84 in 2012 to an estimated $3.18 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.99% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$6.75
Graham Number $27.40
PEmg 14.49
Current Ratio 1.18
PB Ratio 4.03
Dividend Yield 4.10%
Number of Consecutive Years of Dividend Growth 20

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $9,694,000,000
Total Current Liabilities $8,202,000,000
Long-Term Debt $4,043,000,000
Total Assets $21,552,000,000
Intangible Assets $8,068,000,000
Total Liabilities $14,096,000,000
Shares Outstanding (Diluted Average) 652,500,000

Earnings Per Share History

Next Fiscal Year Estimate $2.88
Sep2015 $3.99
Sep2014 $3.03
Sep2013 $2.76
Sep2012 $2.67
Sep2011 $3.27
Sep2010 $2.84
Sep2009 $2.27
Sep2008 $3.06
Sep2007 $2.66
Sep2006 $2.24
Sep2005 $1.70
Sep2004 $1.49
Sep2003 $1.30
Sep2002 $0.15
Sep2001 $1.20
Sep2000 $1.65
Sep1999 $1.50
Sep1998 $1.39
Sep1997 $1.26
Sep1996 $1.14

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.18
Sep2015 $3.26
Sep2014 $2.91
Sep2013 $2.82
Sep2012 $2.84
Sep2011 $2.89
Sep2010 $2.67
Sep2009 $2.52
Sep2008 $2.50
Sep2007 $2.11
Sep2006 $1.68
Sep2005 $1.32
Sep2004 $1.14
Sep2003 $1.03
Sep2002 $0.99
Sep2001 $1.41
Sep2000 $1.47

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – January 2015
15 Companies in the Spotlight This Week – 12/27/14
Emerson Electric Company Annual Valuation – 2014 $EMR
10 Companies in the Spotlight This Week – 12/21/13
ModernGraham Valuation: Emerson Electric Co. (EMR)

Other ModernGraham posts about related companies

Agilent Technologies Inc Valuation – February 2016
Western Digital Corp Valuation – February 2016
Xilinx Inc Valuation – February 2016 $XLNX
Texas Instruments Inc Valuation – February 2016 $TXN
Apple Inc Valuation – February 2016 $AAPL
Ametek Inc Valuation – February 2016 Update $AME
MTS Systems Corp Valuation – February 2016 Update $MTSC
Linear Technology Corp Valuation – January 2016 Update $LLTC
Seagate Technology PLC Valuation – January 2016 Update $STX
Texas Instruments Inc Valuation – February 2016 $TXN

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.

Emerson Electric Company Annual Valuation – 2014 $EMR

220px-Emerson_Electric_Company.svg

Emerson Electric Company does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and high PEmg and PB ratios. The Enterprising Investor takes issue with the level of debt relative to the current assets. As a result, any purchase of the company is made with a speculative nature behind it. That said, any speculator interested in pursuing the company should still proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.

With regard to that intrinsic value, the company has grown its EPSmg (normalized earnings) from $2.67 in 2010 to only $2.91 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 6.42% over the next 7-10 years. In fact, actual growth has been closer to 1.78% in recent years. The ModernGraham valuation model therefore returns an estimate of intrinsic value below the current price, indicating the company is overvalued at the present time.

Be sure to check out previous ModernGraham valuations of Emerson Electric Company for greater perspective!

Read the full valuation on Seeking Alpha!

EMR Chart

EMR data by YCharts

Disclaimer:  The author did not hold a position in Emerson Electric Company (EMR) 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: Emerson Electric Co. (EMR)

moneyCompany Profile (obtained from Google Finance): Emerson Electric Co. (Emerson) is a diversified global technology company. The Company is engaged in designing and supplying products and technology, and delivering engineering services and solutions in a range of industrial, commercial and consumer markets globally. The Company operates in five business segments: Process Management, Industrial Automation, Network Power, Commercial and Residential Solutions, and Climate Technologies. The Company’s production operations are electronics assembly, metal stamping, forming, casting, machining, welding, plating, heat treating, painting and assembly. In April 2012, it acquired the Marine Container and Boiler business of Johnson Controls, Inc. In September 2012, it sold Knaack, L.L.C. to Werner Co. In October 2013, Emerson Electric Co acquired Enardo LLC. In November 2013, the Company sold 51% interest in its computing and power business to Platinum Equity.

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 = 4/7

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

Key Data:

MG Value $31.78
MG Opinion Overvalued
Value Based on 3% Growth $40.28
Value Based on 0% Growth $23.61
Market Implied Growth Rate 7.73%
NCAV -$4.43
PEmg 23.97
Current Ratio 1.44
PB Ratio 4.44

Balance Sheet – 9/30/2013 

Current Assets $10,999,000,000
Current Liabilities $7,625,000,000
Total Debt $4,055,000,000
Total Assets $24,711,000,000
Intangible Assets $9,181,000,000
Total Liabilities $14,126,000,000
Outstanding Shares 706,660,000

Earnings Per Share

2013 $2.76
2012 $2.67
2011 $3.24
2010 $2.60
2009 $2.27
2008 $3.11
2007 $2.66
2006 $2.24
2005 $1.70
2004 $1.49
2003 $1.20
2002 $1.28

Earnings Per Share – Modern Graham 

2013 $2.78
2012 $2.78
2011 $2.82
2010 $2.60
2009 $2.53
2008 $2.52

Conclusion:

Emerson Electric Co. is a stable company, but does not appear to have much opportunity for value investors to profit at this time.  The company does not qualify for either the Defensive Investor or the Enterprising Investor as it has too much current liabilities for either investor type and is currently trading at high PEmg and PB ratios.  Investors should be very thorough when doing further research if they are considering investing in Emerson at this time.  One suggestion for further research would be to review the ModernGraham Valuation of General Electric (GE) and the ModernGraham Valuation of Dover Corporation (DOV).  As far as the valuation, Emerson Electric has not had a lot of growth, having brought EPSmg from $2.52 in 2008 to $2.78 for 2013.  The market is currently implying a growth rate of 7.73%, which is well above what has been seen historically and would indicate the company is overvalued at this time.

What do you think?  Do you agree that Emerson Electric Co. is overvalued?  Is the company not suitable for Defensive Investors and Enterprising Investors?  Leave a comment 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 Emerson Electric Co. (EMR) at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

Intel Corporation Valuation – April 2019 #INTC

Company Profile (excerpt from Reuters): Intel Corporation, incorporated on March 1, 1989, is engaged in designing and manufacturing products and technologies, such as the cloud. The Company’s segments are Client Computing Group (CCG), Data Center Group (DCG), Internet of Things Group (IOTG), Non-Volatile Memory Solutions Group (NSG), Intel Security Group (ISecG), Programmable Solutions Group (PSG), All Other and New Technology Group (NTG). The Company delivers computer, networking and communications platforms to a set of customers, including original equipment manufacturers (OEMs), original design manufacturers (ODMs), cloud and communications service providers, as well as industrial, communications and automotive equipment manufacturers. It offers platforms to integrate various components and technologies, including a microprocessor and chipset, a stand-alone System-on-Chip (SoC), or a multichip package. Its platforms are managed by additional hardware, software and services offered by Intel.

Downloadable PDF version of this valuation:

ModernGraham Valuation of INTC – 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 $249,631,094,870 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.73 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 61.87% Pass
6. Moderate PEmg Ratio PEmg < 20 16.34 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.42 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 1.73 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.06 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 PassModernGraham Valuation of INTC – April 2019

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.40
MG Growth Estimate 8.02%
MG Value $83.35
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $49.26
MG Value based on 0% Growth $28.88
Market Implied Growth Rate 3.91%
Current Price $55.45
% of Intrinsic Value 66.53%

Intel Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.21 in 2015 to an estimated $3.4 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.91% 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 Intel Corporation revealed the company was trading above its Graham Number of $39.14. The company pays a dividend of $1.2 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.32, 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 $-5.24.

Intel Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.24
Graham Number $39.14
PEmg 16.32
Current Ratio 1.73
PB Ratio 3.42
Current Dividend $1.20
Dividend Yield 2.16%
Number of Consecutive Years of Dividend Growth 4

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $28,787,000,000
Total Current Liabilities $16,626,000,000
Long-Term Debt $25,098,000,000
Total Assets $127,963,000,000
Intangible Assets $36,349,000,000
Total Liabilities $52,981,000,000
Shares Outstanding (Diluted Average) 4,620,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.10
Dec2018 $4.48
Dec2017 $1.99
Dec2016 $2.12
Dec2015 $2.33
Dec2014 $2.31
Dec2013 $1.89
Dec2012 $2.13
Dec2011 $2.39
Dec2010 $2.01
Dec2009 $0.77
Dec2008 $0.92
Dec2007 $1.18
Dec2006 $0.86
Dec2005 $1.40
Dec2004 $1.16
Dec2003 $0.85
Dec2002 $0.46
Dec2001 $0.19
Dec2000 $1.51
Dec1999 $1.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.40
Dec2018 $2.91
Dec2017 $2.13
Dec2016 $2.18
Dec2015 $2.21
Dec2014 $2.15
Dec2013 $2.00
Dec2012 $1.91
Dec2011 $1.69
Dec2010 $1.27
Dec2009 $0.95
Dec2008 $1.06
Dec2007 $1.11
Dec2006 $1.04
Dec2005 $1.02
Dec2004 $0.83
Dec2003 $0.72

Recommended Reading:

Other ModernGraham posts about the company

Intel Corp Valuation – November 2018 $INTC
Intel Corp Valuation – February 2018 $INTC
5 Overvalued Dow Components – July 2016
Intel Corporation Valuation – May 2016 $INTC
11 Best Stocks For Value Investors This Week – 11/21/15

Other ModernGraham posts about related companies

Apple Inc Valuation – April 2019 #AAPL
Arista Networks Inc Valuation – April 2019 #ANET
Maxim Integrated Products Inc Valuation – April 2019 #MXIM
Keysight Technologies Inc Valuation – April 2019 #KEYS
Lam Research Corp Valuation – April 2019 #LRCX
Emerson Electric Co Valuation – April 2019 #EMR
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

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.

Apple Inc Valuation – April 2019 #AAPL

Company Profile (excerpt from Reuters): Apple Inc., incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players. The Company sells a range of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s segments include the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and the Asian countries not included in the Company’s other operating segments. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of consumer and professional software applications, iPhone OS (iOS), OS X and watchOS operating systems, iCloud, Apple Pay and a range of accessory, service and support offerings.

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL – 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 $928,509,329,542 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 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 151.37% Pass
6. Moderate PEmg Ratio PEmg < 20 19.47 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.97 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 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.86 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 $10.11
MG Growth Estimate 6.57%
MG Value $218.81
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $146.65
MG Value based on 0% Growth $85.97
Market Implied Growth Rate 5.48%
Current Price $196.89
% of Intrinsic Value 89.98%

Apple 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, 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 Fairly Valued after growing its EPSmg (normalized earnings) from $7.03 in 2015 to an estimated $10.11 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.48% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Apple Inc. revealed the company was trading above its Graham Number of $71.63. The company pays a dividend of $2.72 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 19.47, 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 $-24.09.

Apple 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) -$24.09
Graham Number $71.63
PEmg 19.47
Current Ratio 1.30
PB Ratio 7.97
Current Dividend $2.72
Dividend Yield 1.38%
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 $140,828,000,000
Total Current Liabilities $108,283,000,000
Long-Term Debt $92,989,000,000
Total Assets $373,719,000,000
Intangible Assets $0
Total Liabilities $255,827,000,000
Shares Outstanding (Diluted Average) 4,773,252,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.12
Sep2018 $11.91
Sep2017 $9.21
Sep2016 $8.31
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.11
Sep2018 $9.75
Sep2017 $8.37
Sep2016 $7.70
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04

Recommended Reading:

Other ModernGraham posts about the company

Apple Inc Valuation – November 2018 $AAPL
Apple Inc Valuation – February 2018 $AAPL
Apple Inc Valuation – January 2017 $AAPL
Apple Inc Valuation – August 2016 $AAPL
Apple Inc Valuation – February 2016 $AAPL

Other ModernGraham posts about related companies

Maxim Integrated Products Inc Valuation – April 2019 #MXIM
Keysight Technologies Inc Valuation – April 2019 #KEYS
Lam Research Corp Valuation – April 2019 #LRCX
Emerson Electric Co Valuation – April 2019 #EMR
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

Disclaimer:

The author held a long position in AAPL 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.

Arista Networks Inc Valuation – April 2019 #ANET

Company Profile (excerpt from Reuters): Arista Networks, Inc., incorporated on December 2, 2011, is a supplier of cloud networking solutions that use software innovations to address the needs of Internet companies, cloud service providers and data centers for enterprise support. The Company develops, markets and sells cloud networking solutions, which consist of its Gigabit Ethernet switches and related software. The Company’s cloud networking solutions consist of its Extensible Operating System (EOS), a set of network applications and its Ethernet switching and routing platforms. The programmability of EOS has allowed the Company to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility and analytics, and has also allowed it to integrate with a range of third-party applications for virtualization, management, automation, orchestration and network services. EOS supports cloud and virtualization solutions, including VMware NSX, Microsoft System Center, OpenStack and other cloud management frameworks.

Downloadable PDF version of this valuation:

ModernGraham Valuation of ANET – 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 $23,736,366,775 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.48 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 2711.11% Pass
6. Moderate PEmg Ratio PEmg < 20 58.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.81 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 4.48 Pass
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 Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.36
MG Growth Estimate 15.00%
MG Value $206.51
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $77.78
MG Value based on 0% Growth $45.59
Market Implied Growth Rate 24.94%
Current Price $313.17
% of Intrinsic Value 151.65%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.09 in 2015 to an estimated $5.36 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 24.94% 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 Arista Networks Inc revealed the company was trading above its Graham Number of $72.85. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 58.38, which was above the industry average of 35.4. Finally, the company was trading above its Net Current Asset Value (NCAV) of $21.97.

Arista Networks 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) $21.97
Graham Number $72.85
PEmg 58.38
Current Ratio 4.48
PB Ratio 11.81
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,714,802,000
Total Current Liabilities $606,504,000
Long-Term Debt $0
Total Assets $3,081,983,000
Intangible Assets $112,294,000
Total Liabilities $938,594,000
Shares Outstanding (Diluted Average) 80,844,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.30
Dec2018 $4.06
Dec2017 $5.35
Dec2016 $2.50
Dec2015 $1.67
Dec2014 $1.29
Dec2013 $0.73
Dec2012 $0.00
Dec2011 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.36
Dec2018 $3.59
Dec2017 $3.00
Dec2016 $1.63
Dec2015 $1.09
Dec2014 $0.71
Dec2013 $0.37
Dec2012 $0.17
Dec2011 $0.21

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

Maxim Integrated Products Inc Valuation – April 2019 #MXIM
Keysight Technologies Inc Valuation – April 2019 #KEYS
Lam Research Corp Valuation – April 2019 #LRCX
Emerson Electric Co Valuation – April 2019 #EMR
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

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.

Ciena Corp Valuation – July 2018 $CIEN

Company Profile (excerpt from Reuters): Ciena Corporation, incorporated on November 2, 1992, is a network strategy and technology company, which provides solutions that enable a range of network operators to adopt communication architectures and to deliver an array of services, relied upon by enterprise and consumer end users. The Company provides equipment, software and services that support the transport, switching, aggregation, service delivery and management of voice, video and data traffic on communications networks. The Company operates in three segments: Networking Platforms; Software and Software-Related Services, and Global Services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CIEN – July 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 $3,605,301,646 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.64 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 307.46% Pass
6. Moderate PEmg Ratio PEmg < 20 6.44 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.99 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 2.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.64 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.94
MG Growth Estimate 4.99%
MG Value $72.71
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $57.07
MG Value based on 0% Growth $33.46
Market Implied Growth Rate -1.03%
Current Price $25.36
% of Intrinsic Value 34.88%

Ciena Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, 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 Undervalued after growing its EPSmg (normalized earnings) from $2.95 in 2014 to an estimated $3.94 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.03% 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 Ciena Corporation revealed the company was trading above its Graham Number of $7.39. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 6.44, which was below the industry average of 53.59, 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 $-48.

Ciena Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$48.00
Graham Number $7.39
PEmg 6.44
Current Ratio 2.64
PB Ratio 5.99
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 3/1/2018
Total Current Assets $1,889,454,000
Total Current Liabilities $715,666,000
Long-Term Debt $3,101,138,000
Total Assets $5,113,367,000
Intangible Assets $2,439,638,000
Total Liabilities $4,852,256,000
Shares Outstanding (Diluted Average) 61,719,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.10
Dec2017 $7.18
Dec2016 $3.74
Dec2015 $5.01
Dec2014 $3.58
Dec2013 $4.00
Dec2012 $1.89
Dec2011 $1.79
Dec2010 $1.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.94
Dec2017 $5.14
Dec2016 $3.96
Dec2015 $3.80
Dec2014 $2.95
Dec2013 $2.35
Dec2012 $1.34
Dec2011 $0.91
Dec2010 $0.39

Recommended Reading:

Other ModernGraham posts about the company

Ciena Corporation Valuation – Initial Coverage $CIEN

Other ModernGraham posts about related companies

Cognex Corp Valuation – July 2018 $CGNX
Sanmina Corp Valuation – July 2018 $SANM
II-VI Inc Valuation – July 2018 $IIVI
CEVA Inc Valuation – July 2018 $CEVA
MTS Systems Corp Valuation – June 2018 $MTSC
Jabil Inc Valuation – June 2018 $JBL
Arrow Electronics Inc Valuation – June 2018 $ARW
Lam Research Corp Valuation – June 2018 $LRCX
Emerson Electric Co Valuation – June 2018 $EMR
Skyworks Solutions Inc Valuation – June 2018 $SWKS

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