International Business Machines Corp Valuation – April 2019 #IBM

Company Profile (excerpt from Reuters): International Business Machines Corporation (IBM), incorporated on June 16, 1911, is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – 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 $127,277,532,893 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.29 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 -24.36% Fail
6. Moderate PEmg Ratio PEmg < 20 13.11 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.65 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 1.29 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.26 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 $10.91
MG Growth Estimate -2.80%
MG Value $31.55
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $158.22
MG Value based on 0% Growth $92.75
Market Implied Growth Rate 2.30%
Current Price $143.03
% of Intrinsic Value 453.39%

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

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.42 in 2015 to an estimated $10.91 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.3% 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 IBM Common Stock revealed the company was trading above its Graham Number of $75.75. The company pays a dividend of $6.21 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.11, which was below the industry average of 46.57, 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 $-63.31.

IBM Common Stock receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$63.31
Graham Number $75.75
PEmg 13.11
Current Ratio 1.29
PB Ratio 7.65
Current Dividend $6.21
Dividend Yield 4.34%
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 $49,146,000,000
Total Current Liabilities $38,227,000,000
Long-Term Debt $35,605,000,000
Total Assets $123,382,000,000
Intangible Assets $39,353,000,000
Total Liabilities $106,453,000,000
Shares Outstanding (Diluted Average) 905,242,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.80
Dec2018 $9.52
Dec2017 $6.14
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.91
Dec2018 $9.87
Dec2017 $10.61
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – November 2018 $IBM
International Business Machines Corp Valuation – February 2018 $IBM
International Business Machines Corp Valuation – March 2017 $IBM
International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

American Express Co Valuation – April 2019 #AXP

Company Profile (excerpt from Reuters): American Express Company, incorporated on June 10, 1965, together with its subsidiaries, is a global services company. The Company’s principal products and services are charge and credit card products, and travel-related services offered to consumers and businesses around the world. The Company’s segments include the Global Consumer Services Group (GCSG), Global Merchant and Network Services (GMNS), and Global Commercial Services (GCS). The Company’s range of products and services includes network services; merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants; other fee services, including fraud prevention services and the design and operation of customer loyalty programs; expense management products and services, and stored value/prepaid products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AXP – 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $93,000,342,672 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 83.98% Pass
5. Moderate PEmg Ratio PEmg < 20 15.56 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.24 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.13
MG Growth Estimate 6.66%
MG Value $155.42
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $103.32
MG Value based on 0% Growth $60.57
Market Implied Growth Rate 3.53%
Current Price $110.86
% of Intrinsic Value 71.33%

American Express Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with 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 $4.94 in 2015 to an estimated $7.13 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.53% 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.

At the time of valuation, further research into American Express Company revealed the company was trading above its Graham Number of $76.95. The company pays a dividend of $1.48 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 15.56, which was below the industry average of 21.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

American Express Company performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $76.95
PEmg 15.56
PB Ratio 4.24
Dividend Yield 1.34%
TTM Dividend $1.48
Number of Consecutive Years of Dividend Growth 3

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
Long-Term Debt & Capital Lease Obligation $58,423,000,000
Total Assets $188,602,000,000
Intangible Assets $3,347,000,000
Total Liabilities $166,312,000,000
Shares Outstanding (Diluted Average) 853,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.00
Dec2018 $7.91
Dec2017 $2.99
Dec2016 $5.61
Dec2015 $5.05
Dec2014 $5.56
Dec2013 $4.88
Dec2012 $3.89
Dec2011 $4.12
Dec2010 $3.35
Dec2009 $1.54
Dec2008 $2.32
Dec2007 $3.36
Dec2006 $2.99
Dec2005 $2.97
Dec2004 $2.68
Dec2003 $2.30
Dec2002 $2.01
Dec2001 $0.98
Dec2000 $2.07
Dec1999 $1.81

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.13
Dec2018 $5.60
Dec2017 $4.57
Dec2016 $5.24
Dec2015 $4.94
Dec2014 $4.71
Dec2013 $4.04
Dec2012 $3.43
Dec2011 $3.11
Dec2010 $2.64
Dec2009 $2.40
Dec2008 $2.84
Dec2007 $3.02
Dec2006 $2.77
Dec2005 $2.50
Dec2004 $2.18
Dec2003 $1.90

Recommended Reading:

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American Express Co Valuation – November 2018 $AXP
American Express Co. Valuation – February 2018 $AXP
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Essex Property Trust Inc Valuation – March 2019 #ESS

Company Profile (excerpt from Reuters): Essex Property Trust, Inc., incorporated on March 11, 1994, is a self-administered and self-managed real estate investment trust (REIT). The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities, located along the West Coast. Its segments include Southern California, Northern California, Seattle Metro and Other real estate assets. The Company owns all of its interest in its real estate and other investments directly or indirectly through Essex Portfolio, L.P. (the Operating Partnership). As of December 31, 2016, the Company owned or held an interest in 245 communities, aggregating 59,645 apartment homes, excluding the Company’s ownership in preferred equity investments, as well as two operating commercial buildings (totaling approximately 140,564 square feet), and six active development projects with 2,223 apartment homes in various stages of development.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ESS – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,097,355,643 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.83 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 196.37% Pass
6. Moderate PEmg Ratio PEmg < 20 52.67 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.00 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 0.83 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -107.33 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 $5.52
MG Growth Estimate 12.07%
MG Value $180.19
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $80.03
MG Value based on 0% Growth $46.91
Market Implied Growth Rate 22.09%
Current Price $290.71
% of Intrinsic Value 161.34%

Essex Property Trust 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 Overvalued after growing its EPSmg (normalized earnings) from $3.06 in 2015 to an estimated $5.52 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 22.09% 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 Essex Property Trust Inc revealed the company was trading above its Graham Number of $100.18. The company pays a dividend of $7.44 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 52.67, which was below the industry average of 61.92, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-86.69.

Essex Property Trust Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$86.69
Graham Number $100.18
PEmg 52.67
Current Ratio 0.83
PB Ratio 3.00
Current Dividend $7.44
Dividend Yield 2.56%
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 $262,729,000
Total Current Liabilities $314,960,000
Long-Term Debt $5,605,942,000
Total Assets $12,383,596,000
Intangible Assets $0
Total Liabilities $5,989,752,000
Shares Outstanding (Diluted Average) 66,061,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.69
Dec2018 $5.90
Dec2017 $6.57
Dec2016 $6.27
Dec2015 $3.49
Dec2014 $2.06
Dec2013 $4.04
Dec2012 $3.41
Dec2011 $1.24
Dec2010 $1.14
Dec2009 $2.91
Dec2008 $2.09
Dec2007 $4.24
Dec2006 $2.45
Dec2005 $3.32
Dec2004 $3.36
Dec2003 $1.57
Dec2002 $2.60
Dec2001 $2.63
Dec2000 $2.37
Dec1999 $2.36

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.52
Dec2018 $5.58
Dec2017 $5.10
Dec2016 $4.20
Dec2015 $3.06
Dec2014 $2.69
Dec2013 $2.85
Dec2012 $2.22
Dec2011 $1.86
Dec2010 $2.30
Dec2009 $2.92
Dec2008 $2.98
Dec2007 $3.28
Dec2006 $2.76
Dec2005 $2.84
Dec2004 $2.57
Dec2003 $2.22

Recommended Reading:

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Essex Property Trust Inc Valuation – June 2018 $ESS
Essex Property Trust Inc Valuation – March 2017 $ESS
Essex Property Trust Inc. Analysis – October 2015 Update $ESS
Essex Property Trust Inc. Analysis – Initial Coverage $ESS

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

McKesson Corp Valuation – March 2019 #MCK

Company Profile (excerpt from Reuters): McKesson Corporation, incorporated on July 7, 1994, is a healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information technology company. The Company provides medicines, medical products and healthcare services by partnering with pharmaceutical manufacturers, providers, pharmacies, governments and other organizations in healthcare. It operates through two segments: McKesson Distribution Solutions and McKesson Technology Solutions.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MCK – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,379,630,473 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.02 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 109.07% Pass
6. Moderate PEmg Ratio PEmg < 20 13.60 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.53 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.02 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.51 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 $8.96
MG Growth Estimate 8.57%
MG Value $229.80
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $129.91
MG Value based on 0% Growth $76.15
Market Implied Growth Rate 2.55%
Current Price $121.88
% of Intrinsic Value 53.04%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.7 in 2015 to an estimated $8.96 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.55% 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 McKesson Corporation revealed the company was trading above its Graham Number of $92.59. The company pays a dividend of $1.3 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 13.6, which was below the industry average of 53.13, 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 $-68.22.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$68.22
Graham Number $92.59
PEmg 13.60
Current Ratio 1.02
PB Ratio 2.53
Current Dividend $1.30
Dividend Yield 1.07%
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 $38,319,000,000
Total Current Liabilities $37,424,000,000
Long-Term Debt $7,616,000,000
Total Assets $61,011,000,000
Intangible Assets $14,439,000,000
Total Liabilities $51,622,000,000
Shares Outstanding (Diluted Average) 195,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.85
Mar2018 $0.32
Mar2017 $22.73
Mar2016 $9.70
Mar2015 $6.27
Mar2014 $5.41
Mar2013 $5.59
Mar2012 $5.59
Mar2011 $4.57
Mar2010 $4.62
Mar2009 $2.95
Mar2008 $3.32
Mar2007 $2.99
Mar2006 $2.38
Mar2005 -$0.53
Mar2004 $2.19
Mar2003 $1.88
Mar2002 $1.43
Mar2001 -$0.17
Mar2000 $2.55
Mar1999 $0.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.96
Mar2018 $9.30
Mar2017 $12.51
Mar2016 $7.11
Mar2015 $5.70
Mar2014 $5.33
Mar2013 $5.08
Mar2012 $4.62
Mar2011 $3.99
Mar2010 $3.55
Mar2009 $2.75
Mar2008 $2.46
Mar2007 $1.94
Mar2006 $1.44
Mar2005 $0.96
Mar2004 $1.66
Mar2003 $1.33

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Automatic Data Processing Inc Valuation – February 2019 $ADP

Company Profile (excerpt from Reuters): Automatic Data Processing, Inc. (ADP), incorporated on June 12, 1961, is a provider of human capital management (HCM) solutions to employers, offering solutions to businesses of various sizes. The Company also provides business process outsourcing solutions. Its segments include Employer Services and Professional Employer Organization (PEO) Services. The Company markets its solutions primarily through its direct sales force. Employer Services also markets its solutions through indirect sales channels, such as marketing relationships with banks and certified public accountants, among others.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ADP – February 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 $65,200,741,302 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.05 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 63.57% Pass
6. Moderate PEmg Ratio PEmg < 20 36.51 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.76 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 1.05 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.44 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.10
MG Growth Estimate 5.66%
MG Value $81.26
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $59.44
MG Value based on 0% Growth $34.84
Market Implied Growth Rate 14.01%
Current Price $149.67
% of Intrinsic Value 184.18%

Automatic Data Processing 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 Overvalued after growing its EPSmg (normalized earnings) from $2.98 in 2015 to an estimated $4.1 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.01% 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 Automatic Data Processing revealed the company was trading above its Graham Number of $30.23. The company pays a dividend of $2.52 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 36.51, which was above the industry average of 29.23. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.39.

Automatic Data Processing 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) -$5.39
Graham Number $30.23
PEmg 36.51
Current Ratio 1.05
PB Ratio 13.76
Current Dividend $2.52
Dividend Yield 1.68%
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 $31,682,600,000
Total Current Liabilities $30,296,900,000
Long-Term Debt $2,002,300,000
Total Assets $38,806,300,000
Intangible Assets $3,248,100,000
Total Liabilities $34,042,400,000
Shares Outstanding (Diluted Average) 438,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.15
Jun2018 $3.66
Jun2017 $3.85
Jun2016 $3.25
Jun2015 $3.05
Jun2014 $3.14
Jun2013 $2.89
Jun2012 $2.82
Jun2011 $2.52
Jun2010 $2.40
Jun2009 $2.63
Jun2008 $2.34
Jun2007 $2.04
Jun2006 $2.68
Jun2005 $1.32
Jun2004 $1.18
Jun2003 $1.34
Jun2002 $1.75
Jun2001 $1.44
Jun2000 $1.31
Jun1999 $1.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.10
Jun2018 $3.51
Jun2017 $3.37
Jun2016 $3.10
Jun2015 $2.98
Jun2014 $2.88
Jun2013 $2.71
Jun2012 $2.60
Jun2011 $2.45
Jun2010 $2.42
Jun2009 $2.35
Jun2008 $2.11
Jun2007 $1.91
Jun2006 $1.78
Jun2005 $1.35
Jun2004 $1.38
Jun2003 $1.45

Recommended Reading:

Other ModernGraham posts about the company

Automatic Data Processing Inc Valuation – April 2018 $ADP
Automatic Data Processing Valuation – November 2016 $ADP
Automatic Data Processing Valuation – May 2016 $ADP
Automatic Data Processing Analysis – September 2015 Update $ADP
Automatic Data Processing Analysis – June 2015 Update $ADP

Other ModernGraham posts about related companies

Fiserv Inc Valuation – February 2019 $FISV
Rollins Inc Valuation – February 2019 $ROL
Iron Mountain Inc Valuation – February 2019 $IRM
Cintas Corp Valuation – February 2019 $CTAS
Fidelity National Information Services Inc Valuation – January 2019 $FIS
Avery Dennison Corp Valuation – January 2019 $AVY
Paychex Inc Valuation – January 2019 $PAYX
Fleetcor Technologies Inc Valuation – January 2019 $FLT
TrueBlue Inc Valuation – October 2018 $TBI
Convergys Corp Valuation – September 2018 $CVG

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.

Hess Corp Valuation – January 2019 $HES

Company Profile (excerpt from Reuters): Hess Corporation, incorporated on February 7, 1920, is an exploration and production company. The Company is engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids (NGL) and natural gas. The Company’s segments include Exploration and Production, and Bakken Midstream. Its Exploration and Production segment explores for, develops, produces, purchases and sells crude oil, NGLs and natural gas with production operations primarily in the United States, Denmark, the Malaysia/Thailand Joint Development Area (JDA), Malaysia and Norway. The Bakken Midstream segment provides fee-based services, including crude oil and natural gas gathering, processing of natural gas and the fractionation of NGLs, transportation of crude oil by rail car, terminaling and loading crude oil and NGLs, and the storage and terminaling of propane, primarily in the Bakken shale play of North Dakota.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HES – January 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,319,242,358 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.30 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -351.35% Fail
6. Moderate PEmg Ratio PEmg < 20 -5.79 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.38 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.30 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.60 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$8.92
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$129.41
MG Value based on 0% Growth -$75.86
Market Implied Growth Rate -7.15%
Current Price $51.68
% of Intrinsic Value N/A

Hess Corp. 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 or 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 net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $8.75 in 2014 to an estimated $-8.92 for 2018. 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 Hess Corp. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was -5.79, which was below the industry average of 41.28, 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 $-20.12.

Hess Corp. 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) -$20.12
Graham Number $0.00
PEmg -5.79
Current Ratio 2.30
PB Ratio 1.38
Current Dividend $1.00
Dividend Yield 1.93%
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 9/1/2018
Total Current Assets $4,501,000,000
Total Current Liabilities $1,958,000,000
Long-Term Debt $6,609,000,000
Total Assets $21,467,000,000
Intangible Assets $360,000,000
Total Liabilities $10,421,000,000
Shares Outstanding (Diluted Average) 294,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$1.52
Dec2017 -$13.12
Dec2016 -$19.92
Dec2015 -$10.78
Dec2014 $7.53
Dec2013 $14.82
Dec2012 $5.95
Dec2011 $5.01
Dec2010 $6.47
Dec2009 $2.27
Dec2008 $7.24
Dec2007 $5.74
Dec2006 $6.08
Dec2005 $3.93
Dec2004 $3.19
Dec2003 $2.37
Dec2002 -$0.83
Dec2001 $3.42
Dec2000 $3.79
Dec1999 $1.62
Dec1998 -$1.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$8.92
Dec2017 -$9.85
Dec2016 -$5.64
Dec2015 $2.51
Dec2014 $8.75
Dec2013 $8.54
Dec2012 $5.40
Dec2011 $5.20
Dec2010 $5.38
Dec2009 $4.91
Dec2008 $5.90
Dec2007 $4.90
Dec2006 $3.97
Dec2005 $2.75
Dec2004 $2.24
Dec2003 $1.87
Dec2002 $1.50

Recommended Reading:

Other ModernGraham posts about the company

Hess Corp Valuation – March 2018 $HES
Hess Corp Valuation – July 2016 $HES
47 Companies in the Spotlight This Week – 5/16/15
Hess Corporation Annual Valuation – 2015 $HES
10 Companies Benjamin Graham Would Invest In Today – May 2015

Other ModernGraham posts about related companies

EQT Corp Valuation – January 2019 $EQT
Helmerich & Payne Inc Valuation – January 2019 $HP
Williams Companies Inc Valuation – January 2019 $WMB
Exxon Mobil Corp Valuation – November 2018 $XOM
Chevron Corp Valuation – November 2018 $CVX
Cenovus Energy Inc Valuation – October 2018 $TSE-CVE
CNX Resources Corp Valuation – September 2018 $CNX
Carbo Ceramics Inc Valuation – August 2018 $CRR
Murphy Oil Corp Valuation – August 2018 $MUR
Suncor Energy Inc Valuation – August 2018 $TSE:SU

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.

Progressive Corp Valuation – January 2019 $PGR

Company Profile (excerpt from Reuters): The Progressive Corporation, incorporated on February 4, 1965, is an insurance holding company. The Company’s insurance subsidiaries and affiliates provide personal and commercial automobile and property insurance, other specialty property-casualty insurance and related services. The Company operates through the Personal Lines, Commercial Lines and Property segments. It also offers vehicle insurance products that protect its customers against losses due to collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. The Company’s property insurance products protect its customers against losses due to damages to their structure or possessions within the structure, as well as liability for accidents occurring in the structure or on the property. Its non-insurance subsidiaries and affiliates generally support the Company’s insurance and investment operations. The Company operates its vehicle businesses and property business in the United States. The Company also sells personal auto physical damage and auto property damage liability insurance in Australia.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PGR – January 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $34,408,800,000 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 96.23% Pass
5. Moderate PEmg Ratio PEmg < 20 18.83 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.92 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.13
MG Growth Estimate 10.46%
MG Value $92.18
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $45.44
MG Value based on 0% Growth $26.64
Market Implied Growth Rate 5.16%
Current Price $59.00
% of Intrinsic Value 64.00%

Progressive Corp 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 $1.85 in 2014 to an estimated $3.13 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.16% 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.

At the time of valuation, further research into Progressive Corp revealed the company was trading above its Graham Number of $41.86. The company pays a dividend of $0.68 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 18.83, which was below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Progressive Corp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $41.86
PEmg 18.83
PB Ratio 2.92
Dividend Yield 1.15%
TTM Dividend $0.68
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 9/1/2018
Long-Term Debt & Capital Lease Obligation $3,859,900,000
Total Assets $45,543,700,000
Intangible Assets $765,300,000
Total Liabilities $33,684,900,000
Shares Outstanding (Diluted Average) 586,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.88
Dec2017 $2.72
Dec2016 $1.76
Dec2015 $2.15
Dec2014 $2.15
Dec2013 $1.93
Dec2012 $1.48
Dec2011 $1.59
Dec2010 $1.61
Dec2009 $1.57
Dec2008 -$0.10
Dec2007 $1.65
Dec2006 $2.10
Dec2005 $1.74
Dec2004 $1.91
Dec2003 $1.42
Dec2002 $0.75
Dec2001 $0.46
Dec2000 $0.05
Dec1999 $0.33
Dec1998 $0.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.13
Dec2017 $2.22
Dec2016 $1.95
Dec2015 $1.98
Dec2014 $1.85
Dec2013 $1.68
Dec2012 $1.44
Dec2011 $1.37
Dec2010 $1.30
Dec2009 $1.22
Dec2008 $1.19
Dec2007 $1.81
Dec2006 $1.79
Dec2005 $1.50
Dec2004 $1.23
Dec2003 $0.79
Dec2002 $0.46

Recommended Reading:

Other ModernGraham posts about the company

Progressive Corp Valuation – February 2018 $PGR
Progressive Corporation Valuation – June 2016 $PGR
11 Best Stocks For Value Investors This Week – 11/21/15
Progressive Corp Valuation – November 2015 Update $PGR
The Best Companies of the Insurance Industry – October 2015

Other ModernGraham posts about related companies

Aon PLC Valuation – November 2018 $AON
Travelers Companies Inc Valuation – November 2018 $TRV
Stewart Information Services Corp Valuation – August 2018 $STC
Kemper Corp Valuation – August 2018 $KMPR
CNO Financial Group Inc Valuation – August 2018 $CNO
Sun Life Financial Inc Valuation – August 2018 $TSE-SLF
American Financial Group Inc Valuation – August 2018 $AFG
Selective Insurance Group Inc Valuation – July 2018 $SIGI
Genworth Financial Inc Valuation – June 2018 $GNW
Prudential Financial Inc Valuation – June 2018 $PRU

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.

International Business Machines Corp Valuation – November 2018 $IBM

Company Profile (excerpt from Reuters): International Business Machines Corporation (IBM), incorporated on June 16, 1911, is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – 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 $110,482,042,902 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.31 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 -11.68% Fail
6. Moderate PEmg Ratio PEmg < 20 11.36 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.59 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 1.31 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.15 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 $10.71
MG Growth Estimate -2.96%
MG Value $27.70
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $155.24
MG Value based on 0% Growth $91.00
Market Implied Growth Rate 1.43%
Current Price $121.57
% of Intrinsic Value 438.89%

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

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.33 in 2014 to an estimated $10.71 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 1.43% 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 IBM Common Stock revealed the company was trading above its Graham Number of $71.86. The company pays a dividend of $5.9 per share, for a yield of 4.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.36, which was below the industry average of 49.32, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-58.8.

IBM Common Stock receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$58.80
Graham Number $71.86
PEmg 11.36
Current Ratio 1.31
PB Ratio 5.59
Current Dividend $5.90
Dividend Yield 4.85%
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 9/1/2018
Total Current Assets $48,257,000,000
Total Current Liabilities $36,822,000,000
Long-Term Debt $35,989,000,000
Total Assets $121,990,000,000
Intangible Assets $39,661,000,000
Total Liabilities $102,072,000,000
Shares Outstanding (Diluted Average) 915,213,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.03
Dec2017 $6.14
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12
Dec1998 $3.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.71
Dec2017 $10.61
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40
Dec2002 $3.33

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – February 2018 $IBM
International Business Machines Corp Valuation – March 2017 $IBM
International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14
International Business Machines Annual Valuation – 2014 $IBM

Other ModernGraham posts about related companies

DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
Computer Programs and Systems Inc Valuation – August 2018 $CPSI
Science Applications International Corp Valuation – July 2018 $SAIC
Acxiom Corp Valuation – July 2018 $ACXM
Infosys Ltd Valuation – June 2018 $INFY
Verisign Inc Valuation – May 2018 $VRSN
Motorola Solutions Inc Valuation – May 2018 $MSI
Leidos Holdings Inc Valuation – April 2018 $LDOS
Gartner Inc Valuation – March 2018 $IT

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.

American Express Co Valuation – November 2018 $AXP

Company Profile (excerpt from Reuters): American Express Company, incorporated on June 10, 1965, together with its subsidiaries, is a global services company. The Company’s principal products and services are charge and credit card products, and travel-related services offered to consumers and businesses around the world. The Company’s segments include the Global Consumer Services Group (GCSG), Global Merchant and Network Services (GMNS), and Global Commercial Services (GCS). The Company’s range of products and services includes network services; merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants; other fee services, including fraud prevention services and the design and operation of customer loyalty programs; expense management products and services, and stored value/prepaid products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AXP – 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $92,499,471,317 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 78.47% Pass
5. Moderate PEmg Ratio PEmg < 20 19.86 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.34 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.45
MG Growth Estimate 2.38%
MG Value $72.33
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $79.06
MG Value based on 0% Growth $46.35
Market Implied Growth Rate 5.68%
Current Price $108.28
% of Intrinsic Value 149.71%

American Express Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with 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 Overvalued after growing its EPSmg (normalized earnings) from $4.71 in 2014 to an estimated $5.45 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.68% 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.

At the time of valuation, further research into American Express Company revealed the company was trading above its Graham Number of $59.68. The company pays a dividend of $1.34 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 19.86, which was below the industry average of 33.02, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

American Express Company receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $59.68
PEmg 19.86
PB Ratio 4.34
Dividend Yield 1.24%
TTM Dividend $1.34
Number of Consecutive Years of Dividend Growth 2

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 9/1/2018
Long-Term Debt & Capital Lease Obligation $55,300,000,000
Total Assets $189,092,000,000
Intangible Assets $0
Total Liabilities $167,632,000,000
Shares Outstanding (Diluted Average) 860,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.46
Dec2017 $2.97
Dec2016 $5.65
Dec2015 $5.05
Dec2014 $5.56
Dec2013 $4.88
Dec2012 $3.89
Dec2011 $4.12
Dec2010 $3.35
Dec2009 $1.54
Dec2008 $2.32
Dec2007 $3.36
Dec2006 $2.99
Dec2005 $2.97
Dec2004 $2.68
Dec2003 $2.30
Dec2002 $2.01
Dec2001 $0.98
Dec2000 $2.07
Dec1999 $1.81
Dec1998 $1.54

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.45
Dec2017 $4.57
Dec2016 $5.25
Dec2015 $4.94
Dec2014 $4.71
Dec2013 $4.04
Dec2012 $3.43
Dec2011 $3.11
Dec2010 $2.64
Dec2009 $2.40
Dec2008 $2.84
Dec2007 $3.02
Dec2006 $2.77
Dec2005 $2.50
Dec2004 $2.18
Dec2003 $1.90
Dec2002 $1.69

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Sierra Wireless Inc Valuation – September 2018 $TSE:SW

Company Profile (excerpt from Reuters): Sierra Wireless, Inc., incorporated on May 31, 1993, is engaged in building the Internet of Things (IoT) with wireless solutions for organizations. The Company’s segments include OEM Solutions, Enterprise Solutions, and Cloud and Connectivity Services. The Company offers a portfolio of second generation (2G), third generation (3G), and fourth generation (4G) cellular embedded wireless modules and gateways, integrated with its secure cloud and connectivity services. The Company offers its products to original equipment manufacturers (OEMs) and enterprises. The markets for its products are North America, Europe and Asia Pacific. Its OEM Solution segment is engaged in cellular embedded wireless modules for IoT connectivity, including an embedded application framework to support customer applications. Its Enterprise Solution segment is engaged in intelligent routers and gateways, including management tools and applications that enable cellular connectivity. Its Cloud and Connectivity Services segment is engaged in a cloud based platform for deploying and managing IoT applications, Smart SIM supported by mobile core networks, and managed wireless broadband services to enable customer IoT deployments.

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-SW – September 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 $687,068,923 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.61 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 -172.13% Fail
6. Moderate PEmg Ratio PEmg < 20 47.31 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.51 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.33 Pass
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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.52
MG Growth Estimate 9.51%
MG Value $14.31
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $7.54
MG Value based on 0% Growth $4.42
Market Implied Growth Rate 19.40%
Current Price $24.61
% of Intrinsic Value 171.95%

Sierra Wireless, Inc. (USA) 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 or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability 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 growing its EPSmg (normalized earnings) from $0.32 in 2014 to an estimated $0.52 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.4% 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 Sierra Wireless, Inc. (USA) revealed the company was trading above its Graham Number of $21.29. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 47.31, which was above the industry average of 43.01. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.63.

Sierra Wireless, Inc. (USA) scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.63
Graham Number $21.29
PEmg 47.31
Current Ratio 1.61
PB Ratio 1.51
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $408,261,000
Total Current Liabilities $253,760,000
Long-Term Debt $50,659,000
Total Assets $900,606,000
Intangible Assets $406,206,000
Total Liabilities $313,381,000
Shares Outstanding (Diluted Average) 36,021,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.21
Dec2017 $0.17
Dec2016 $0.64
Dec2015 -$0.11
Dec2014 -$0.61
Dec2013 $1.90
Dec2012 $0.87
Dec2011 -$0.96
Dec2010 -$0.47
Dec2009 -$1.36
Dec2008 $2.47
Dec2007 $1.16
Dec2006 $0.44
Dec2005 -$1.67
Dec2004 $1.17
Dec2003 $0.16
Dec2002 -$3.99
Dec2001 -$2.37
Dec2000 -$0.30
Dec1999 $0.34
Dec1998 $0.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.52
Dec2017 $0.25
Dec2016 $0.37
Dec2015 $0.23
Dec2014 $0.32
Dec2013 $0.52
Dec2012 -$0.08
Dec2011 -$0.31
Dec2010 $0.16
Dec2009 $0.38
Dec2008 $1.07
Dec2007 $0.34
Dec2006 -$0.31
Dec2005 -$0.90
Dec2004 -$0.70
Dec2003 -$1.50
Dec2002 -$1.97

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Sierra Wireless Inc Valuation – Initial Coverage $TSE:SW

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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