General Dynamics Corp Valuation – March 2019 #GD

Company Profile (excerpt from Reuters): General Dynamics Corporation, incorporated on February 21, 1952, is a global aerospace and defense company. The Company offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions, and shipbuilding and ship repair. The Company operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems.

GD Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GD – 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 $48,068,656,138 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 153.85% Pass
6. Moderate PEmg Ratio PEmg < 20 15.88 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.21 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 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.32 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 $10.48
MG Growth Estimate 8.33%
MG Value $263.73
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $152.03
MG Value based on 0% Growth $89.12
Market Implied Growth Rate 3.69%
Current Price $166.49
% of Intrinsic Value 63.13%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.74 in 2015 to an estimated $10.48 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.69% 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 General Dynamics Corporation revealed the company was trading above its Graham Number of $102.99. The company pays a dividend of $3.63 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.88, which was below the industry average of 51.79, 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 $-52.25.

General Dynamics 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) -$52.25
Graham Number $102.99
PEmg 15.88
Current Ratio 1.23
PB Ratio 4.21
Current Dividend $3.63
Dividend Yield 2.18%
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 $18,189,000,000
Total Current Liabilities $14,739,000,000
Long-Term Debt $11,444,000,000
Total Assets $45,408,000,000
Intangible Assets $22,179,000,000
Total Liabilities $33,676,000,000
Shares Outstanding (Diluted Average) 296,406,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.60
Dec2018 $11.18
Dec2017 $9.56
Dec2016 $8.29
Dec2015 $9.29
Dec2014 $7.42
Dec2013 $6.67
Dec2012 -$0.94
Dec2011 $6.87
Dec2010 $6.81
Dec2009 $6.17
Dec2008 $6.17
Dec2007 $5.08
Dec2006 $4.56
Dec2005 $3.61
Dec2004 $3.05
Dec2003 $2.52
Dec2002 $2.26
Dec2001 $2.33
Dec2000 $2.24
Dec1999 $2.18

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.48
Dec2018 $9.67
Dec2017 $8.69
Dec2016 $7.55
Dec2015 $6.74
Dec2014 $5.43
Dec2013 $4.67
Dec2012 $4.11
Dec2011 $6.50
Dec2010 $6.13
Dec2009 $5.57
Dec2008 $5.01
Dec2007 $4.21
Dec2006 $3.58
Dec2005 $2.98
Dec2004 $2.60
Dec2003 $2.35

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – September 2018
5 Companies for Enterprising Investors Near 52 Week Lows – July 2018
General Dynamics Corp Valuation – June 2018 $GD
General Dynamics Corp Valuation – March 2017 $GD
General Dynamics Corporation Valuation – January 2016 Update $GD

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – March 2019 #TDG
Northrop Grumman Corp Valuation – March 2019 #NOC
Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB

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.

General Dynamics Corp Valuation – June 2018 $GD

Company Profile (excerpt from Reuters): General Dynamics Corporation, incorporated on February 21, 1952, is a global aerospace and defense company. The Company offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions, and shipbuilding and ship repair. The Company operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems.

GD Chart

GD data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GD – 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 $56,252,193,939 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 43.78% Pass
6. Moderate PEmg Ratio PEmg < 20 19.93 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.84 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.76 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $9.50
MG Growth Estimate 11.23%
MG Value $294.34
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $137.81
MG Value based on 0% Growth $80.78
Market Implied Growth Rate 5.71%
Current Price $189.38
% of Intrinsic Value 64.34%

General Dynamics Corporation 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 stability over the last ten years, and the high PB ratio. The Enterprising Investor is only concerned with the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.43 in 2014 to an estimated $9.5 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.71% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into General Dynamics Corporation revealed the company was trading above its Graham Number of $96.25. The company pays a dividend of $3.28 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 19.93, which was below the industry average of 51.81, 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 $-16.54.

General Dynamics Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$16.54
Graham Number $96.25
PEmg 19.93
Current Ratio 1.34
PB Ratio 4.84
Current Dividend $3.28
Dividend Yield 1.73%
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 3/1/2018
Total Current Assets $20,464,000,000
Total Current Liabilities $15,242,000,000
Long-Term Debt $3,981,000,000
Total Assets $37,219,000,000
Intangible Assets $12,657,000,000
Total Liabilities $25,445,000,000
Shares Outstanding (Diluted Average) 301,104,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.69
Dec2017 $9.56
Dec2016 $8.29
Dec2015 $9.29
Dec2014 $7.42
Dec2013 $6.67
Dec2012 -$0.94
Dec2011 $6.87
Dec2010 $6.81
Dec2009 $6.17
Dec2008 $6.17
Dec2007 $5.08
Dec2006 $4.56
Dec2005 $3.61
Dec2004 $3.05
Dec2003 $2.52
Dec2002 $2.26
Dec2001 $2.33
Dec2000 $2.24
Dec1999 $2.18
Dec1998 $1.46

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.50
Dec2017 $8.69
Dec2016 $7.55
Dec2015 $6.74
Dec2014 $5.43
Dec2013 $4.67
Dec2012 $4.11
Dec2011 $6.50
Dec2010 $6.13
Dec2009 $5.57
Dec2008 $5.01
Dec2007 $4.21
Dec2006 $3.58
Dec2005 $2.98
Dec2004 $2.60
Dec2003 $2.35
Dec2002 $2.21

Recommended Reading:

Other ModernGraham posts about the company

General Dynamics Corp Valuation – March 2017 $GD
General Dynamics Corporation Valuation – January 2016 Update $GD
5 Speculative and Overvalued Companies to Avoid – December 2014
32 Companies in the Spotlight This Week – 12/6/14
General Dynamics Corporation Annual Valuation – 2014 $GD

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – June 2018 $TDG
Northrop Grumman Corp Valuation – May 2018 $NOC
Rockwell Collins Inc Valuation – May 2018 $COL
L3 Technologies Inc Valuation – March 2018 $LLL
Textron Inc Valuation – March 2018 $TXT
Lockheed Martin Corp Valuation – February 2018 $LMT
United Technologies Corp Valuation – February 2018 $UTX
Triumph Group Inc Valuation – Initial Coverage $TGI
Raytheon Company Valuation – April 2017 $RTN
General Dynamics Corp Valuation – March 2017 $GD

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.

New Gold Inc (USA) Valuation – Initial Coverage $NGD

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how New Gold Inc (USA) (NGD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): New Gold Inc. is an intermediate gold mining company. The Company is engaged in the development and operation of mineral properties. Its segments include New Afton, Mesquite, Peak Mines, Cerro San Pedro, Corporate and Other. It has operating mines in Canada, the United States, Australia and Mexico; development projects in Canada, and a stream on gold production from a development property in Chile. Its development projects include Rainy River and Blackwater projects, which are located in Canada. Its Rainy River project is a gold project located approximately 65 kilometers northwest of Fort Frances in northwestern Ontario, Canada. The Rainy River comprises approximately 192 square kilometers of various rights and claims. The Blackwater Project is located approximately 160 kilometers southwest of the city of Prince George in central British Columbia, Canada and 110 kilometers southwest of the town of Vanderhoof. The Blackwater project covers an area of over 1,000 square kilometers.

NGD Chart

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

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of NGD – July 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 $1,763,020,176 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.15 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 -85.95% Fail
6. Moderate PEmg Ratio PEmg < 20 -19.34 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.70 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.15 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.36 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg -$0.16
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth -$2.27
MG Value based on 0% Growth -$1.33
Market Implied Growth Rate -13.92%
Current Price $3.03
% of Intrinsic Value N/A

New Gold 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, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.04 in 2013 to an estimated $-0.16 for 2017.  This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into New Gold Inc. (USA) revealed the company was trading below its Graham Number of $4.48.  The company does not pay a dividend.  Its PEmg (price over earnings per share – ModernGraham) was -19.34, which was below the industry average of 146.28, 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 $-2.45.

New Gold Inc. (USA) receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.45
Graham Number $4.48
PEmg -19.34
Current Ratio 3.15
PB Ratio 0.70
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $551,700,000
Total Current Liabilities $174,900,000
Long-Term Debt $890,000,000
Total Assets $4,138,600,000
Intangible Assets $0
Total Liabilities $1,848,200,000
Shares Outstanding (Diluted Average) 528,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.22
Dec2016 $0.01
Dec2015 -$0.40
Dec2014 -$0.95
Dec2013 -$0.39
Dec2012 $0.42
Dec2011 $0.40
Dec2010 $0.12
Dec2009 -$0.64
Dec2008 -$0.69
Dec2007 -$2.02
Dec2006 -$0.13
Dec2005 -$0.17
Dec2004 -$0.08
Dec2003 -$0.10
Dec2002 -$0.01
Dec2001 -$0.01
Dec2000 -$0.03
Dec1999 -$0.02
Dec1998 -$0.01
Dec1997 -$0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.16
Dec2016 -$0.32
Dec2015 -$0.38
Dec2014 -$0.28
Dec2013 $0.04
Dec2012 $0.14
Dec2011 -$0.19
Dec2010 -$0.55
Dec2009 -$0.83
Dec2008 -$0.82
Dec2007 -$0.76
Dec2006 -$0.12
Dec2005 -$0.10
Dec2004 -$0.06
Dec2003 -$0.04
Dec2002 -$0.02
Dec2001 -$0.02

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

Dominion Diamond Corp Valuation – Initial Coverage $TSE:DDC
Lundin Mining Co Valuation – Initial Coverage $TSE:LUN
Lucara Diamond Corp Valuation – Initial Coverage $TSE:LUC
Teck Resources Ltd Valuation – Initial Coverage $TSE:TECK.B
Consol Energy Inc Valuation – March 2017 $CNX
Stillwater Mining Company Valuation – Initial Coverage $SWC
Allegheny Technologies Inc Valuation – March 2017 $ATI
Silver Standard Resources Inc Valuation – Initial Coverage $TSE:SSO
Sandstorm Gold Ltd Valuation – Initial Coverage $TSE:SSL
Kirkland Lakes Gold Ltd Valuation – Initial Coverage $TSE:KL

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.

General Dynamics Corp Valuation – March 2017 $GD

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how General Dynamics Corp (GD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): General Dynamics Corporation is a global aerospace and defense company. The Company offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions, and shipbuilding and ship repair. It operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems. Its Aerospace group offers aircraft design; cockpit and cabin systems, and product service and support. Its Combat Systems group offers combat vehicles, weapons systems and munitions. The Information Systems and Technology group provides technologies, products and services in support of various programs. The Marine Systems group is a designer and builder of nuclear-powered submarines, surface combatants and auxiliary and combat-logistics ships.

GD Chart

GD 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 GD – March 2017

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $56,275,855,337 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.20 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 47.26% Pass
6. Moderate PEmg Ratio PEmg < 20 20.86 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.30 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 1.20 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.15 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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $8.99
MG Growth Estimate 13.90%
MG Value $326.22
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $130.34
MG Value based on 0% Growth $76.40
Market Implied Growth Rate 6.18%
Current Price $187.52
% of Intrinsic Value 57.48%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.67 in 2013 to an estimated $8.99 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.18% 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 General Dynamics Corporation revealed the company was trading above its Graham Number of $88.24. The company pays a dividend of $2.97 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 20.86, which was below the industry average of 22.93, 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 $-20.78.

General Dynamics 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) -$20.78
Graham Number $88.24
PEmg 20.86
Current Ratio 1.20
PB Ratio 5.30
Current Dividend $2.97
Dividend Yield 1.58%
Number of Consecutive Years of Dividend Growth 4

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $15,447,000,000
Total Current Liabilities $12,846,000,000
Long-Term Debt $2,988,000,000
Total Assets $32,872,000,000
Intangible Assets $12,123,000,000
Total Liabilities $21,896,000,000
Shares Outstanding (Diluted Average) 310,387,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.60
Dec2016 $9.52
Dec2015 $9.08
Dec2014 $7.42
Dec2013 $6.67
Dec2012 -$0.94
Dec2011 $6.87
Dec2010 $6.81
Dec2009 $6.17
Dec2008 $6.17
Dec2007 $5.08
Dec2006 $4.56
Dec2005 $3.61
Dec2004 $3.05
Dec2003 $2.52
Dec2002 $2.26
Dec2001 $2.33
Dec2000 $2.24
Dec1999 $2.18
Dec1998 $1.46
Dec1997 $1.37

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.99
Dec2016 $7.91
Dec2015 $6.67
Dec2014 $5.43
Dec2013 $4.67
Dec2012 $4.11
Dec2011 $6.50
Dec2010 $6.13
Dec2009 $5.57
Dec2008 $5.01
Dec2007 $4.21
Dec2006 $3.58
Dec2005 $2.98
Dec2004 $2.60
Dec2003 $2.35
Dec2002 $2.21
Dec2001 $2.09

Recommended Reading:

Other ModernGraham posts about the company

General Dynamics Corporation Valuation – January 2016 Update $GD
5 Speculative and Overvalued Companies to Avoid – December 2014
32 Companies in the Spotlight This Week – 12/6/14
General Dynamics Corporation Annual Valuation – 2014 $GD
10 Companies in the Spotlight This Week – 11/30/2013

Other ModernGraham posts about related companies

Cubic Corporation Valuation – Initial Coverage $CUB
Northrop Grumman Corp Valuation – February 2017 $NOC
Rockwell Collins Inc Valuation – January 2017 $COL
Raytheon Company Valuation – August 2016 $RTN
Rockwell Collins Inc Valuation – August 2016 $COL
L-3 Communications Holdings Inc Valuation – July 2016 $LLL
Lockheed Martin Corporation Valuation – June 2016 $LMT
United Technologies Corporation Valuation – May 2016 $UTX
Raytheon Co Valuation – February 2016 $RTN
Rockwell Collins Inc Valuation – January 2016 Update $COL

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.

General Dynamics Corporation Valuation – January 2016 Update $GD

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

Company Profile (obtained from Google Finance): General Dynamics Corporation is an aerospace and defense company that offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; communications and information technology systems and solutions, and military and commercial shipbuilding. The Company operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology and Marine Systems. Aerospace group designs, manufactures and outfits a family of Gulfstream business-jet aircraft and provides aircraft services. Combat Systems group is engaged in systems engineering, spanning design, development, manufacture and support of military vehicles, weapons systems and munitions. Marine Systems group designs, builds and supports submarines and surface ships. Information Systems and Technology group provides technologies, products and services that support a range of military, federal/civilian and commercial information-systems requirements.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GD – January 2016

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $42,759,500,036 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.16 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 45.35% Pass
6. Moderate PEmg Ratio PEmg < 20 19.79 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.92 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 1.16 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.38 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

GD value Chart January 2016

EPSmg $6.61
MG Growth Estimate 0.25%
MG Value $59.45
Opinion Overvalued
MG Value based on 3% Growth $95.83
MG Value based on 0% Growth $56.17
Market Implied Growth Rate 5.65%
Current Price $130.80
% of Intrinsic Value 220.03%

General Dynamics Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability in the last ten years, and the high PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets as well as the lack of earnings stability over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $6.50 in 2011 to an estimated $6.61 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 5.65% 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on General Dynamics Corporation (GD)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

GD Charts January 2016

Net Current Asset Value (NCAV) -$21.61
Graham Number $82.41
PEmg 19.79
Current Ratio 1.16
PB Ratio 3.92
Dividend Yield 2.53%
Number of Consecutive Years of Dividend Growth 2

 

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $15,288,000,000
Total Current Liabilities $13,178,000,000
Long-Term Debt $2,912,000,000
Total Assets $32,980,000,000
Intangible Assets $12,333,000,000
Total Liabilities $22,246,000,000
Shares Outstanding (Diluted Average) 321,938,000

Earnings Per Share History

Next Fiscal Year Estimate $8.89
Dec14 $7.42
Dec13 $6.67
Dec12 -$0.94
Dec11 $6.87
Dec10 $6.81
Dec09 $6.17
Dec08 $6.17
Dec07 $5.08
Dec06 $4.56
Dec05 $3.61
Dec04 $3.05
Dec03 $2.52
Dec02 $2.26
Dec01 $2.33
Dec00 $2.24
Dec99 $2.18
Dec98 $1.46
Dec97 $1.37
Dec96 $1.07
Dec95 $1.28

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.61
Dec14 $5.43
Dec13 $4.67
Dec12 $4.11
Dec11 $6.50
Dec10 $6.13
Dec09 $5.57
Dec08 $5.01
Dec07 $4.21
Dec06 $3.58
Dec05 $2.98
Dec04 $2.60
Dec03 $2.35
Dec02 $2.21
Dec01 $2.09
Dec00 $1.87
Dec99 $1.62

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – December 2014
32 Companies in the Spotlight This Week – 12/6/14
General Dynamics Corporation Annual Valuation – 2014 $GD
10 Companies in the Spotlight This Week – 11/30/2013
ModernGraham Valuation: General Dynamics Corp. (GD)

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Raytheon Corporation Quarterly Valuation – April 2015 $RTN
Precision Castparts Corporation Quarterly Valuation – February 2015 $PCP

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.

General Dynamics Corporation Annual Valuation – 2014 $GD

220px-Gen-dyn.svg

After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor has numerous concerns, including the low current ratio, the lack of earnings stability or growth, and high PEmg and PB ratios while the Enterprising Investor has concerns with the low current ratio, as well as the lack of earnings growth or stability over the last five years. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has seen its EPSmg (normalized earnings) drop from $6.13 in 2010 to only an estimated $5.52 for 2014. This lack of demonstrated growth is in stark contrast to the market’s implied estimate of 8.93%. There would have to be a shift in the company’s growth in order to be worth the current market pricing. As a result, the company appears to be significantly overvalued at the present time.

Be sure to check out previous ModernGraham valuations of General Dynamics Corporation for better perspective!

Read the full valuation on Seeking Alpha!

GD Chart

GD data by YCharts

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

ModernGraham Valuation: General Dynamics Corp. (GD)

money

Company Profile (obtained from Google Finance): General Dynamics Corporation is an aerospace and defense company that offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; military and commercial shipbuilding, and communications and information technology. The Company operates through four business groups: Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. In December 2011, it acquired Force Protection, Inc. In February 2012, the Company acquired the Enterprise Jet Center FBO at Hobby Airport in Houston, Texas. In June 8, 2012, the Company acquired IPW Holdings, Inc. In August 2012, it acquired Ship Repair and Coatings Division of Earl Industries. In August 2012, the Company acquired the defense operations of Gayston Corporation. In August 2012, the Company acquired Fidelis Security Systems, Inc. In September 2012, it acquired Open Kernel Labs, Inc. In December 2012, the Company acquired Applied Physical Sciences Corp.

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 – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

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

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

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $21
MG Opinion Overvalued
Value Based on 3% Growth $69
Value Based on 0% Growth $41
Market Implied Growth Rate 5.41%
Net Current Asset Value (NCAV) -$16.32
PEmg 19.32
Current Ratio 1.42
PB Ratio 2.58

Balance Sheet – 9/30/2013 

Current Assets $17,118,000,000
Current Liabilities $12,065,000,000
Total Debt $3,908,000,000
Total Assets $35,471,000,000
Intangible Assets $13,256,000,000
Total Liabilities $22,866,000,000
Outstanding Shares 352,200,000

Earnings Per Share – Diluted

2013 (estimate) $6.95
2012 -$0.94
2011 $6.94
2010 $6.82
2009 $6.20
2008 $6.22
2007 $5.10
2006 $4.20
2005 $3.63
2004 $2.99
2003 $2.50
2002 $2.56

Earnings Per Share – Modern Graham (Calculating EPSmg)

2013 (estimate) $4.78
2012 $4.14
2011 $6.54
2010 $6.13
2009 $5.55
2008 $4.96

Conclusion:

General Dynamics Corp is a company that is damaged considerably by an extremely poor 2012 showing.  That year, the company’s EPS totaled a negative $0.94, a result that has had a clear effect on the company’s EPSmg (normalized earnings) as well as its performance in the tests for the Defensive Investor and Enterprising Investor.  The company fails to pass the requirements of either investor type because of the poor 2012 showing.  And let’s be clear here – even if the negative earnings of 2012 are related to a one-time charge or some exceptionally abnormal event, the fact remains that the company lost money that year, a result that is unacceptable to Intelligent Investors.  After all, that violates the first key rule of our 7 Key Tips to Value Investing.

From purely a valuation perspective, the negative earnings of 2012 also has a profound effect.  By lowering the EPSmg for 2012 and 2013, it has significantly lowered the level of earnings growth we may be able to anticipate.  Therefore, the market seems to overvalue the company at this time by anticipating a growth rate of over 5% when the historical performance does not support it.  Any potential investor in General Dynamics would be very wise to consult with a registered broker and do considerably further research into the company before entering into any investment position.

What do you think?  Is General Dynamics Corp overvalued?  Is the company not suitable for either Defensive Investors or 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 General Dynamics Corp at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

JPMorgan Chase & Co Valuation – April 2019 #JPM

Company Profile (excerpt from Reuters): JPMorgan Chase & Co. (JPMorgan Chase), incorporated on October 28, 1968, is a financial holding company. The Company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. JPMorgan Chase’s activities are organized into four business segments, as well as a Corporate segment. The Company’s segments include Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset & Wealth Management. Its principal bank subsidiaries include JPMorgan Chase Bank, National Association (JPMorgan Chase Bank, N.A.), a national banking association, and Chase Bank USA, National Association (Chase Bank USA, N.A.), a national banking association that is the Company’s credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (JPMorgan Securities), the United States investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally, as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. The Company’s principal operating subsidiary in the United Kingdom is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JPM – 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 $345,203,229,629 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 75.51% Pass
5. Moderate PEmg Ratio PEmg < 20 13.57 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.38 Pass
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 $7.76
MG Growth Estimate 7.10%
MG Value $176.18
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $112.58
MG Value based on 0% Growth $65.99
Market Implied Growth Rate 2.54%
Current Price $105.37
% of Intrinsic Value 59.81%

JPMorgan Chase & Co. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.27 in 2015 to an estimated $7.76 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.54% 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 JPMorgan Chase & Co. revealed the company was trading below its Graham Number of $116.88. The company pays a dividend of $2.72 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 13.57, which was below the industry average of 15.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

JPMorgan Chase & Co. fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Graham Number $116.88
PEmg 13.57
PB Ratio 1.38
Dividend Yield 2.58%
TTM Dividend $2.72
Number of Consecutive Years of Dividend Growth 8

 

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $282,031,000,000
Total Assets $2,622,532,000,000
Intangible Assets $54,349,000,000
Total Liabilities $2,366,017,000,000
Shares Outstanding (Diluted Average) 3,347,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.63
Dec2018 $9.00
Dec2017 $6.31
Dec2016 $6.19
Dec2015 $6.00
Dec2014 $5.29
Dec2013 $4.34
Dec2012 $5.20
Dec2011 $4.48
Dec2010 $3.96
Dec2009 $2.26
Dec2008 $1.35
Dec2007 $4.38
Dec2006 $4.04
Dec2005 $2.38
Dec2004 $1.55
Dec2003 $3.24
Dec2002 $0.80
Dec2001 $0.80
Dec2000 $2.86
Dec1999 $3.69

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.76
Dec2018 $7.07
Dec2017 $5.95
Dec2016 $5.65
Dec2015 $5.27
Dec2014 $4.82
Dec2013 $4.41
Dec2012 $4.11
Dec2011 $3.47
Dec2010 $3.05
Dec2009 $2.69
Dec2008 $2.85
Dec2007 $3.44
Dec2006 $2.78
Dec2005 $2.01
Dec2004 $1.84
Dec2003 $2.08

Recommended Reading:

Other ModernGraham posts about the company

JPMorgan Chase & Co Valuation – November 2018 $JPM
JPMorgan Chase & Co Valuation – February 2018 $JPM
10 Best Dividend Paying Stocks for the Defensive Investor – August 2016
5 Most Undervalued Stocks in the Dow – August 2016
10 Low PE Stock Picks for the Defensive Investor – August 2016

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Citizens Financial Group Inc Valuation – February 2019 $CFG
BB&T Corp Valuation – February 2019 $BBT
M&T Bank Corp Valuation – February 2019 $MTB
Bank of America Corp Valuation – January 2019 $BAC
Fifth Third Bancorp Valuation – January 2019 $FITB

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.

Johnson & Johnson Valuation – April 2019 #JNJ

Company Profile (excerpt from Reuters): Johnson & Johnson, incorporated on November 10, 1887, is a holding company. The Company and its subsidiaries are engaged in the research and development, manufacture and sale of a range of products in the healthcare field. The Company operates through three segments: Consumer, Pharmaceutical and Medical Devices. The Company’s primary focus is on products related to human health and well-being. The Company’s subsidiaries operated 119 manufacturing facilities, as of January 1, 2017. The Company’s research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom. The Company has over 230 operating companies, which conduct business around the world.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JNJ – 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 $361,737,592,452 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.47 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 20.12% Fail
6. Moderate PEmg Ratio PEmg < 20 24.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.20 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 1.47 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.87 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.58
MG Growth Estimate 1.54%
MG Value $64.60
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $80.85
MG Value based on 0% Growth $47.40
Market Implied Growth Rate 7.93%
Current Price $135.83
% of Intrinsic Value 210.26%

 

Johnson & Johnson 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 $5.06 in 2015 to an estimated $5.58 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.93% 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 Johnson & Johnson revealed the company was trading above its Graham Number of $65.24. The company pays a dividend of $3.54 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 24.36, which was below the industry average of 45.96, 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 $-17.3.

Johnson & Johnson receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.30
Graham Number $65.24
PEmg 24.36
Current Ratio 1.47
PB Ratio 6.20
Current Dividend $3.54
Dividend Yield 2.61%
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 $46,033,000,000
Total Current Liabilities $31,230,000,000
Long-Term Debt $27,684,000,000
Total Assets $152,954,000,000
Intangible Assets $78,064,000,000
Total Liabilities $93,202,000,000
Shares Outstanding (Diluted Average) 2,726,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.49
Dec2018 $5.61
Dec2017 $0.47
Dec2016 $5.93
Dec2015 $5.48
Dec2014 $5.70
Dec2013 $4.81
Dec2012 $3.86
Dec2011 $3.49
Dec2010 $4.78
Dec2009 $4.40
Dec2008 $4.57
Dec2007 $3.63
Dec2006 $3.73
Dec2005 $3.35
Dec2004 $2.74
Dec2003 $2.29
Dec2002 $2.16
Dec2001 $1.84
Dec2000 $1.61
Dec1999 $1.39

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.58
Dec2018 $4.29
Dec2017 $3.91
Dec2016 $5.48
Dec2015 $5.06
Dec2014 $4.74
Dec2013 $4.26
Dec2012 $4.06
Dec2011 $4.17
Dec2010 $4.41
Dec2009 $4.13
Dec2008 $3.87
Dec2007 $3.39
Dec2006 $3.13
Dec2005 $2.72
Dec2004 $2.31
Dec2003 $2.01

Recommended Reading:

Other ModernGraham posts about the company

Johnson & Johnson Valuation – November 2018 $JNJ
Johnson & Johnson Valuation – February 2018 $JNJ
4 Best Stocks for Value Investors This Week – 1/28/17
Best Dividend Paying Stocks for Dividend Growth Investors – January 2017
Johnson & Johnson Valuation – January 2017 $JNJ

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Bristol-Myers Squibb Co Valuation – April 2019 #BMY
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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.

Copart Inc Valuation – April 2019 #CPRT

Company Profile (excerpt from Reuters): Copart, Inc. (Copart), incorporated on January 6, 2012, is a provider of online auctions and vehicle remarketing services in the United States, Canada, the United Kingdom, the United Arab Emirates, Oman, Bahrain, Brazil, Ireland, Spain and India. The Company also provides vehicle remarketing services in Germany. The Company operates through two segments: United States and International. The Company provides vehicle sellers with a range of services to process and sell vehicles primarily over the Internet through its virtual bidding third generation Internet auction-style sales technology (VB3). It sells vehicles primarily to insurance companies, such as banks and financial institutions, charities, car dealerships, municipalities, fleet operators and vehicle rental companies. The Company sells the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters and, at certain locations, to the general public.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CPRT – 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 $14,418,055,149 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.69 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 227.38% Pass
6. Moderate PEmg Ratio PEmg < 20 37.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.41 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 1.69 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.55 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 $1.70
MG Growth Estimate 15.00%
MG Value $65.48
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $24.66
MG Value based on 0% Growth $14.46
Market Implied Growth Rate 14.32%
Current Price $63.17
% of Intrinsic Value 96.48%

Copart, 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 PEmg and PB ratios. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.73 in 2015 to an estimated $1.7 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 14.32% 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 Copart, Inc. revealed the company was trading above its Graham Number of $17.91. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 37.14, which was above the industry average of 22.44. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.87.

Copart, 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) -$0.87
Graham Number $17.91
PEmg 37.14
Current Ratio 1.69
PB Ratio 10.41
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 1/1/2019
Total Current Assets $628,466,000
Total Current Liabilities $372,033,000
Long-Term Debt $398,740,000
Total Assets $2,296,905,000
Intangible Assets $398,310,000
Total Liabilities $836,952,000
Shares Outstanding (Diluted Average) 240,660,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.11
Jul2018 $1.73
Jul2017 $1.66
Jul2016 $1.11
Jul2015 $0.84
Jul2014 $0.68
Jul2013 $0.70
Jul2012 $0.70
Jul2011 $0.54
Jul2010 $0.45
Jul2009 $0.42
Jul2008 $0.44
Jul2007 $0.37
Jul2006 $0.26
Jul2005 $0.28
Jul2004 $0.22
Jul2003 $0.16
Jul2002 $0.16
Jul2001 $0.13
Jul2000 $0.09
Jul1999 $0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.70
Jul2018 $1.40
Jul2017 $1.15
Jul2016 $0.87
Jul2015 $0.73
Jul2014 $0.65
Jul2013 $0.61
Jul2012 $0.55
Jul2011 $0.46
Jul2010 $0.41
Jul2009 $0.38
Jul2008 $0.35
Jul2007 $0.29
Jul2006 $0.23
Jul2005 $0.21
Jul2004 $0.17
Jul2003 $0.14

Recommended Reading:

Other ModernGraham posts about the company

Copart Inc Valuation – August 2018 $CPRT
14 Best Stocks for Value Investors This Week – 2/11/17
Copart Inc Valuation – Initial Coverage $CPRT

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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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