Lennox International Inc Valuation – October 2018 $LII

Company Profile (excerpt from Reuters): Lennox International Inc., incorporated on August 13, 1991, is a provider of climate control solutions. The Company designs, manufactures and markets a range of products for the heating, ventilation, air conditioning and refrigeration (HVACR) markets. The Company operates through three segments: Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration. The Company sells its products and services through a combination of direct sales, distributors, and company-owned parts and supplies stores. Its products and services are sold through various distribution channels under various brand names.

LII Chart

LII data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LII – October 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 $8,770,827,357 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.86 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 371.49% Pass
6. Moderate PEmg Ratio PEmg < 20 32.11 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -49.69 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.86 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.04 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 $6.79
MG Growth Estimate 15.00%
MG Value $261.24
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $98.39
MG Value based on 0% Growth $57.68
Market Implied Growth Rate 11.81%
Current Price $217.88
% of Intrinsic Value 83.40%

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.02 in 2014 to an estimated $6.79 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 11.81% 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 Lennox International Inc. revealed the company was trading above its Graham Number of $15.02. The company pays a dividend of $1.96 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 32.11, which was above the industry average of 31.29. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-21.75.

Lennox International Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$21.75
Graham Number $15.02
PEmg 32.11
Current Ratio 1.86
PB Ratio -49.69
Current Dividend $1.96
Dividend Yield 0.90%
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 6/1/2018
Total Current Assets $1,385,800,000
Total Current Liabilities $744,100,000
Long-Term Debt $1,307,100,000
Total Assets $2,099,400,000
Intangible Assets $186,800,000
Total Liabilities $2,279,600,000
Shares Outstanding (Diluted Average) 41,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.37
Dec2017 $7.14
Dec2016 $6.32
Dec2015 $4.09
Dec2014 $4.23
Dec2013 $3.39
Dec2012 $1.75
Dec2011 $1.65
Dec2010 $2.08
Dec2009 $0.90
Dec2008 $2.11
Dec2007 $2.43
Dec2006 $2.26
Dec2005 $2.11
Dec2004 -$2.24
Dec2003 $1.36
Dec2002 -$3.52
Dec2001 -$0.83
Dec2000 $0.79
Dec1999 $1.63
Dec1998 $1.47

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.79
Dec2017 $5.67
Dec2016 $4.61
Dec2015 $3.51
Dec2014 $3.02
Dec2013 $2.26
Dec2012 $1.70
Dec2011 $1.73
Dec2010 $1.83
Dec2009 $1.79
Dec2008 $1.94
Dec2007 $1.63
Dec2006 $0.81
Dec2005 -$0.15
Dec2004 -$1.15
Dec2003 -$0.44
Dec2002 -$0.92

Recommended Reading:

Other ModernGraham posts about the company

Lennox International Inc Valuation – Initial Coverage $LII

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AGCO Corp Valuation – August 2018 $AGCO
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Stanley Black & Decker Inc Valuation – June 2018 $SWK
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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.

Lennox International Inc Valuation – Initial Coverage $LII

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 Lennox International Inc (LII) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lennox International Inc. is a provider of climate control solutions. The Company designs, manufactures and markets a range of products for the heating, ventilation, air conditioning and refrigeration (HVACR) markets. It operates through three segments: Residential Heating & Cooling; Commercial Heating & Cooling, and Refrigeration. It manufactures and markets a range of furnaces, air conditioners, heat pumps, packaged heating and cooling systems, equipment and accessories to manage indoor air quality, comfort control products, replacement parts and supplies and related products for both the residential replacement and new construction markets in North America. It manufactures and sells unitary heating and cooling equipment used in light commercial applications, such as low-rise office buildings, restaurants, retail centers, churches and schools. It manufactures and markets equipment for the global commercial refrigeration markets under the Heatcraft Worldwide Refrigeration name.

LII Chart

LII data by YCharts

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

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LII – 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 $7,410,194,778 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 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 256.78% Pass
6. Moderate PEmg Ratio PEmg < 20 29.27 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 201.31 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.25 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 $5.88
MG Growth Estimate 15.00%
MG Value $226.25
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $85.21
MG Value based on 0% Growth $49.95
Market Implied Growth Rate 10.39%
Current Price $172.03
% of Intrinsic Value 76.03%

Lennox International 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.26 in 2013 to an estimated $5.88 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 10.39% 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 Lennox International Inc. revealed the company was trading above its Graham Number of $12.35. The company pays a dividend of $1.65 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 29.27, which was above the industry average of 22.25. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.29.

Lennox International 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) -$16.29
Graham Number $12.35
PEmg 29.27
Current Ratio 1.13
PB Ratio 201.31
Current Dividend $1.65
Dividend Yield 0.96%
Number of Consecutive Years of Dividend Growth 8

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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 12/1/2016
Total Current Assets $1,005,900,000
Total Current Liabilities $888,600,000
Long-Term Debt $615,700,000
Total Assets $1,760,300,000
Intangible Assets $202,400,000
Total Liabilities $1,722,700,000
Shares Outstanding (Diluted Average) 44,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.75
Dec2016 $6.32
Dec2015 $4.09
Dec2014 $4.23
Dec2013 $3.39
Dec2012 $1.75
Dec2011 $1.65
Dec2010 $2.08
Dec2009 $0.90
Dec2008 $2.11
Dec2007 $2.43
Dec2006 $2.26
Dec2005 $2.11
Dec2004 -$2.24
Dec2003 $1.36
Dec2002 $0.66
Dec2001 -$0.83
Dec2000 $0.79
Dec1999 $1.81
Dec1998 $1.47

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.88
Dec2016 $4.61
Dec2015 $3.51
Dec2014 $3.02
Dec2013 $2.26
Dec2012 $1.70
Dec2011 $1.73
Dec2010 $1.83
Dec2009 $1.79
Dec2008 $1.94
Dec2007 $1.63
Dec2006 $1.09
Dec2005 $0.41
Dec2004 -$0.31
Dec2003 $0.69
Dec2002 $0.50
Dec2001 $0.49

Recommended Reading:

Other ModernGraham posts about the company

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

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Lincoln Electric Holdings Inc Valuation – Initial Coverage $LECO
Lydall Inc Valuation – Initial Coverage $LDL
Regal Beloit Corp Valuation – February 2017 $RBC
Snap-on Inc Valuation – February 2017 $SNA
Kennametal Inc Valuation – Initial Coverage $KMT
SPX Corporation Valuation – Initial Coverage $SPXC
KLX Inc Valuation – Initial Coverage $KLXI
AGCO Corporation Valuation – February 2017 $AGCO

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.

Roper Technologies Inc Valuation – February 2019 $ROP

Company Profile (excerpt from Reuters): Roper Technologies, Inc., incorporated on December 17, 1981, is a technology company. The Company operates businesses that design and develop software and engineered products and solutions for various end markets, including healthcare, transportation, commercial construction, food, energy, water, education and academic research. The Company operates in four segments: Medical Imaging, RF Technology, Industrial Technology and Energy Systems & Controls.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ROP – 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 $31,900,190,408 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 142.74% Pass
6. Moderate PEmg Ratio PEmg < 20 32.11 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.16 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 30.40 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 $9.61
MG Growth Estimate 9.01%
MG Value $254.69
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $139.28
MG Value based on 0% Growth $81.65
Market Implied Growth Rate 11.80%
Current Price $308.42
% of Intrinsic Value 121.09%

Roper Technologies 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 $6 in 2015 to an estimated $9.61 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Roper Technologies Inc revealed the company was trading above its Graham Number of $142.13. The company pays a dividend of $1.65 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 32.11, which was above the industry average of 24.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-56.46.

Roper Technologies Inc 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) -$56.46
Graham Number $142.13
PEmg 32.11
Current Ratio 1.11
PB Ratio 4.16
Current Dividend $1.65
Dividend Yield 0.53%
Number of Consecutive Years of Dividend Growth 1

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 $1,610,700,000
Total Current Liabilities $1,448,200,000
Long-Term Debt $4,940,200,000
Total Assets $15,249,500,000
Intangible Assets $13,188,900,000
Total Liabilities $7,511,000,000
Shares Outstanding (Diluted Average) 104,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.00
Dec2018 $9.05
Dec2017 $9.39
Dec2016 $6.43
Dec2015 $6.85
Dec2014 $6.40
Dec2013 $5.37
Dec2012 $4.86
Dec2011 $4.34
Dec2010 $3.34
Dec2009 $2.58
Dec2008 $3.01
Dec2007 $2.68
Dec2006 $2.13
Dec2005 $1.74
Dec2004 $0.62
Dec2003 $0.71
Oct2002 $0.32
Oct2001 $0.45
Oct2000 $0.79
Oct1999 $0.77

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.61
Dec2018 $8.15
Dec2017 $7.43
Dec2016 $6.29
Dec2015 $6.00
Dec2014 $5.34
Dec2013 $4.57
Dec2012 $3.99
Dec2011 $3.43
Dec2010 $2.90
Dec2009 $2.60
Dec2008 $2.42
Dec2007 $1.94
Dec2006 $1.41
Dec2005 $0.96
Dec2004 $0.57
Dec2003 $0.56

Recommended Reading:

Other ModernGraham posts about the company

Roper Technologies Inc Valuation – April 2018 $ROP
14 Best Undervalued Stocks of the Week – 8/6/16
Roper Technologies Inc Valuation – July 2016 $ROP
18 Best Stocks For Value Investors This Week – 1/30/16
Roper Technologies Inc Valuation – January 2016 Update $ROP

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Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII

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.

Rockwell Automation Inc Valuation – February 2019 $ROK

Company Profile (excerpt from Reuters): Rockwell Automation, Inc. (Rockwell Automation), incorporated on August 29, 1996, is a provider of industrial automation power, control and information solutions for manufacturers. The Company operates through two segments: Architecture & Software and Control Products & Solutions. In the United States, Canada and certain other countries the Company sells primarily through the independent distributors. In the remaining countries, the Company sells through a combination of direct sales and sales through distributors. The Company sells large systems and service offerings through its direct sales force.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ROK – 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 $20,445,610,174 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.21 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 43.31% Pass
6. Moderate PEmg Ratio PEmg < 20 26.97 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 16.30 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 1.21 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.62 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 $6.34
MG Growth Estimate 1.72%
MG Value $75.72
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $91.93
MG Value based on 0% Growth $53.89
Market Implied Growth Rate 9.24%
Current Price $171.00
% of Intrinsic Value 225.84%

Rockwell Automation 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 $5.69 in 2015 to an estimated $6.34 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.24% 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 Rockwell Automation revealed the company was trading above its Graham Number of $49.82. The company pays a dividend of $3.51 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.97, which was above the industry average of 24.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.83.

Rockwell Automation 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) -$15.83
Graham Number $49.82
PEmg 26.97
Current Ratio 1.21
PB Ratio 16.30
Current Dividend $3.51
Dividend Yield 2.05%
Number of Consecutive Years of Dividend Growth 9

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,737,900,000
Total Current Liabilities $2,265,500,000
Long-Term Debt $1,235,400,000
Total Assets $5,935,400,000
Intangible Assets $1,272,300,000
Total Liabilities $4,661,100,000
Shares Outstanding (Diluted Average) 121,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.40
Sep2018 $4.21
Sep2017 $6.35
Sep2016 $5.56
Sep2015 $6.09
Sep2014 $5.91
Sep2013 $5.36
Sep2012 $5.13
Sep2011 $4.88
Sep2010 $3.22
Sep2009 $1.55
Sep2008 $3.90
Sep2007 $9.23
Sep2006 $3.37
Sep2005 $2.39
Sep2004 $1.65
Sep2003 $1.51
Sep2002 $0.64
Sep2001 $0.65
Sep2000 $1.86
Sep1999 $1.47

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.34
Sep2018 $5.41
Sep2017 $5.96
Sep2016 $5.72
Sep2015 $5.69
Sep2014 $5.29
Sep2013 $4.66
Sep2012 $4.12
Sep2011 $3.93
Sep2010 $3.72
Sep2009 $4.01
Sep2008 $4.86
Sep2007 $4.77
Sep2006 $2.33
Sep2005 $1.67
Sep2004 $1.29
Sep2003 $1.15

Recommended Reading:

Other ModernGraham posts about the company

Rockwell Automation Inc Valuation – April 2018 $ROK
14 Best Undervalued Stocks of the Week – 8/6/16
Rockwell Automation Inc Valuation – July 2016 $ROK
26 Best Stocks For Value Investors This Week – 2/6/16
Rockwell Automation Inc Valuation – February 2016 Update $ROK

Other ModernGraham posts about related companies

Eaton Corp PLC Valuation – January 2019 $ETN
Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII
Standex International Corp Valuation – September 2018 $SXI

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.

Eaton Corp PLC Valuation – January 2019 $ETN

Company Profile (excerpt from Reuters): Eaton Corporation plc (Eaton), incorporated on May 10, 2012, is a power management company. The Company provides solutions that help its customers manage electrical, hydraulic and mechanical power. Its segments include Electrical Products, Electrical Systems and Services, Hydraulics, Aerospace and Vehicle. Eaton had operations in over 60 countries and sold products to customers in more than 175 countries, as of December 31, 2016.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ETN – 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 $30,680,386,396 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.49 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 101.79% Pass
6. Moderate PEmg Ratio PEmg < 20 14.00 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.84 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 1.49 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.59 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 $5.05
MG Growth Estimate 5.54%
MG Value $98.97
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $73.29
MG Value based on 0% Growth $42.96
Market Implied Growth Rate 2.75%
Current Price $70.78
% of Intrinsic Value 71.52%

Eaton Corporation PLC 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 $3.69 in 2014 to an estimated $5.05 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.75% 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 Eaton Corporation PLC revealed the company was trading above its Graham Number of $65.49. The company pays a dividend of $2.4 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14, which was below the industry average of 23.62, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.98.

Eaton Corporation PLC performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.98
Graham Number $65.49
PEmg 14.00
Current Ratio 1.49
PB Ratio 1.84
Current Dividend $2.40
Dividend Yield 3.39%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $7,867,000,000
Total Current Liabilities $5,267,000,000
Long-Term Debt $6,737,000,000
Total Assets $31,628,000,000
Intangible Assets $18,334,000,000
Total Liabilities $14,839,000,000
Shares Outstanding (Diluted Average) 436,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.86
Dec2017 $6.68
Dec2016 $4.20
Dec2015 $4.22
Dec2014 $3.76
Dec2013 $3.90
Dec2012 $3.46
Dec2011 $3.93
Dec2010 $2.73
Dec2009 $1.14
Dec2008 $3.26
Dec2007 $3.31
Dec2006 $3.11
Dec2005 $2.62
Dec2004 $2.07
Dec2003 $1.28
Dec2002 $0.98
Dec2001 $0.60
Dec2000 $1.56
Dec1999 $2.09
Dec1998 $1.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.05
Dec2017 $4.95
Dec2016 $4.03
Dec2015 $3.91
Dec2014 $3.69
Dec2013 $3.45
Dec2012 $3.12
Dec2011 $2.92
Dec2010 $2.51
Dec2009 $2.50
Dec2008 $3.08
Dec2007 $2.82
Dec2006 $2.38
Dec2005 $1.85
Dec2004 $1.41
Dec2003 $1.15
Dec2002 $1.16

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2018
Eaton Corp PLC Valuation – March 2018 $ETN
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2017
9 Best Stocks For Value Investors This Week – 7/23/16
Eaton Corp Valuation – July 2016 $ETN

Other ModernGraham posts about related companies

Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII
Standex International Corp Valuation – September 2018 $SXI
Lincoln Electric Holdings Inc Valuation – August 2018 $LECO

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.

Fastenal Co Valuation – January 2019 $FAST

Company Profile (excerpt from Reuters): Fastenal Company, incorporated on December 24, 1968, is engaged in wholesale distribution of industrial and construction supplies. The Company is engaged in fastener distribution, and non-fastener maintenance and supply business. As of December 31, 2016, it distributed these supplies through a network of approximately 2,500 company-owned stores. Most of its customers are in the manufacturing and non-residential construction markets. The manufacturing market includes both original equipment manufacturers (OEM) and maintenance, repair, and operations (MRO). The non-residential construction market includes general, electrical, plumbing, sheet metal and road contractors. Other users of its products include farmers, truckers, railroads, oil exploration, production and refinement companies, mining companies, federal, state, and local governmental entities, schools and certain retail trades. Geographically, its stores and customers are primarily located in North America.

FAST Chart

FAST data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of FAST – 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 $16,968,283,263 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.30 Pass
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 25.08 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.38 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 5.30 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.26 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 $2.37
MG Growth Estimate 7.12%
MG Value $53.79
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $34.31
MG Value based on 0% Growth $20.11
Market Implied Growth Rate 8.29%
Current Price $59.35
% of Intrinsic Value 110.34%

Fastenal Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 $1.6 in 2015 to an estimated $2.37 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.29% 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 Fastenal Company revealed the company was trading above its Graham Number of $22.32. The company pays a dividend of $1.54 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 25.08, which was above the industry average of 23.62. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.53.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.53
Graham Number $22.32
PEmg 25.08
Current Ratio 5.30
PB Ratio 7.38
Current Dividend $1.54
Dividend Yield 2.59%
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 $2,316,200,000
Total Current Liabilities $437,400,000
Long-Term Debt $497,000,000
Total Assets $3,321,500,000
Intangible Assets $0
Total Liabilities $1,018,800,000
Shares Outstanding (Diluted Average) 286,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.75
Dec2018 $2.62
Dec2017 $2.01
Dec2016 $1.73
Dec2015 $1.77
Dec2014 $1.66
Dec2013 $1.51
Dec2012 $1.42
Dec2011 $1.21
Dec2010 $0.90
Dec2009 $0.62
Dec2008 $0.94
Dec2007 $0.78
Dec2006 $0.66
Dec2005 $0.55
Dec2004 $0.43
Dec2003 $0.28
Dec2002 $0.25
Dec2001 $0.23
Dec2000 $0.27
Dec1999 $0.22

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.37
Dec2018 $2.10
Dec2017 $1.81
Dec2016 $1.68
Dec2015 $1.60
Dec2014 $1.46
Dec2013 $1.29
Dec2012 $1.12
Dec2011 $0.94
Dec2010 $0.80
Dec2009 $0.74
Dec2008 $0.75
Dec2007 $0.62
Dec2006 $0.51
Dec2005 $0.40
Dec2004 $0.32
Dec2003 $0.25

Recommended Reading:

Other ModernGraham posts about the company

Fastenal Co Valuation – March 2018 $FAST
Fastenal Company Valuation – July 2016 $FAST
9 Best Stocks For Value Investors This Week – 11/28/15
Fastenal Co Valuation – November 2015 Update $FAST
19 Best Stocks For Value Investors This Week – 8/29/15

Other ModernGraham posts about related companies

Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII
Standex International Corp Valuation – September 2018 $SXI
Lincoln Electric Holdings Inc Valuation – August 2018 $LECO
Regal Beloit Corp Valuation – August 2018 $RBC

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.

Deere & Co Valuation – January 2019 $DE

Company Profile (excerpt from Reuters): Deere & Company, incorporated on April 25, 1958, is engaged in equipment operations. The Company is engaged in providing financial services. The Company operates through three business segments: agriculture and turf, construction and forestry, and financial services. The agriculture and turf segment manufactures and distributes a line of agriculture and turf equipment and related service parts. The construction and forestry segment provides a line of construction equipment, and forestry machines and attachments available in the world. The financial services segment primarily finances sales and leases by the Company dealers of new and used agriculture and turf equipment and construction and forestry equipment. Its products are marketed primarily through independent retail dealer networks and retail outlets. As of October 31, 2016, the Company’s operations consisted of two geographic areas: the United States and Canada, and outside the United States and Canada.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DE – 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 $50,630,764,289 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.84 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 34.71% Pass
6. Moderate PEmg Ratio PEmg < 20 19.76 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.55 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 1.84 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.30 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 $8.01
MG Growth Estimate 1.01%
MG Value $84.33
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $116.14
MG Value based on 0% Growth $68.08
Market Implied Growth Rate 5.63%
Current Price $158.28
% of Intrinsic Value 187.69%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $7.5 in 2015 to an estimated $8.01 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.63% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Deere & Company revealed the company was trading above its Graham Number of $93.83. The company pays a dividend of $2.58 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 19.76, which was below the industry average of 23.62, 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 $-39.08.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$39.08
Graham Number $93.83
PEmg 19.76
Current Ratio 1.84
PB Ratio 4.55
Current Dividend $2.58
Dividend Yield 1.63%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $46,132,700,000
Total Current Liabilities $25,130,300,000
Long-Term Debt $27,237,400,000
Total Assets $70,108,000,000
Intangible Assets $4,662,700,000
Total Liabilities $58,816,800,000
Shares Outstanding (Diluted Average) 324,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.15
Oct2018 $7.24
Oct2017 $6.68
Oct2016 $4.81
Oct2015 $5.77
Oct2014 $8.63
Oct2013 $9.09
Oct2012 $7.63
Oct2011 $6.63
Oct2010 $4.35
Oct2009 $2.06
Oct2008 $4.70
Oct2007 $4.00
Oct2006 $3.59
Oct2005 $2.94
Oct2004 $2.78
Oct2003 $1.32
Oct2002 $0.67
Oct2001 -$0.14
Oct2000 $1.03
Oct1999 $0.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.01
Oct2018 $6.50
Oct2017 $6.42
Oct2016 $6.59
Oct2015 $7.50
Oct2014 $8.00
Oct2013 $7.11
Oct2012 $5.77
Oct2011 $4.68
Oct2010 $3.71
Oct2009 $3.41
Oct2008 $3.93
Oct2007 $3.34
Oct2006 $2.76
Oct2005 $2.06
Oct2004 $1.46
Oct2003 $0.76

Recommended Reading:

Other ModernGraham posts about the company

Deere & Co Valuation – March 2018 $DE
Deere & Company Valuation – June 2016 $DE
Deere & Company Valuation – January 2016 Update $DE
10 Undervalued Companies for the Defensive Dividend Stock Investor – December 2015
10 Low PE Stocks for the Defensive Investor – December 2015

Other ModernGraham posts about related companies

A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII
Standex International Corp Valuation – September 2018 $SXI
Lincoln Electric Holdings Inc Valuation – August 2018 $LECO
Regal Beloit Corp Valuation – August 2018 $RBC
Kennametal Inc Valuation – August 2018 $KMT

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.

A.O. Smith Corp Valuation – January 2019 $AOS

Company Profile (excerpt from Reuters): Robert Half International Inc. is engaged in providing specialized staffing and risk consulting services. The Company provides staffing and risk consulting services through the divisions: Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. The Company operates through three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. The temporary and consultant segment provides specialized staffing in the accounting and finance, administrative and office, information technology, legal, advertising, marketing and Web design fields. The permanent placement segment provides full-time personnel in the accounting, finance, administrative and office, and information technology fields. The risk consulting segment provides business and technology risk consulting and internal audit services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AOS – 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 $6,620,378,658 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.16 Pass
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 114.11% Pass
6. Moderate PEmg Ratio PEmg < 20 23.59 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.51 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 2.16 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.22 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 $1.95
MG Growth Estimate 12.75%
MG Value $66.31
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $28.28
MG Value based on 0% Growth $16.58
Market Implied Growth Rate 7.55%
Current Price $46.01
% of Intrinsic Value 69.39%

A. O. Smith Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 $1.05 in 2014 to an estimated $1.95 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.55% 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 A. O. Smith Corp revealed the company was trading above its Graham Number of $23.34. The company pays a dividend of $0.56 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 23.59, which was below the industry average of 23.62, 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 $1.92.

A. O. Smith Corp performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.92
Graham Number $23.34
PEmg 23.59
Current Ratio 2.16
PB Ratio 4.51
Current Dividend $0.56
Dividend Yield 1.22%
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 $1,598,700,000
Total Current Liabilities $738,900,000
Long-Term Debt $193,300,000
Total Assets $3,025,200,000
Intangible Assets $812,600,000
Total Liabilities $1,269,000,000
Shares Outstanding (Diluted Average) 172,085,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.52
Dec2017 $1.70
Dec2016 $1.85
Dec2015 $1.58
Dec2014 $1.14
Dec2013 $0.92
Dec2012 $0.86
Dec2011 $1.64
Dec2010 $0.61
Dec2009 $0.59
Dec2008 $0.45
Dec2007 $0.48
Dec2006 $0.41
Dec2005 $0.26
Dec2004 $0.20
Dec2003 $0.29
Dec2002 $0.31
Dec2001 $0.10
Dec2000 $0.21
Dec1999 $0.30
Dec1998 $0.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.95
Dec2017 $1.59
Dec2016 $1.45
Dec2015 $1.24
Dec2014 $1.05
Dec2013 $0.98
Dec2012 $0.95
Dec2011 $0.92
Dec2010 $0.54
Dec2009 $0.48
Dec2008 $0.41
Dec2007 $0.37
Dec2006 $0.31
Dec2005 $0.24
Dec2004 $0.23
Dec2003 $0.25
Dec2002 $0.23

Recommended Reading:

Other ModernGraham posts about the company

A.O. Smith Corp Valuation – March 2018 $AOS
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Best Dividend Paying Stocks for Dividend Growth Investors – March 2017
Best Dividend Paying Stocks for Dividend Growth Investors – February 2017
Best Dividend Paying Stocks for Dividend Growth Investors – January 2017

Other ModernGraham posts about related companies

Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII
Standex International Corp Valuation – September 2018 $SXI
Lincoln Electric Holdings Inc Valuation – August 2018 $LECO
Regal Beloit Corp Valuation – August 2018 $RBC
Kennametal Inc Valuation – August 2018 $KMT
SPX Corp Valuation – August 2018 $SPXC

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.

Parker-Hannifin Corp Valuation – January 2019 $PH

Company Profile (excerpt from Reuters): Parker-Hannifin Corporation, incorporated on December 30, 1938, is a manufacturer of motion and control technologies and systems, providing precision engineered solutions for a range of mobile, industrial and aerospace markets. The Company operates through segments: Diversified Industrial and Aerospace Systems. The Diversified Industrial Segment is an aggregation of several business units, which manufacture motion-control and fluid power system components for builders and users of various types of manufacturing, packaging, processing, transportation, agricultural, construction, and military vehicles and equipment. The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on domestic commercial, military and general aviation aircrafts.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PH – 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 $20,028,374,412 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.60 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 48.03% Pass
6. Moderate PEmg Ratio PEmg < 20 18.33 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.34 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.17 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 $8.26
MG Growth Estimate 3.15%
MG Value $122.19
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $119.74
MG Value based on 0% Growth $70.19
Market Implied Growth Rate 4.91%
Current Price $151.33
% of Intrinsic Value 123.84%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $6.83 in 2015 to an estimated $8.26 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Parker-Hannifin Corp revealed the company was trading above its Graham Number of $101.81. The company pays a dividend of $2.74 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 18.33, which was below the industry average of 23.62, 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 $-29.85.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$29.85
Graham Number $101.81
PEmg 18.33
Current Ratio 1.60
PB Ratio 3.34
Current Dividend $2.74
Dividend Yield 1.81%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

 

ModernGraham tagged articles Morningstar
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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $5,298,082,000
Total Current Liabilities $3,308,521,000
Long-Term Debt $4,313,221,000
Total Assets $15,425,042,000
Intangible Assets $7,441,245,000
Total Liabilities $9,317,936,000
Shares Outstanding (Diluted Average) 134,664,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.41
Jun2018 $7.83
Jun2017 $7.25
Jun2016 $5.89
Jun2015 $6.97
Jun2014 $6.87
Jun2013 $6.26
Jun2012 $7.45
Jun2011 $6.37
Jun2010 $3.40
Jun2009 $3.13
Jun2008 $5.53
Jun2007 $4.68
Jun2006 $3.71
Jun2005 $3.35
Jun2004 $1.94
Jun2003 $1.12
Jun2002 $0.75
Jun2001 $1.97
Jun2000 $2.21
Jun1999 $1.89

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.26
Jun2018 $7.11
Jun2017 $6.71
Jun2016 $6.53
Jun2015 $6.83
Jun2014 $6.53
Jun2013 $6.01
Jun2012 $5.65
Jun2011 $4.71
Jun2010 $3.95
Jun2009 $4.17
Jun2008 $4.41
Jun2007 $3.55
Jun2006 $2.72
Jun2005 $2.09
Jun2004 $1.50
Jun2003 $1.39

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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.

Dover Corp Valuation – January 2019 $DOV

Company Profile (excerpt from Reuters): Dover Corporation, incorporated on April 22, 1947, is a diversified global manufacturer, delivering equipment and components, specialty systems, consumable supplies, software and digital solutions and support services. The Company operates through four segments: Energy, Engineered Systems, Fluids and Refrigeration & Food Equipment. The Company’s customers include businesses supplying the waste and recycling, agricultural, defense, energy, automotive and commercial refrigeration industries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DOV – 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 $10,506,709,846 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 20.29% Fail
6. Moderate PEmg Ratio PEmg < 20 16.29 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.91 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.24 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 $4.41
MG Growth Estimate -1.32%
MG Value $25.84
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $63.91
MG Value based on 0% Growth $37.46
Market Implied Growth Rate 3.90%
Current Price $71.80
% of Intrinsic Value 277.84%

Dover Corp 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 $4.83 in 2014 to an estimated $4.41 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.9% 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 Dover Corp revealed the company was trading above its Graham Number of $50.79. The company pays a dividend of $1.82 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.29, which was below the industry average of 23.62, 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 $-21.78.

Dover Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$21.78
Graham Number $50.79
PEmg 16.29
Current Ratio 1.30
PB Ratio 3.91
Current Dividend $1.82
Dividend Yield 2.53%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

 

ModernGraham tagged articles Morningstar
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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $2,459,049,000
Total Current Liabilities $1,890,305,000
Long-Term Debt $2,981,923,000
Total Assets $8,461,770,000
Intangible Assets $4,915,448,000
Total Liabilities $5,713,836,000
Shares Outstanding (Diluted Average) 149,457,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.05
Dec2017 $5.15
Dec2016 $3.25
Dec2015 $5.46
Dec2014 $4.59
Dec2013 $5.78
Dec2012 $4.41
Dec2011 $4.74
Dec2010 $3.70
Dec2009 $1.91
Dec2008 $3.12
Dec2007 $3.26
Dec2006 $2.74
Dec2005 $2.50
Dec2004 $2.02
Dec2003 $1.44
Dec2002 -$0.60
Dec2001 $1.22
Dec2000 $2.54
Dec1999 $4.41
Dec1998 $1.69

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.41
Dec2017 $4.67
Dec2016 $4.52
Dec2015 $5.10
Dec2014 $4.83
Dec2013 $4.67
Dec2012 $3.94
Dec2011 $3.58
Dec2010 $2.98
Dec2009 $2.65
Dec2008 $2.93
Dec2007 $2.68
Dec2006 $2.14
Dec2005 $1.66
Dec2004 $1.27
Dec2003 $1.20
Dec2002 $1.33

Recommended Reading:

Other ModernGraham posts about the company

Dover Corp Valuation – March 2018 $DOV
Dover Corporation Valuation – July 2016 $DOV
Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
13 Best Stocks For Value Investors This Week – 12/12/15

Other ModernGraham posts about related companies

Caterpillar Inc Valuation – November 2018 $CAT
Lindsay Corp Valuation – October 2018 $LNN
Lennox International Inc Valuation – October 2018 $LII
Standex International Corp Valuation – September 2018 $SXI
Lincoln Electric Holdings Inc Valuation – August 2018 $LECO
Regal Beloit Corp Valuation – August 2018 $RBC
Kennametal Inc Valuation – August 2018 $KMT
SPX Corp Valuation – August 2018 $SPXC
AGCO Corp Valuation – August 2018 $AGCO
John Bean Technologies Corp Valuation – August 2018 $JBT

Disclaimer:

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

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