Northern Trust Corp Valuation – March 2019 #NTRS

Company Profile (excerpt from Reuters): Northern Trust Corporation, incorporated on August 23, 1971, is a financial holding company. The Company provides asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals around the world. The Company’s segments include Corporate & Institutional Services (C&IS), Wealth Management, and Treasury and Other. The Company conducts its business through various subsidiaries, including The Northern Trust Company (Bank). The Asset Management business, through the Company’s subsidiaries, supports the C&IS and Wealth Management segments by providing a range of asset management and related services, and other products to customers around the world.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NTRS – 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $20,238,028,921 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 121.45% Pass
5. Moderate PEmg Ratio PEmg < 20 16.36 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.95 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 $5.66
MG Growth Estimate 10.34%
MG Value $165.23
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $82.12
MG Value based on 0% Growth $48.14
Market Implied Growth Rate 3.93%
Current Price $92.66
% of Intrinsic Value 56.08%

Northern Trust Corporation 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 $3.35 in 2015 to an estimated $5.66 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.93% 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 Northern Trust Corporation revealed the company was trading above its Graham Number of $78.3. The company pays a dividend of $1.94 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 16.36, which was below the industry average of 21.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Northern Trust Corporation performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Graham Number $78.30
PEmg 16.36
PB Ratio 1.95
Dividend Yield 2.09%
TTM Dividend $1.94
Number of Consecutive Years of Dividend Growth 7

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $11,303,000,000
Total Assets $132,212,500,000
Intangible Assets $669,300,000
Total Liabilities $121,704,200,000
Shares Outstanding (Diluted Average) 221,469,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.20
Dec2018 $6.64
Dec2017 $4.92
Dec2016 $4.32
Dec2015 $3.99
Dec2014 $3.32
Dec2013 $2.99
Dec2012 $2.81
Dec2011 $2.47
Dec2010 $2.74
Dec2009 $3.16
Dec2008 $3.47
Dec2007 $3.24
Dec2006 $3.00
Dec2005 $2.64
Dec2004 $2.27
Dec2003 $1.80
Dec2002 $1.97
Dec2001 $2.11
Dec2000 $2.08
Dec1999 $1.74

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.66
Dec2018 $5.14
Dec2017 $4.23
Dec2016 $3.75
Dec2015 $3.35
Dec2014 $2.98
Dec2013 $2.82
Dec2012 $2.80
Dec2011 $2.86
Dec2010 $3.08
Dec2009 $3.20
Dec2008 $3.12
Dec2007 $2.83
Dec2006 $2.53
Dec2005 $2.25
Dec2004 $2.05
Dec2003 $1.94

Recommended Reading:

Other ModernGraham posts about the company

Northern Trust Corp Valuation – April 2018 $NTRS
7 Best Stocks For Value Investors This Week – 7/30/16
Northern Trust Corp Valuation – July 2016 $NTRS
18 Best Stocks For Value Investors This Week – 1/30/16
Northern Trust Corp Valuation – January 2016 Update $NTRS

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State Street Corp Valuation – January 2019 $STT

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.

Northern Trust Corp Valuation – April 2018 $NTRS

Company Profile (excerpt from Reuters): Northern Trust Corporation, incorporated on August 23, 1971, is a financial holding company. The Company provides asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals around the world. The Company’s segments include Corporate & Institutional Services (C&IS), Wealth Management, and Treasury and Other. The Company conducts its business through various subsidiaries, including The Northern Trust Company (Bank). The Asset Management business, through the Company’s subsidiaries, supports the C&IS and Wealth Management segments by providing a range of asset management and related services, and other products to customers around the world.

NTRS Chart

NTRS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NTRS – April 2018

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,554,663,257 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 81.88% Pass
5. Moderate PEmg Ratio PEmg < 20 21.48 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.33 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 $4.86
MG Growth Estimate 9.60%
MG Value $134.74
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $70.51
MG Value based on 0% Growth $41.33
Market Implied Growth Rate 6.49%
Current Price $104.46
% of Intrinsic Value 77.53%

Northern Trust Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.96 in 2014 to an estimated $4.86 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 6.49% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Northern Trust Corporation revealed the company was trading above its Graham Number of $73.19. The company pays a dividend of $1.6 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 21.48, which was below the industry average of 22.34, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Northern Trust Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Graham Number $73.19
PEmg 21.48
PB Ratio 2.33
Dividend Yield 1.53%
TTM Dividend $1.60
Number of Consecutive Years of Dividend Growth 6

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 12/1/2017
Long-Term Debt & Capital Lease Obligation $9,275,400,000
Total Assets $138,590,500,000
Intangible Assets $605,600,000
Total Liabilities $128,374,300,000
Shares Outstanding (Diluted Average) 228,050,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.80
Dec2017 $4.92
Dec2016 $4.32
Dec2015 $3.99
Dec2014 $3.32
Dec2013 $2.99
Dec2012 $2.81
Dec2011 $2.37
Dec2010 $2.74
Dec2009 $3.16
Dec2008 $3.47
Dec2007 $3.24
Dec2006 $3.00
Dec2005 $2.64
Dec2004 $2.27
Dec2003 $1.80
Dec2002 $1.97
Dec2001 $2.11
Dec2000 $2.08
Dec1999 $1.74
Dec1998 $1.52

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.86
Dec2017 $4.23
Dec2016 $3.75
Dec2015 $3.35
Dec2014 $2.96
Dec2013 $2.80
Dec2012 $2.77
Dec2011 $2.83
Dec2010 $3.08
Dec2009 $3.20
Dec2008 $3.12
Dec2007 $2.83
Dec2006 $2.53
Dec2005 $2.25
Dec2004 $2.05
Dec2003 $1.94
Dec2002 $1.97

Recommended Reading:

Other ModernGraham posts about the company

7 Best Stocks For Value Investors This Week – 7/30/16
Northern Trust Corp Valuation – July 2016 $NTRS
18 Best Stocks For Value Investors This Week – 1/30/16
Northern Trust Corp Valuation – January 2016 Update $NTRS
Northern Trust Corporation Analysis – September 2015 Update $NTRS

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Nasdaq Inc Valuation – April 2018 $NDAQ
Leucadia National Corp Valuation – March 2018 $LUK
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Cboe Global Markets Inc Valuation – Initial Coverage $CBOE
Raymond James Financial Inc Valuation – March 2018 $RJF
Marsh & McLennan Companies Inc Valuation – March 2018 $MMC
Fidelity National Information Services Inc Valuation – March 2018 $FIS
Intercontinental Exchange Inc Valuation – March 2018 $ICE
H&R Block Inc Valuation – March 2018 $HRB
Morgan Stanley Valuation – March 2018 $MS

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.

Northern Trust Corp Valuation – July 2016 $NTRS

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

Company Profile (obtained from Google Finance): Northern Trust Corporation is a financial holding company. The Company provides asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals around the world. The Company’s segments include Corporate & Institutional Services (C&IS), Wealth Management, and Treasury and Other. The Company conducts its business through various the United States and non-United States subsidiaries, including The Northern Trust Company (Bank). The Company has a network of offices in over 20 states in the United States, Washington, District of Columbia (D.C), and approximately 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. Asset Management, through the Company’s subsidiaries, supports the C&IS and Wealth Management segments by providing a range of asset management and related services, and other products to customers around the world.

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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. Here is a free sample valuation pdf, and 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 NTRS – July 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,546,618,082 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 16.41% Fail
5. Moderate PEmg Ratio PEmg < 20 18.22 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.73 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

NTRS value chart July 2016

EPSmg $3.72
MG Growth Estimate 4.94%
MG Value $68.35
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $53.90
MG Value based on 0% Growth $31.60
Market Implied Growth Rate 4.86%
Current Price $67.74
% of Intrinsic Value 99.11%

Northern Trust Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.8 in 2012 to an estimated $3.72 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 4.86% 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 within a margin of safety relative to the price.

Northern Trust Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

NTRS charts July 2016

Graham Number $60.74
PEmg 18.22
PB Ratio 1.73
Dividend Yield 2.13%
TTM Dividend $1.44
Number of Consecutive Years of Dividend Growth 5

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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 6/1/2016
Long-Term Debt $3,192,400,000
Total Assets $121,509,600,000
Intangible Assets $527,800,000
Total Liabilities $112,558,100,000
Shares Outstanding (Diluted Average) 229,197,000

Earnings Per Share History

Next Fiscal Year Estimate $4.18
Dec2015 $3.99
Dec2014 $3.32
Dec2013 $3.07
Dec2012 $2.81
Dec2011 $2.47
Dec2010 $2.74
Dec2009 $3.16
Dec2008 $3.47
Dec2007 $3.24
Dec2006 $3.00
Dec2005 $2.64
Dec2004 $2.27
Dec2003 $1.80
Dec2002 $1.97
Dec2001 $2.11
Dec2000 $2.08
Dec1999 $1.74
Dec1998 $1.52
Dec1997 $1.33
Dec1996 $1.10

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.72
Dec2015 $3.37
Dec2014 $3.00
Dec2013 $2.84
Dec2012 $2.80
Dec2011 $2.86
Dec2010 $3.08
Dec2009 $3.20
Dec2008 $3.12
Dec2007 $2.83
Dec2006 $2.53
Dec2005 $2.25
Dec2004 $2.05
Dec2003 $1.94
Dec2002 $1.97
Dec2001 $1.90
Dec2000 $1.71

Recommended Reading:

Other ModernGraham posts about the company

Northern Trust Corp Valuation – January 2016 Update $NTRS
Northern Trust Corporation Analysis – September 2015 Update $NTRS
5 Speculative and Overvalued Companies to Avoid – November 2014
20 Companies to Research This Week – 9/6/14

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CBRE Group Inc Valuation – July 2016 $CBG
Fidelity National Information Services Valuation – July 2016 $FIS
Capital One Financial Corp Valuation – July 2016 $COF
Intercontinental Exchange Inc Valuation – July 2016 $ICE
H&R Block Inc Valuation – June 2016 $HRB

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.

Northern Trust Corp Valuation – January 2016 Update $NTRS

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 Northern Trust Corp (NTRS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Northern Trust Corporation is a financial holding company. The Company provides asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals around the world. The Company’s operating segments include Corporate & Institutional Services (C&IS), Wealth Management and Treasury and Other. The Company has a network of offices in 19 states in the United States, Washington, D.C. and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. Asset Management, through the Company’s various subsidiaries, supports the C&IS and Wealth Management segments by providing a range of asset management and related services and other products to customers around the world. The Company’s subsidiary is The Northern Trust Company.

[level-free]

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

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

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

Downloadable PDF version of this valuation:

ModernGraham Valuation of NTRS

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 $13,970,330,000 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 14.18% Fail
5. Moderate PEmg Ratio PEmg < 20 16.18 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.56 Pass
Score
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

NTRS value chart January 2016

EPSmg $3.63
MG Growth Estimate 4.49%
MG Value $63.53
Opinion Fairly Valued
MG Value based on 3% Growth $52.68
MG Value based on 0% Growth $30.88
Market Implied Growth Rate 3.84%
Current Price $58.79
% of Intrinsic Value 92.54%

Northern Trust Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.80 in 2012 to an estimated $3.63 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.84% 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 within a margin of safety relative to 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 Northern Trust Corp (NTRS)?  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

NTRS charts January 2016

Graham Number $57.85
PEmg 16.18
PB Ratio 1.56
Dividend Yield 2.35%
Number of Consecutive Years of Dividend Growth 5

 

[/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 Dec15
Long-Term Debt $3,146,000,000
Total Assets $116,749,600,000
Intangible Assets $526,400,000
Total Liabilities $108,043,700,000
Shares Outstanding (Diluted Average) 231,220,000

Earnings Per Share History

Next Fiscal Year Estimate $3.95
Dec15 $4.00
Dec14 $3.32
Dec13 $2.99
Dec12 $2.81
Dec11 $2.47
Dec10 $2.74
Dec09 $3.16
Dec08 $3.47
Dec07 $3.24
Dec06 $3.00
Dec05 $2.64
Dec04 $2.27
Dec03 $1.80
Dec02 $1.97
Dec01 $2.11
Dec00 $2.08
Dec99 $1.74
Dec98 $1.52
Dec97 $1.33
Dec96 $1.11

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.63
Dec15 $3.36
Dec14 $2.98
Dec13 $2.82
Dec12 $2.80
Dec11 $2.86
Dec10 $3.08
Dec09 $3.20
Dec08 $3.12
Dec07 $2.83
Dec06 $2.53
Dec05 $2.25
Dec04 $2.05
Dec03 $1.94
Dec02 $1.97
Dec01 $1.90
Dec00 $1.71

Recommended Reading:

Other ModernGraham posts about the company

Northern Trust Corporation Analysis – September 2015 Update $NTRS
5 Speculative and Overvalued Companies to Avoid – November 2014
20 Companies to Research This Week – 9/6/14
Northern Trust Corporation Annual Stock Valuation – 2014 $NTRS

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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.

 

Northern Trust Corporation Analysis – September 2015 Update $NTRS

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how Northern Trust Corporation (NTRS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Northern Trust Corporation is a financial holding company. The Company provides asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals around the world. The Company’s operating segments include Corporate & Institutional Services (C&IS), Wealth Management and Treasury and Other. The Company has a network of offices in 19 states in the United States, Washington, D.C. and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. Asset Management, through the Company’s various subsidiaries, supports the C&IS and Wealth Management segments by providing a range of asset management and related services and other products to customers around the world. The Company’s subsidiary is The Northern Trust Company.
[level-free]

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

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

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

Downloadable PDF version of this valuation:

ModernGraham Valuation of NTRS – September 2015

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil 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 Fail
5. Moderate PEmg Ratio PEmg < 20 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $3.33
MG Growth Estimate 2.43%
MG Value $44.50
Opinion Overvalued
MG Value based on 3% Growth $48.28
MG Value based on 0% Growth $28.30
Market Implied Growth Rate 6.21%
Current Price $69.63
% of Intrinsic Value 156.47%

Northern Trust Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, as well as the high PEmg ratio.  The Enterprising Investor has no initial concerns  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.86 in 2011 to an estimated $3.33 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.21% 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 Northern Trust Corporation (NTRS)?  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

NTRS Charts September 2015

Graham Number $57.28
PEmg 20.91
PB Ratio 1.87
Dividend Yield 1.94%
Number of Consecutive Years of Dividend Growth 4

 

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

Useful Links:

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

Most Recent Balance Sheet Figures

Long-Term Debt $6,459,700,000
Total Assets $119,942,900,000
Intangible Assets $534,300,000
Total Liabilities $111,193,600,000
Shares Outstanding (Diluted Average) 235,233,000

Earnings Per Share History

Next Fiscal Year Estimate $3.92
Dec14 $3.32
Dec13 $2.99
Dec12 $2.81
Dec11 $2.47
Dec10 $2.74
Dec09 $3.16
Dec08 $3.47
Dec07 $3.24
Dec06 $3.00
Dec05 $2.64
Dec04 $2.27
Dec03 $1.80
Dec02 $1.97
Dec01 $2.11
Dec00 $2.08
Dec99 $1.74
Dec98 $1.52
Dec97 $1.33
Dec96 $1.11
Dec95 $0.93

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.33
Dec14 $2.98
Dec13 $2.82
Dec12 $2.80
Dec11 $2.86
Dec10 $3.08
Dec09 $3.20
Dec08 $3.12
Dec07 $2.83
Dec06 $2.53
Dec05 $2.25
Dec04 $2.05
Dec03 $1.94
Dec02 $1.97
Dec01 $1.90
Dec00 $1.71
Dec99 $1.46

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – November 2014
20 Companies to Research This Week – 9/6/14
Northern Trust Corporation Annual Stock Valuation – 2014 $NTRS

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Affiliated Managers Group Analysis – Initial Coverage $AMG
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SLM Corporation Analysis – August 2015 Update $SLM
Western Union Company Analysis – 2015 Update $WU
American Express Company Analysis – August 2015 Update $AXP
Main Street Capital Corporation Analysis – Initial Coverage $MAIN
BlackRock Inc. Analysis – July 2015 Update $BLK

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 review our detailed disclaimer.

Northern Trust Corporation Annual Stock Valuation – 2014 $NTRS

Northern_Trust_LogoIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how Northern Trust Corp (NTRS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Northern Trust Corporation is a financial holding company that is a provider of asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals worldwide. The Company conducts business through various United States and non-United States subsidiaries, including The Northern Trust Company (the Bank). The Company has a network of offices in 18 United States, Washington, District of Columbia, and 16 international locations in North America, Europe, the Middle East, and the Asia Pacific region. Northern Trust organizes its services globally around its two client-focused principal business units: Corporate and Institutional Services and Personal Financial Services (PFS). Two other business units provide services to the two principal business units: Northern Trust Global Investments, which provides investment management, and Operations and Technology, which provides operating and systems support.
NTRS Chart

NTRS data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 4/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. 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
  5. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $69.35
MG Value $22.45
MG Opinion Overvalued
Value Based on 3% Growth $43.54
Value Based on 0% Growth $25.52
Market Implied Growth Rate 7.30%
PEmg 23.10
PB Ratio 2.03

Balance Sheet – 6/30/2014

Total Debt $3,579,100,000
Total Assets $105,761,200,000
Intangible Assets $544,600,000
Total Liabilities $97,718,600,000
Outstanding Shares 235,580,000

Earnings Per Share

2014 (estimate) $3.29
2013 $3.07
2012 $2.85
2011 $2.50
2010 $2.76
2009 $3.19
2008 $3.53
2007 $3.24
2006 $3.00
2005 $2.64
2004 $2.26

Earnings Per Share – ModernGraham 

2014 (estimate) $3.00
2013 $2.86
2012 $2.83
2011 $2.89
2010 $3.11
2009 $3.23

Dividend History

NTRS Dividend Chart

NTRS Dividend data by YCharts

Conclusion:

Northern Trust is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years and the high PEmg ratio.  The Enterprising Investor has an issue with the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears overvalued after growing its EPSmg (normalized earnings) from $3.11 in 2010 to an estimated $3.00 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.30% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the market 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 Northern Trust Corporation (NTRS)?  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.

Disclaimer:  The author did not hold a position in Northern Trust Corporation (NTRS) or in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Moody’s Corp Valuation – March 2019 #MCO

Company Profile (excerpt from Reuters): Moody’s Corporation (Moody’s), incorporated on June 2, 2000, is a provider of credit ratings; credit, capital markets and economic related research, data and analytical tools; software solutions and related risk management services, quantitative credit risk measures, financial services training and certification services, and research and analytical services to financial institution customers. The Company operates in two segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA). The Company’s MIS segment consists of the Company’s ratings operations. The Company’s MA segment develops a range of products and services that support financial analysis and risk management activities of institutional participants in financial markets.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MCO – 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 $33,481,677,645 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.61 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 146.68% Pass
6. Moderate PEmg Ratio PEmg < 20 31.24 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 52.53 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 1.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.06 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.68
MG Growth Estimate 5.95%
MG Value $115.79
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $82.32
MG Value based on 0% Growth $48.26
Market Implied Growth Rate 11.37%
Current Price $177.38
% of Intrinsic Value 153.19%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.07 in 2015 to an estimated $5.68 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.37% 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 Moody’s Corporation revealed the company was trading above its Graham Number of $19.55. The company pays a dividend of $1.76 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 31.24, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-28.2.

Moody’s 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) -$28.20
Graham Number $19.55
PEmg 31.24
Current Ratio 1.61
PB Ratio 52.53
Current Dividend $1.76
Dividend Yield 0.99%
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 $3,386,900,000
Total Current Liabilities $2,098,500,000
Long-Term Debt $5,226,100,000
Total Assets $9,526,200,000
Intangible Assets $5,347,400,000
Total Liabilities $8,869,700,000
Shares Outstanding (Diluted Average) 194,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.08
Dec2018 $6.74
Dec2017 $5.15
Dec2016 $1.36
Dec2015 $4.63
Dec2014 $4.61
Dec2013 $3.60
Dec2012 $3.05
Dec2011 $2.49
Dec2010 $2.15
Dec2009 $1.69
Dec2008 $1.87
Dec2007 $2.58
Dec2006 $2.58
Dec2005 $1.84
Dec2004 $1.40
Dec2003 $1.19
Dec2002 $0.92
Dec2001 $0.66
Dec2000 $0.49
Dec1999 $0.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.68
Dec2018 $4.82
Dec2017 $3.86
Dec2016 $3.29
Dec2015 $4.07
Dec2014 $3.58
Dec2013 $2.91
Dec2012 $2.46
Dec2011 $2.16
Dec2010 $2.06
Dec2009 $2.04
Dec2008 $2.17
Dec2007 $2.18
Dec2006 $1.85
Dec2005 $1.39
Dec2004 $1.09
Dec2003 $0.87

Recommended Reading:

Other ModernGraham posts about the company

Moody’s Corporation – June 2018 $MCO
Moody’s Corporation Valuation – March 2017 $MCO
21 Best Undervalued Stocks of the Week – 8/27/16
Moody’s Corporation Valuation – August 2016 $MCO
Moody’s Corporation Stock Valuation – February 2016 $MCO

Other ModernGraham posts about related companies

Willis Towers Watson PLC Valuation – March 2019 #WLTW
Paypal Holdings Inc Valuation – March 2019 #PYPL
Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN
S&P Global Inc Valuation – March 2019 #SPGI
Equifax Inc Valuation – March 2019 #EFX
CME Group Inc Valuation – March 2019 #CME
Northern Trust Corp Valuation – March 2019 #NTRS
Affiliated Managers Group Inc Valuation – February 2019 $AMG

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.

Charles Schwab Corp Valuation – March 2019 #SCHW

Company Profile (excerpt from Reuters): The Charles Schwab Corporation (CSC), incorporated on November 25, 1986, is a savings and loan holding company. The Company, through its subsidiaries, engages in wealth management, securities brokerage, banking, money management and financial advisory services. The Company provides financial services to individuals and institutional clients through two segments: Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services, retirement plan services and other corporate brokerage services. The Advisor Services segment provides custodial, trading, and support services as well as retirement business services. The Company’s subsidiaries include Charles Schwab & Co., Inc. (Schwab), which is a securities broker-dealer with over 335 domestic branch offices in 46 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, England, and serves clients in Hong Kong through one of the Company’s subsidiaries, as of December 31, 2016; Charles Schwab Bank (Schwab Bank), which is a federal savings bank located in Nevada, and Charles Schwab Investment Management, Inc. (CSIM), which is the investment advisor for Schwab’s mutual funds referred to as the Schwab Funds, and Schwab’s exchange-traded funds (ETFs), referred to as the Schwab ETFs.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SCHW – 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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $55,714,926,383 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 279.10% Pass
5. Moderate PEmg Ratio PEmg < 20 19.89 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.74 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.10
MG Growth Estimate 15.00%
MG Value $80.93
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $30.48
MG Value based on 0% Growth $17.87
Market Implied Growth Rate 5.69%
Current Price $41.80
% of Intrinsic Value 51.65%

Charles Schwab Corporation Common Stock is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.89 in 2015 to an estimated $2.1 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.69% 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 Charles Schwab Corporation Common Stock revealed the company was trading above its Graham Number of $28.09. The company pays a dividend of $0.46 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 19.89, which was below the industry average of 21.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Charles Schwab Corporation Common Stock performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $28.09
PEmg 19.89
PB Ratio 2.74
Dividend Yield 1.10%
TTM Dividend $0.46
Number of Consecutive Years of Dividend Growth 3

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $6,878,000,000
Total Assets $296,482,000,000
Intangible Assets $1,379,000,000
Total Liabilities $275,812,000,000
Shares Outstanding (Diluted Average) 1,355,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.65
Dec2018 $2.45
Dec2017 $1.61
Dec2016 $1.31
Dec2015 $1.03
Dec2014 $0.95
Dec2013 $0.78
Dec2012 $0.69
Dec2011 $0.70
Dec2010 $0.38
Dec2009 $0.68
Dec2008 $1.05
Dec2007 $1.97
Dec2006 $0.95
Dec2005 $0.55
Dec2004 $0.21
Dec2003 $0.35
Dec2002 $0.08
Dec2001 $0.14
Dec2000 $0.51
Dec1999 $0.49

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.10
Dec2018 $1.71
Dec2017 $1.27
Dec2016 $1.05
Dec2015 $0.89
Dec2014 $0.78
Dec2013 $0.68
Dec2012 $0.65
Dec2011 $0.74
Dec2010 $0.84
Dec2009 $1.06
Dec2008 $1.15
Dec2007 $1.07
Dec2006 $0.56
Dec2005 $0.33
Dec2004 $0.23
Dec2003 $0.27

Recommended Reading:

Other ModernGraham posts about the company

Charles Schwab Corp Valuation – June 2018 $SCHW
Charles Schwab Corp Valuation – March 2017 $SCHW
Charles Schwab Corp Valuation – August 2016 $SCHW
27 Companies in the Spotlight This Week – 4/4/15
Charles Schwab Corporation Annual Valuation – 2015 $SCHW

Other ModernGraham posts about related companies

Willis Towers Watson PLC Valuation – March 2019 #WLTW
Paypal Holdings Inc Valuation – March 2019 #PYPL
Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN
S&P Global Inc Valuation – March 2019 #SPGI
Equifax Inc Valuation – March 2019 #EFX
CME Group Inc Valuation – March 2019 #CME
Northern Trust Corp Valuation – March 2019 #NTRS
Affiliated Managers Group Inc Valuation – February 2019 $AMG

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.

Willis Towers Watson PLC Valuation – March 2019 #WLTW

Company Profile (excerpt from Reuters): Willis Towers Watson Public Limited Company (Willis Towers Watson), incorporated on September 24, 2009, is a holding company. The Company operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services, and Towers Watson Talent and Rewards.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WLTW – 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 $22,553,439,896 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.07 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 513.26% Pass
6. Moderate PEmg Ratio PEmg < 20 26.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.31 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 1.07 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.92 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 $6.52
MG Growth Estimate 12.25%
MG Value $215.04
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $94.50
MG Value based on 0% Growth $55.40
Market Implied Growth Rate 9.15%
Current Price $174.70
% of Intrinsic Value 81.24%

Willis Towers Watson PLC 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 ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.59 in 2015 to an estimated $6.52 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 9.15% 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 Willis Towers Watson PLC revealed the company was trading above its Graham Number of $134.56. The company pays a dividend of $2.4 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 26.81, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-45.41.

Willis Towers Watson PLC 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) -$45.41
Graham Number $134.56
PEmg 26.81
Current Ratio 1.07
PB Ratio 2.31
Current Dividend $2.40
Dividend Yield 1.37%
Number of Consecutive Years of Dividend Growth 2

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $16,420,000,000
Total Current Liabilities $15,301,000,000
Long-Term Debt $4,389,000,000
Total Assets $32,385,000,000
Intangible Assets $13,783,000,000
Total Liabilities $22,414,000,000
Shares Outstanding (Diluted Average) 132,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.53
Dec2018 $5.27
Dec2017 $4.18
Dec2016 $3.04
Dec2015 $5.41
Dec2014 $5.32
Dec2013 $5.37
Dec2012 -$6.83
Dec2011 $3.05
Dec2010 $7.05
Dec2009 $6.86
Dec2008 $5.43
Dec2007 $7.36
Dec2006 $7.52
Dec2005 $4.56
Dec2004 $6.41
Dec2003 $5.75
Dec2002 $3.39
Dec2001 $0.03
Dec2000 $0.19

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.52
Dec2018 $4.56
Dec2017 $4.35
Dec2016 $3.78
Dec2015 $3.59
Dec2014 $2.71
Dec2013 $1.97
Dec2012 $1.22
Dec2011 $5.48
Dec2010 $6.75
Dec2009 $6.51
Dec2008 $6.31
Dec2007 $6.61
Dec2006 $6.00
Dec2005 $4.83
Dec2004 $4.36
Dec2003 $2.85

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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.

Paypal Holdings Inc Valuation – March 2019 #PYPL

Company Profile (excerpt from Reuters): PayPal Holdings, Inc., incorporated on January 30, 2015, is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants. The Company’s combined payment solutions, including its PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant products, compose its Payments Platform. The Company operates a two-sided global technology platform that links its customers, both merchants and consumers, around the globe to facilitate the processing of payment transactions, allowing it to connect merchants and consumers. The Company allows its customers to use their account for both purchase and paying for goods, as well as to transfer and withdraw funds. The Company enables consumers to exchange funds with merchants using a range of funding sources, which include a bank account, a PayPal account balance, a PayPal Credit account, a credit and debit card or other stored value products, such as coupons and gift cards. The Company offers consumers person-to-person (P2P) payment solutions through its PayPal Website and mobile application, Venmo and Xoom.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PYPL – 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 $119,362,281,153 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.27 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 19566.67% Pass
6. Moderate PEmg Ratio PEmg < 20 54.19 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.89 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 1.27 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.88
MG Growth Estimate 15.00%
MG Value $72.25
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $27.21
MG Value based on 0% Growth $15.95
Market Implied Growth Rate 22.84%
Current Price $101.69
% of Intrinsic Value 140.74%

Paypal Holdings 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, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the low current ratio, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.58 in 2015 to an estimated $1.88 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 22.84% 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 Paypal Holdings Inc revealed the company was trading above its Graham Number of $28.32. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 54.19, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.2.

Paypal Holdings 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) $4.20
Graham Number $28.32
PEmg 54.19
Current Ratio 1.27
PB Ratio 7.89
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 12/1/2018
Total Current Assets $32,963,000,000
Total Current Liabilities $25,904,000,000
Long-Term Debt $0
Total Assets $43,332,000,000
Intangible Assets $7,109,000,000
Total Liabilities $27,946,000,000
Shares Outstanding (Diluted Average) 1,194,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.72
Dec2018 $1.71
Dec2017 $1.47
Dec2016 $1.15
Dec2015 $1.00
Dec2014 $0.34
Dec2013 $0.78

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.88
Dec2018 $1.35
Dec2017 $1.09
Dec2016 $0.82
Dec2015 $0.58
Dec2014 $0.32
Dec2013 $0.26

Recommended Reading:

Other ModernGraham posts about the company

PayPal Holdings Inc Valuation – June 2018 $PYPL
Paypal Holdings Inc Valuation – Initial Coverage $PYPL

Other ModernGraham posts about related companies

Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN
S&P Global Inc Valuation – March 2019 #SPGI
Equifax Inc Valuation – March 2019 #EFX
CME Group Inc Valuation – March 2019 #CME
Northern Trust Corp Valuation – March 2019 #NTRS
Affiliated Managers Group Inc Valuation – February 2019 $AMG
Bank of New York Mellon Corp Valuation – February 2019 $BK
Western Union Co Valuation – February 2019 $WU

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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