We looked at 15 different companies this week.  Here’s a summary of the ModernGraham Valuations.  For more detailed analysis, click on the name of the company.  To see screens of all of our valuations, be sure to get a copy of this month’s edition of ModernGraham Stocks and Screens, which was just released this week!
The Elite (Defensive or Enterprising and Undervalued)
Cisco Systems Inc. (CSCO) - Cisco Systems, Inc. looks very good for both the Defensive Investor and the Enterprising Investor, and has even improved upon the state we found the company when it was last reviewed in November 2013.  The company passes all of the requirements of the Defensive Investor except for the dividend history, as the company only recently began paying a dividend.  In addition, all five of the requirements of the Enterprising Investor are satisfied.  As a result, value investors following the ModernGraham approach should feel comfortable proceeding with further research to determine whether Cisco is right for their individual portfolio.  One recommended research technique would be to compare Cisco to competitors such as by reviewing the ModernGraham valuation of Microsoft (MSFT) and the ModernGraham valuation of Hewlett-Packard Co. (HPQ).  From a valuation perspective, the company has grown EPSmg (normalized earnings) from $1.11 in 2009 to an estimated $1.63 for 2013.  This level of growth is very solid, and outpaces the market’s implied growth rate of 2.46%.  The ModernGraham valuation model returns an intrinsic value that surpasses the market’s price, demonstrating that the company seems to be undervalued at the present time.
Gannett Co. Inc. (GCI) - Gannett is an intriguing company for Enterprising Investors, after having passed every requirement of the investor type except the debt to current assets requirement.  The company does not qualify for Defensive Investors, however, because of the current ratio being too low, and the lack of earnings stability or sufficient growth over the ten year period.  As a result, Enterprising Investors should feel very comfortable proceeding with further research to determine if Gannett is suitable for their individual portfolios, keeping in mind the 7 Key Tips to Value Investing.  From purely a valuation standpoint, the company appears undervalued, after growing EPSmg (normalized earnings) from -$6.63 in 2008 to an estimated $1.93 for 2013.  This level of growth significantly outpaces the market’s current implied estimate of growth (2.87%), and the ModernGraham valuation model indicates a value around $74.
The Good (Defensive or Enterprising and Fairly Valued)
- Harman International Industries (HAR) - Harman International Industries performs fairly well in the ModernGraham system.  The company is not suitable for Defensive Investors, after failing every requirement other than the market cap, but is suitable for Enterprising Investors, who are capable of undertaking substantial research and accepting slightly more risk.  The company passes all five of the requirements of the Enterprising Investor, and these value investors seeking to follow Benjamin Graham’s methods should feel comfortable proceeding with further research, such as a review of ModernGraham’s valuation of Apple (AAPL).  From a valuation perspective, the ModernGraham valuation model returns an intrinsic value that indicates the market price is within the margin of safety.  The company’s EPSmg (normalized earnings) have grown from -$0.53 in 2010 to an estimated $3.11 for 2013.  This strong level of growth is in line with the market’s implied estimate of 12.39%.  Therefore, the company is fairly valued.
- Intercontinental Exchange Group Inc. (ICE) - Intercontinental Exchange Group has demonstrated an excellent level of earnings growth, and its financial statements indicate a company that is suitable for Enterprising Investors.  The company does not qualify for Defensive Investors because of a low current ratio, lack of a dividend payment history, and high PEmg and PB ratios.  Enterprising Investors are not quite as picky, though, and the company only fails the Enterprising Investor’s current ratio requirement.  As a result, value investors falling into the Enterprising Investor category and seeking to follow Benjamin Graham’s methods should feel comfortable proceeding with further research into the company to determine whether it is suitable for their individual portfolio.  One source of additional research may be to review other companies that pass the ModernGraham requirements.  From a valuation perspective, the company has grown its EPSmg (normalized earnings) from $2.90 in 2008 to an estimated $7.03 for 2013.  This is a very solid level of growth that falls in line with what the market is currently implying as an estimate.  Accordingly, the ModernGraham valuation model returns an intrinsic value that is within the margin of safety as the market price and the company appears to be fairly valued.
- Loews Corporation (L) - Loews Corporation is an intriguing company for Enterprising Investors and should be added to their watch lists.  The company is not suitable for the Defensive Investor, having achieved insufficient earnings growth and stability over the ten year historical period.  Enterprising Investors look over a shorter time horizon, though, and should be very pleased with Loews Corporation’s financials.  Those who determine themselves to be Enterprising Investors after considering the definitions of each investor type should feel comfortable proceeding with further research to determine if the company is right for their individual portfolios.  From a valuation perspective, the company has grown its EPSmg (normalized earnings) from $1.68 in 2009 to an estimated $2.39 for 2013.  While this is not a huge level of growth, it does support the market’s implied growth rate of 4.85%, and the ModernGraham valuation model considers the company to be fairly valued.
- People’s United Financial (PBCT) - People’s United Financial is an excellent company for Enterprising Investors to keep on their watch list.  Defensive Investors are not as interested, due to the high PEmg ratio and the lack of earnings stability over the ten year historical period.  Enterprising Investors should feel very comfortable with the company, and should go ahead with further research into whether it would be suitable for their individual portfolios.  This research could include a review of other banks such as by reviewing ModernGraham’s valuation of JP Morgan (JPM) and ModernGraham’s valuation of Wells Fargo (WFC).  From a valuation standpoint, People’s United has grown its EPSmg (normalized earnings) from $0.40 in 2009 to $0.61 for 2013.  This level of growth supports the market’s implied growth estimate of 7.15%, and the ModernGraham valuation model returns an intrinsic value that is within our safety margin of the market’s current price, so the company would appear to be fairly valued.  It should also be noted that this company has a strong dividend yield, which may be attractive to Enterprising Investors.
The Mediocre (Defensive or Enterprising and Overvalued)
- E I Du Pont De Nemours and Co. (DD) - Du Pont is a solid company for Enterprising Investors to have on their watch list, but not Defensive Investors.  For Defensive Investors, the company’s current ratio is just a little too low, the company has not sufficiently grown its earnings over the ten year period, and the company is trading at high PEmg and PB ratios.  Enterprising Investors, on the other hand, could not be happier as the company has passed all of the requirements of this investor type.  As a result, value investors seeking to follow the Enterprising Investor portion of the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research, including a review of ModernGraham’s analysis of Dow Chemical (DOW).  From a valuation side of things, Du Pont has grown its EPSmg (normalized earnings) from $2.46 in 2009 to $3.01 for 2013.  This level of growth does not quite support the market’s current implied growth estimate of 6.02%, and accordingly the ModernGraham valuation model returns an intrinsic value that is less than the market’s current price.  Therefore, the company appears to be overvalued at the present time.
- Fastenal Co. (FAST) - Fastenal is a great company that should be on the radar of all Enterprising Investors.  The company may not be suitable for Defensive Investor at the current time because it is trading at high PEmg and PB ratios, but the company passes all of the requirements of the Enterprising Investor.  As a result, these investors seeking to follow Benjamin Graham’s teachings should keep Fastenal on their watch lists as they compare the company to other investment opportunities, such as by reviewing some other companies that pass the ModernGraham requirements.  Looking at the company through the ModernGraham valuation model, the company has grown its EPSmg (normalized earnings) from $0.75 in 2008 to a $1.29 for 2013.  This is a solid level of growth, but it lags behind the market’s implied growth rate of 12.84%.  As a result, the intrinsic value appears to be lower than the market’s current price, and the company appears to be overvalued.
- Kellogg Co. (K) - Kellogg company has a very good history of raising its dividend, but alone isn’t enough to qualify the company for either the Defensive Investor or the Enterprising Investor.  The company doesn’t qualify for the Defensive Investor because of the low current ratio and the high PB ratio.  For the Enterprising Investor, the disqualifying factor is the high level of debt relative to the current assets.  While debt can be good for a company and there are plenty of companies that are very solid and financially strong with low current ratios, the ModernGraham approach requires a specific level of current ratio because it is a useful metric for eliminating some companies from the investment horizon.  Value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods, should seek other opportunities by reviewing a list of companies that pass the ModernGraham requirements.  From a valuation perspective, Kellogg looks slightly overvalued.  The company’s EPSmg (normalized earnings) have grown from $2.69 in 2008 to an estimated $3.30 for 2013, a strong level of growth that trails the market’s current implied estimate for growth.  The ModernGraham valuation model returns an intrinsic value estimate of $41.80 based on the historically demonstrated growth, which is below the current market price.
The Bad (Speculative and Undervalued or Fairly Valued)
- Jabil Circuit Inc. (JBL) - Jabil Circuit has seen a strong level of growth since they posted a significant loss in 2009; however, the company is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the problem is the low current ratio, the lack of earnings stability, and the lack of earnings growth over the ten year period.  For the Enterprising Investor, the only problem is the level of debt relative to current assets.  As a result, value investors seeking to follow the ModernGraham interpretation of Benjamin Graham’s methods should seek other opportunities, through a review of companies that pass the ModernGraham requirements.  From strictly a valuation perspective, Jabil looks pretty good.  The company’s EPSmg (normalized earnings) have grown from -$1.46 in 2009 to an estimated $1.41 for 2014.  This demonstrated growth surpasses what the market is estimating, and indicates the company may be undervalued.
- Macy’s, Inc. (M) - Macy’s, Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The company’s current ratio is too low, it hasn’t had earnings stability over the ten year period, and the PB ratio is too high for the Defensive Investor.  For the Enterprising Investor, the debt level relative to the current assets is too high.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities by reviewing companies that pass the ModernGraham requirements.  From strictly a valuation perspective, the company has significantly grown EPSmg from -$2.35 in 2009 to an estimated $3.05 for 2014.  This solid level of growth outpaces the market’s current implied estimate for earnings growth of 4.09%, and the ModernGraham valuation model returns an intrinsic value that is well above the market price; but investors should be very cautious as the company presents a little more risk than is acceptable to Intelligent Investors.
The Ugly (Speculative and Overvalued)
- Noble Energy Inc. (NBL) - Noble Energy, Inc. does not meet the standards of the Defensive Investor or the Enterprising Investor.  The company has not had earnings stability or growth over the ten year horizon, has a very poor current ratio, and trades at a high PEmg ratio.  All of these factors combined eliminate the company from contention for the Defensive Investor.  For the Enterprising Investor, the company holds too much debt relative to its current assets, and has not had stable earnings over the five year time period.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities by reviewing companies that pass the ModernGraham requirements.  The results of the ModernGraham valuation model are also poor, as the company’s intrinsic value appears to be considerably less than the market price.  The company’s EPSmg (normalized earnings) have only grown from $1.83 in 2009 to an estimated $2.18 for 2013.  This level of growth does not even come close to supporting the market’s current implied estimate of over 10% growth for the company.  Accordingly, the company does not appear to be a good value opportunity at this time.
- Owens-Illinois Inc. (OI) - Owens-Illinois Inc. fares very poorly in the ModernGraham analysis, having passed only one requirement of the Defensive Investor and only one requirement of the Enterprising Investor.  As such, the company presents a risk level that is too great for value investors following the ModernGraham approach based on Benjamin Graham’s methods, and they should seek other opportunities by reviewing companies that pass the ModernGraham requirements.  From the valuation side of things, the company has failed to achieve much growth in its EPSmg (normalized earnings), having gone from $0.40 in 2008 to $0.85 for 2013.  The market is currently implying a growth estimate of over 14%, which is clearly not supported by the historical growth rate.  Even if the company were to achieve a modest level of growth, 3% annually, the intrinsic value based on the current EPSmg would remain considerably less than the market’s price level.  As a result, the company appears to be overvalued at the present time.
- QEP Resources (QEP) - QEP Resources does not qualify for either the Defensive Investor or the Enterprising Investor because it does not have a long enough history as an individual company.  Without at least five years of operating history on its own, investors are left to speculate about how the company would have performed prior to its spin-off.  As a result, investors should take note of the company and analyze it as much as possible, but keep it on a watch list until there is further information.  In the meantime, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities, such as through a review of companies that pass the ModernGraham requirements.  From a valuation perspective, even though there is not enough information to generate a solid estimate for growth, speculators will note that based on the current EPSmg (normalized earnings), and a growth rate of 3%, the company would only be worth $17.58 under the ModernGraham valuation model.
- Ryder System Inc. (R) - Ryder System, Inc. is not suitable for either Defensive Investors or Enterprising Investors.  The company’s current ratio is far too low for Defensive Investors, and it has not sufficiently grown its earnings over the ten year period.  For Enterprising Investors, the company holds too much debt relative to its current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities, such as through a review of companies that pass the ModernGraham requirements.  From strictly a valuation side of things, the company’s EPSmg (normalized earnings) have grown from $3.10 in 2009 to $3.76 for 2013.  This level of demonstrated historical growth lags behind the market’s implied estimate for growth of 5.11%.  As a result, the ModernGraham valuation model returns an intrinsic value that is below the price at which the market currently trades, and the company appears to be overvalued.
Disclaimer: Â The author did not hold a position in any of the companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.
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