16 Companies in the Spotlight This Week – 3/1/14

image (7)We looked at 16 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!

The Elite (Defensive or Enterprising and Undervalued)

  • 500px-Chevron_Logo.svgChevron Corporation (CVX) - Chevron Corporation remains suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the low current ratio, and the Enterprising Investor’s only issue is the high level of debt relative to the company’s current assets.  The company passes every other requirement of the two investor types.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of ModernGraham’s valuation of Exxon Mobil (XOM), and ModernGraham’s valuation of ConocoPhillips (COP).  From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $8.09 in 2009 to $11.58 for 2013.  This is a solid level of growth that outpaces the market’s implied estimate of earnings growth of 0.68%, and the ModernGraham valuation model accordingly returns an estimate of intrinsic value that surpasses the market price by more than our margin of safety.  Therefore, the company appears to be undervalued presently.

 

  • Dover-co-logoDover Corporation (DOV) - Dover Corporation appears suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s sole gripe is the high PB ratio, and the Enterprising Investor’s only issue is the high level of debt relative to the company’s current assets.  However, these things alone are not enough to eliminate the company from contention for investment by the Intelligent Investor.  Value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research, including a review of 5 Low PEmg Companies for the Defensive Investor.  From a valuation perspective, the company appears to be undervalued after growing EPSmg (normalized earnings) from $2.83 in 2009 to $4.59 for 2013.  This level of growth outpaces the market’s implied estimate for earnings growth of 5.5%, and the ModernGraham valuation model returns an intrinsic value estimate that is above the market price, though it is barely outside our margin of safety.

 

  • 500px-J_P_Morgan_Chase_Logo_2008_1.svgJP Morgan Chase (JPM) - JP Morgan Chase is a very strong candidate for both the Defensive Investor and the Enterprising Investor.  Despite the financial crisis, the company passes all of the requirements of either investor type.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods, should feel very comfortable proceeding with further research into the company to determine whether it would fit in their individual portfolios.  This research should include a review of some competitor companies, through a review of ModernGraham’s valuation of Wells Fargo (WFC) or other companies listed in ModernGraham Stocks & Screens.  From a valuation perspective, the company appears strong after growing its EPSmg (normalized earnings) from $2.51 in 2009 to $4.41 for 2013.  This solid level of demonstrated historical growth outpaces the market’s current implied estimate for growth of 2.28%, leading the ModernGraham valuation model to return an intrinsic value estimate that is well above the market price.

 

  • 200px-Gap_logo.svgThe Gap Inc. (GPS) - The Gap Inc. is not suitable for the Defensive Investor but is suitable for the Enterprising Investor.  The Defensive Investor is not interested because of the company’s low current ratio and high PEmg ratio.  In the eyes of the Enterprising Investor, the company is very intriguing, after passing all five of the investor type’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company, though they should keep in mind the 7 Key Tips to Value Investing as they do so and review other opportunities such as 5 Low PEmg Companies for the Enterprising Investor.  From a valuation standpoint, the company has grown its EPSmg (normalized earnings) from $1.31 in 2010 to an estimated $2.20 for 2014.  This level of demonstrated historical growth outpaces the market’s current implied estimate of earnings growth of 5.7%, and the company would appear to be undervalued by the ModernGraham valuation model.

The Good (Defensive or Enterprising and Fairly Valued)

  • Genuine Parts Company (GPC) - Genuine Parts Company is suitable for the Enterprising Investor but not the Defensive Investor.  The company fails the Defensive Investor’s requirements by having a low current ratio, and high PEmg and PB ratios.  However, the company passes all of the Enterprising Investor’s requirements, and this investor type may feel comfortable proceeding with further research into the company.  In addition to researching this company, Enterprising Investors should spend some time evaluating other opportunities, such as through a review of 5 Undervalued Companies for the Enterprising Investor or 5 Low PEmg Companies for the Defensive Investor.  From a valuation perspective, the company appears to be fairly valued.  The company’s EPSmg (normalized earnings) have grown from $2.74 in 2009 to $3.85 for 2013, and this level of growth supports the market’s implied estimate of growth of 7.01%.  As a result, the ModernGraham valuation model returns an estimate of intrinsic value that is within a margin of safety in relation to the current price.

 

The Mediocre (Defensive or Enterprising and Overvalued)

  • Baxter International (BAX) - Baxter International is not suitable for the Defensive Investor, but is suitable for the Enterprising Investor.  The company’s current ratio is too low and the PB ratio is too high for the Defensive Investor.  The Enterprising Investor’s only gripe is the debt level relative to the current assets, but the investor type is willing to overlook this because the company passes the other requirements.  As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of 5 Undervalued Companies for the Enterprising Investor.  From a valuation perspective, the company has grown its EPSmg (normalized earnings) from $2.95 in 2009 to $3.67 for 2013, but this level of demonstrated historical growth does not quite support the market’s implied estimate of earnings growth of 5.24%.  As a result, the ModernGraham valuation model returns an estimate of intrinsic value that is below the current price and the company appears to be overvalued.

 

  • Bemis Company (BMS) - Bemis Company is not suitable for the Defensive Investor, but is suitable for the Enterprising Investor.  The company has not shown sufficient earnings growth over the ten year historical period and has a PEmg too high for the Defensive Investor.  The Enterprising Investor only has an issue with the company’s debt level relative to its current assets.  As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.  Such research should also include a review of some other potential investments, including 5 Undervalued Companies for the Enterprising Investor and 5 Low PEmg Companies for the Defensive Investor.  From a valuation side of things, the company has barely grown its EPSmg (normalized earnings), going from $1.60 in 2009 to $1.81 in 2013.  This low level of historically demonstrated growth does not support the market’s implied estimate of 6.51% earnings growth, and the ModernGraham valuation model therefore returns an estimate of intrinsic value that trails the market price.

 

  • Johnson and Johnson (JNJ) - Johnson and Johnson is a perennial favorite among many investors because of its solid operating history and relative stability; however, it is not suitable for Defensive Investors because of the lack of sufficient earnings growth over the ten year historical period and the high PEmg and PB ratios.  It does pass the tests for the Enterprising Investor, so it remains suitable for that investor type.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods, should feel comfortable proceeding with further research including a review of 5 Undervalued Companies for the Enterprising Investor.  As for a valuation, the company has grown its EPSmg (normalized earnings) only from $4.14 in 2009 to $4.26 for 2013.  This level of growth is insufficient to support the market’s implied estimate for earnings growth of 6.44%; a more appropriate estimate may be in the 1-2% range.  The ModernGraham valuation model returns an estimate of intrinsic value that is below the market price, and the company appears to be overvalued presently.

The Bad (Speculative and Undervalued or Fairly Valued)

  • KeyCorp (KEY) - KeyCorp is not currently suitable for either the Defensive Investor or the Enterprising Investor, primarily due to the fact the company did not fare well during the financial crisis.  In addition, the Defensive Investor requires stronger earnings growth over the ten year period and a lower PEmg ratio.  The company will most likely be suitable for the Enterprising Investor in next year’s valuation, assuming it has another year of positive earnings.  Value investors wishing to follow the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities, including reviewing ModernGraham’s valuation of Wells Fargo Corp (WFC) and ModernGraham’s valuation of JP Morgan Chase (JPM).  From strictly a valuation perspective, the company does appear to be undervalued after growing its EPSmg (normalized earnings) from -$0.61 in 2009 to $0.64 for 2013.  This level of growth outpaces the market’s implied growth estimate of 5.79%, and the ModernGraham valuation model returns an intrinsic value above the market price.

 

  • L Brands Inc. (LB) - L Brands Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The company’s current ratio is too low and the PEmg ratio is too high for the Defensive Investor.  For the Enterprising Investor, there is too much debt relative to the company’s 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 by reviewing a list of 5 Low PE Companies for the Defensive Investor or a list of 5 Undervalued Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.34 in 2010 to an estimated $2.63 for 2014.  This level of demonstrated historical growth outpaces the market’s current implied estimate for growth of 5.91%, leading the ModernGraham valuation model to return an intrinsic value estimate that surpasses the market’s current price.

 

  • Macerich Co. (MAC) - Macerich Co. fares better than most REITs in the ModernGraham approach, and nearly qualifies for the Defensive Investor; however, the company’s PEmg and PB ratios are too high for the investor type.  The company fails the requirements of the Enterprising Investor due to its high level of debt relative to its current assets.  Value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Low PEmg Companies for the Defensive Investor or 5 Undervalued Companies for the Enterprising Investor.  From a valuation perspective, the company seems to be fairly valued after growing its EPSmg (normalized earnings) from $0.99 in 2008 to $2.16 for 2013.  This level of growth is in line with the market’s implied estimate for earnings growth of 9.81%, leading the ModernGraham valuation model to return an estimate for intrinsic value that is within a margin of safety of the price.

The Ugly (Speculative and Overvalued)

Mr. Market

  • Nabors Industries (NBR) - Nabors Industries does not appear suitable for the Defensive Investor or the Enterprising Investor.  The Defensive Investor does not accept this company because of its lack of earnings stability or growth over the ten year historical period, its lack of a solid dividend record, and its high PEmg ratio.  The Enterprising Investor is turned off by the lack of earnings stability or growth over the five year historical period, along with the high level of debt relative to the company’s 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 by a review of 5 Undervalued Companies for the Enterprising Investor.  The company also fares poorly in the ModernGraham valuation model after shrinking its EPSmg (normalized earnings) from $2.49 in 2008 to $0.78 for 2013.  This lack of earnings growth history certainly does not support the market’s current implied estimate for earnings growth of 10.30%.

 

  • OneOK (OKE) - OneOK is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company fails the requirements for current ratio, earnings growth over the ten year historical period, PEmg ratio and PB ratio.  For the Enterprising Investor, the company has 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 5 Low PE Companies for the Defensive Investor or 5 Undervalued Companies for the Enterprising Investor.  As for a valuation, the company has only grown its EPSmg (normalized earnings) from $1.46 in 2008 to $1.67 for 2013.  This low level of demonstrated historical growth does not support the market’s implied estimate for earnings growth of 13.63%, and the ModernGraham valuation model returns an estimate of intrinsic value that is below the market price, indicating the company is currently overvalued.

 

  • Pitney Bowes Inc. (PBI) - Pitney Bowes is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low, there has not been sufficient earnings growth over the ten year historical period, and the PB ratio is too high.  For the Enterprising Investor, there is too much debt relative to the current assets and there has been insufficient earnings growth over the five year historical period.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities, such as by reviewing 5 Low PEmg Companies for the Defensive Investor.  From a valuation side of things, the company appears overvalued after seeing its EPSmg (normalized earnings) fall from $2.07 in 2009 to $1.76 for 2013.  This lack of growth clearly does not support the market’s implied estimate of earnings growth of 2.89%, and the ModernGraham valuation model returns an intrinsic value estimate that is much lower than the current price.

 

  • Reynolds American Inc. (RAI) - Reynolds American is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the turn-offs are the low current ratio and the high PB ratio.  For the Enterprising Investor, the problem is the high level of debt relative to the company’s current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities, such as through a review of 5 Undervalued Companies for the Enterprising Investor and 5 Low PEmg Companies for the Defensive Investor.  From strictly a valuation standpoint, the company appears to be slightly overvalued.  The company has grown its EPSmg (normalized earnings) from $1.97 in 2009 to $2.54 for 2013, but this level of demonstrated historical growth trails the market’s implied estimate of earnings growth of 5.55%.  The ModernGraham accordingly returns an estimate of intrinsic value that is lower than the market price, so the company would seem to be overvalued.

 

  • SCANA Corporation (SCG) - SCANA Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The company fails the Defensive Investor’s requirements by having a low current ratio and insufficient earnings growth over the ten year historical period.  In addition, the company has too much debt relative to its current assets for the Enterprising Investor to be interested.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities, such as by reviewing a list of 5 Low PEmg Companies for the Enterprising Investor and a list of 5 Undervalued Companies for the Enterprising Investor.  From a valuation standpoint, the company has grown its EPSmg (normalized earnings) from $2.81 in 2009 to $3.15 for 2013.  This is a low level of demonstrated growth that does not support the market’s current estimate of earnings growth in the amount of 3.56%.  The ModernGraham valuation model accordingly returns an intrinsic value estimate that is below the market price, and the company would appear to be overvalued.

Disclaimer:  The author held a long position in Ford Motor Company (F) but did not hold a position 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.

Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.


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