Feature Value Investing Weekly

14 Companies in the Spotlight This Week – 4/5/14

image (7)We looked at 14 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-Agilent.svgAgilent Technologies (A) – Agilent Technologies is a very intriguing company for Enterprising Investors, having passed all five of the investor type’s requirements.  The company does not quite qualify for the Defensive Investor due to the lack of earnings stability over the ten year period, short dividend history and the high PEmg and PB ratios.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company but should also compare it to other opportunities through a review of 5 Low PEmg Companies for the Defensive Investor and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the company looks significantly undervalued after having grown its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.74 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 6.02% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • Official_Coach_Inc_LogoCoach Inc. (COH) – Coach Inc. is a very intriguing company for Enterprising Investors, having passed all five of the investor type’s requirements.  The company does not quite qualify for the Defensive Investor due to the short dividend history and the high PB ratio.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company but should also compare it to other opportunities.  From a valuation perspective, the company looks significantly undervalued after having grown its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.19 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 3.52% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • FamilydollarlogopngFamily Dollar Stores (FDO) – Family Dollar Stores qualifies for the Enterprising Investor after passing all five of the investor type’s requirements.  The company does not qualify for the Defensive Investor at this time due to the low current ratio and the high PB ratio.  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 as well as some of its competitors for comparative purposes, including a review of ModernGraham’s valuation of Walmart Stores (WMT).  From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.41 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 4.25% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • Motorola_solutions_logoMotorola Solutions Inc. (MSI) – Motorola Solutions Inc. is not suitable for the Defensive Investor, but is suitable for the Enterprising Investor.  The company only passes the Defensive Investor’s requirements regarding size and current ratio, but the Enterprising Investor’s only concern is the lack of earnings stability over the five year period.  As a result, Enterprising Investors interested in following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors through a review of ModernGraham’s valuation of Cisco Systems (CSCO).  From a valuation standpoint, the company appears to be undervalued after raising its EPSmg (normalized earnings) from -$1.61 in 2009 to $2.65 in 2013.  This is a solid level of demonstrated growth that outpaces the market’s implied estimate of 7.88% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well above the market price.

The Good (Defensive or Enterprising and Fairly Valued)

  • C.R. Bard Inc. (BCR) – C.R. Bard Inc. is a very intriguing company for Enterprising Investors, having passed all five of the investor type’s requirements.  The company does not quite qualify for the Defensive Investor due to the high PEmg and PB ratios.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company but should also compare it to other opportunities through a review of ModernGraham’s valuation of Medtronic (MDT) and ModernGraham’s valuation of Covidien (COV).  From a valuation perspective, the company appears to be fairly valued, having exhibited solid growth in EPSmg (normalized earnings) from $3.95 in 2009 to $6.30 in 2013.  This demonstrated level of growth supports the market’s implied estimate of 7.38% earnings growth and leads the ModernGraham valuation model to estimate an intrinsic value within a margin of safety relative to the price.

 

  • Raytheon Company (RTN) – Raytheon Company is suitable for the Enterprising Investor but not the Defensive Investor.  The company does not satisfy the Defensive Investor’s current ratio requirement or the PB ratio requirement, but the only requirement it does not satisfy for the Enterprising Investor is the debt level relative to current assets.  As a result, Enterprising Investors interested in following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors through a review of ModernGraham’s valuation of Boeing Company (BA).  From a valuation side of things, the company appears to be fairly valued, having grown its EPSmg (normalized earnings) from $3.91 in 2009 to $5.51 in 2013.  This solid level of demonstrated growth supports the market’s implied estimate of 4.7% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

The Mediocre (Defensive or Enterprising and Overvalued)

  • Schlumberger Ltd (SLB) – Schlumberger Ltd passes all of the requirements of the Enterprising Investor, but does not qualify for the Defensive Investor.  The company’s current ratio is too low while the PEmg and PB ratios are too high for the Defensive Investor.  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 and its competitors through a review of 5 Undervalued Companies for the Enterprising Investor while keeping in mind the 7 Key Tips to Value Investing.  From a valuation side of things, the company appears to be overvalued.  The company’s EPSmg (normalized earnings) have grown from $3.41 in 2009 to $4.11 in 2013, a demonstrated level of growth that does not support the market’s implied estimate of 7.62% earnings growth.  The low demonstrated growth leads the ModernGraham valuation model to return an intrinsic value estimate that falls below the market price.

 

  • Sysco Corp (SYY) – Sysco Corp is a company that should be on the Enterprising Investor’s watch list, but it does not qualify for the Defensive Investor due to its low current ratio, lack of sufficient earnings growth over the ten year period, and the high PB ratio.  The company does pass all five requirements of the Enterprising Investor.  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.  From a valuation side of things, the company’s lack of growth in earnings results in an overvalued rating.  The company’s EPSmg (normalized earnings) have grown from $1.80 in 2010 to only an estimated $1.83 for 2014.  This very low level of growth does not support the market’s implied estimate of 5.50% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

The Bad (Speculative and Undervalued or Fairly Valued)

  • Amerisource Bergen (ABC) – Amerisource Bergen is not suitable for either the Defensive Investor or the Enterprising Investor at this time.  For the Defensive Investor, the company’s current ratio is too low, and it is trading at high PEmg and PB ratios.  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 explore other opportunities, through a review of ModernGraham’s valuation of Cardinal Health (CAH) and 5 Undervalued Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be fairly valued, having grown its EPSmg (normalized earnings) from $1.73 in 2010 to an estimated $2.82 for 2014.  This level of demonstrated earnings growth supports the market’s implied estimate of 7.40% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the market price.

 

  • Coca-Cola Enterprises (CCE) – Coca-Cola Enterprises does not qualify for either the Defensive Investor or the Enterprising Investor.  The company does not pass the Defensive Investor’s requirements due to a low current ratio, insufficient earnings stability or growth over the ten year period, and high PEmg and PB ratios.  The company does not qualify for the Enterprising Investor due to the high level of debt relative to the current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  In terms of a valuation, the company does appear to be undervalued after growing its EPSmg (normalized earnings) from -$1.88 in 2009 to $2.22.  This demonstrated growth represents a growth level that surpasses the market’s implied estimate of 6.51% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is above the market price.

 

  • Dollar General Corp (DG) – Dollar General Corp does not qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low, it has not demonstrated sufficient earnings stability over the ten year period, it does not have a strong enough dividend history, and it is trading at high PEmg and PB ratios.  For the Enterprising Investor, there is a high level of debt and a lack of dividends.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham’s valuation of Target Corp (TGT).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.56 in 2010 to $2.57 for 2014.  This solid level of demonstrated growth more than supports the market’s implied estimate of 6.91% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that exceeds the market price.

The Ugly (Speculative and Overvalued)

Mr. Market

  • Actavis (ACT) – Actavis is not suitable for either the Defensive Investor or the Enterprising Investor.  In fact, the company fails all five of the Enterprising Investor’s requirements and only satisfies the Defensive Investor’s requirement regarding size.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of Glance at the Dow.  From a valuation standpoint, 2013’s significant loss throws a difficult wrench into the valuation model.  Intelligent Investors are especially interested in seeking out companies that do not post losses, and at the very least companies that do not post losses so significant that they cause normalized earnings to fall negative as well.  In this case, at this time any value in Actavis must come from a source other than the earnings, as the company has not demonstrated growth or the ability to maintain stable earnings.  As a result, the ModernGraham valuation model estimates the company is presently overvalued.

 

  • Equifax Inc. (EFX) – Equifax Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low, it has not demonstrated sufficient earnings growth over the ten year period, and its PEmg and PB ratios are too high.  For the Enterprising Investor, 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 explore other opportunities through a review of 5 Outstanding Dow Components.  From a valuation side of things, the company appears to be overvalued after only growing its EPSmg (normalized earnings) from $1.98 in 2009 to $2.23 in 2013.  This low level of demonstrated growth does not support the market’s implied estimate of 11.23% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below a margin of safety relative to the price.

 

  • Zoetis Inc. (ZTS) – As a recent spin-off, Zoetis has an uphill battle in the ModernGraham approach, and contains too much speculation for Intelligent Investors.  Spin-offs inherently have speculation because of the uncertainty surrounding earnings results from before the spin-off (i.e. how does one determine how much the company would have earned as a stand-alone during that time?), and speculation is one of the greatest contributors to risk in investing.  Zoetis is no exception and is not yet suitable for either the Defensive Investor or the Enterprising Investor.  The company needs more time to demonstrate the stability needed in order to qualify for the Defensive Investor, and the company needs to improve its debt level relative to current assets in order to qualify for the Enterprising Investor.  In the meantime, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation standpoint, the company appears to be overvalued, and the market is currently implying an estimate of 17% earnings growth, a rate which is not yet supported by the demonstrated historical earnings.

Disclaimer:  The author held a long position in Coach Inc. (COH) 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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top