Noble Corporation plc (NE) Annual Valuation – 2014

NobleBenjamin 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 5 Undervalued Companies for the Defensive Investor.  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 Noble Corporation fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Noble Corporation plc is an offshore drilling contractor for the oil and gas industry. The Company performs contract drilling services through its subsidiaries. As of January 30, 2014, the Company had a fleet of 77 offshore drilling units (including two ultra-deepwater drill ships and four high-specification jackup). Its offshore drilling services are located globally, including in the United States Gulf of Mexico and Alaska, Mexico, Brazil, the North Sea, the Mediterranean, West Africa, the Middle East, India, Malaysia and Australia.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

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

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $29.70
MG Opinion Overvalued
Value Based on 3% Growth $39.36
Value Based on 0% Growth $23.07
Market Implied Growth Rate 1.22%
Net Current Asset Value (NCAV) -$24.90
PEmg 10.94
Current Ratio 1.32
PB Ratio 0.93

Balance Sheet – 12/31/2013

Current Assets $1,390,900,000
Current Liabilities $1,051,900,000
Total Debt $5,556,300,000
Total Assets $16,218,000,000
Intangible Assets $0
Total Liabilities $7,895,400,000
Outstanding Shares 261,250,000

Earnings Per Share

2013 $3.09
2012 $2.07
2011 $1.47
2010 $3.05
2009 $6.48
2008 $5.85
2007 $4.48
2006 $2.67
2005 $1.08
2004 $0.55

Earnings Per Share – ModernGraham

2013 $2.71
2012 $2.95
2011 $3.68
2010 $4.69
2009 $5.04
2008 $3.86



Noble Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The company has a current ratio too low and has not paid dividends consistently for ten straight years, which when those two things are combined eliminates the company from contention for Defensive Investors.  As for the Enterprising Investor, the company’s level of debt is too high relative to its current assets and it has not shown sufficient growth over the last five years.  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 Ensco (ESV) and 5 Outstanding Dow Components.  From a valuation perspective, the company’s lack of growth in EPSmg (normalized earnings), which have dropped from $5.04 in 2009 to $2.71 in 2013 is troubling.  The market is currently implying a growth rate of 1.22% in earnings, and even though that is low, it is not supported by the recent history.  The ModernGraham valuation model has accordingly returned an estimate of intrinsic value that falls well 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 Noble Corporation (NE)?  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.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Noble Corporation (NE) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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