Feature Value Investing Weekly

18 Companies in the Spotlight This Week – 5/17/14

image (7)We looked at 18 different companies this week.  Here’s a summary of the ModernGraham Valuations.  For more detailed analysis, click on the name of the company.  Yesterday we also screened all 290 companies in the database to find the 5 Highest Dividend Yields Among Undervalued Defensive Companies.  We also introduced a new valuation index, where you can view all companies reviewed by ModernGraham.  To see more screens of the valuations, be sure to sign up to be a premium subscriber of ModernGraham Stocks and Screens!

The Elite (Defensive or Enterprising and Undervalued)

  • 200px-Eastman_Chemical_Company_logo.svgEastman Chemical Co. (EMN) – Eastman Chemical Co. is suitable for both Defensive Investors and Enterprising Investors.  The Defensive Investor’s only concern is with the high PB ratio, while the Enterprising Investor’s concern lies with the high level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to other opportunities such as E I Du Pont de Nemours and Co. (DD) and Dow Chemical Corp. (DOW).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $5.64 for 2014.  This strong level of demonstrated growth surpasses the market’s implied estimate of 3.36% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • PeoplesUnitedBankPeople’s United Financial (PBCT) – People’s United Financial is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the high PEmg ratio, but the company passes all of the requirements for 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 and comparing the company to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from a $0.34 in 2010 to an estimated $0.71 for 2014.  This level of demonstrated growth surpasses the market’s implied estimate of 5.81% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price at this time.

 

  • UnitedHealth_Group_logo (1)UnitedHealth Group (UNH) – UnitedHealth Group is suitable for both Defensive Investors and Enterprising Investors.  The company passes all of the Defensive Investor’s requirements except the current ratio, and even though the Enterprising Investor is concerned with the high level of debt relative to current assets, the company qualifies for both investor types because it is suitable for Defensive Investors.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.36 in 2010 to an estimated $5.24 in 2014.  This level of demonstrated growth exceeds the market’s implied estimate of 3.11% earnings growth and leads the ModernGraham to calculate an estimate of intrinsic value that is well above the price.

 

  • 200px-Yahoo!_logo.svgYahoo Inc. (YHOO) – Yahoo Inc. is suitable for Enterprising Investors but not Defensive Investors.  The Defensive Investor is concerned with the lack of dividend payments as well as the high PEmg and PB ratios.  The Enterprising Investor is also concerned with the lack of dividend payments, but the company passes all of the investor type’s other 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 and its competitors, including a review of Microsoft Corp (MSFT) and Google Inc. (GOOG).  As for the valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.57 in 2010 to an estimated $1.54 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 6.82% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

The Good (Defensive or Enterprising and Fairly Valued)

  • Ace Limited (ACE) – Ace Limited is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, which is a rare accomplishment.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities such as through a review of Aflac Inc. (AFL)Chubb Corporation (CB) and Unum Group (UNM).  From a valuation side of things, the company appears fairly valued after growing its EPSmg (normalized earnings) from $7.24 in 2010 to an estimated $8.60 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 1.72% 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.

 

  • ConAgra Foods Inc. (CAG) – ConAgra Foods is suitable for both Defensive Investors and Enterprising Investors.  The company passes all of the Defensive Investor’s requirements except the current ratio, and even though the Enterprising Investor is concerned with the high level of debt relative to current assets, the company qualifies for both investor types because it is suitable for Defensive Investors.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.40 in 2010 to an estimated $1.82 in 2014.  This level of demonstrated growth, while rather low, is supportive of the market’s implied estimate of 4.4% earnings growth and leads the ModernGraham to calculate an estimate of intrinsic value that falls within a margin of safety relative to the price.

 

  • Fidelity National Information Services (FIS) – Fidelity National is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio, lack of sufficient earnings growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor’s only concern is the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to other opportunities such as Visa Inc. (V) and Discover Financial Services (DFS).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.10 in 2010 to an estimated $1.89 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 9.98% 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.

 

  • Hess Corporation (HESS) – Hess Corp is suitable for both Defensive Investors and Enterprising Investors.  The Defensive Investor’s only concern is the low current ratio, and while the Enterprising Investor is concerned about the level of debt relative to current assets, since the company qualifies for Defensive Investors, it by default also qualifies for Enterprising Investors.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors, including a review of Chevron Corporaion (CVX) and Exxon Mobil (XOM).  From a valuation side of things, the company appears fairly valued after growing its EPSmg (normalized earnings) from $5.38 in 2010 to an estimated $6.59 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 2.39% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a safety margin relative to the price.

 

  • Travelers Companies (TRV) – Travelers Companies is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, which is a rare accomplishment.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities.  From a valuation side of things, the company appears fairly valued after growing its EPSmg (normalized earnings) from $6.19 in 2010 to an estimated $7.49 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 1.95% 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.

 

  • Varian Medical Systems (VAR) – Varian Medical Systems Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  Defensive Investors are concerned with the lack of dividend payments and the high PEmg and PB ratios.  Enterprising Investors also find the lack of dividend payments concerning.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to other opportunities such as General Electric (GE).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.52 in 2010 to an estimated $3.87 for 2014.  This demonstrated level of growth supports the market’s implied 6.33% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is within a margin of safety relative to the price.

 

  • Visa Inc. (V) – Visa is suitable for Enterprising Investors but not yet for Defensive Investors.  The Defensive Investor has a number of requirements that need ten years of existence as a publicly traded company, and while Visa has been around for a very long time, it has not been publicly traded for all that long.  However, Enterprising Investors have a shorter time horizon, and the company passes all of the requirements 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 into the company and its competitors.  From a valuation standpoint, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.00 in 2010 to an estimated $6.44 for 2014.  This level of demonstrated growth is in line with the market’s implied estimate of 11.84% 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)

  • Netflix Inc. (NFLX) – Netflix is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor has significant concerns regarding the low current ratio, the lack of dividend payments, and the exceptionally high PEmg and PB ratios.  The Enterprising Investor is willing to accept more risk, though, and is only concerned with the lack of dividend payments.  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.  From a valuation side of things, the company appears to be very significantly overvalued after growing its EPSmg (normalized earnings) from $1.96 in 2010 to only an estimated $2.22 for 2014.  This low level of demonstrated growth is in stark contrast to the market’s implied estimate of 73.36% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is way below the market price.

 

  • Nike Inc. (NKE) – Nike Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The company passes all of the requirements of the Enterprising Investor, but the PEmg and PB ratios are too high for Defensive Investors.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears overvalued after growing its EPSmg (normalized earnings) from $1.70 in 2010 to an estimated $2.58 for 2014.  This is level of demonstrated growth does not support the market’s implied estimate of 9.97% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that falls below the price.

The Bad (Speculative and Undervalued or Fairly Valued)

  • Iron Mountain Inc. (IRM) – Iron Mountain Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  In fact, the only requirement of the Defensive Investor which the company passes is the market cap size.  Likewise, the Enterprising Investor has significant concerns with the lack of earnings stability over the last five years and the high level of debt relative to current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation perspective, the company appears fairly valued after growing its EPSmg (normalized earnings) from $0.42 in 2010 to an estimated $0.85 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 11.65% 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.

 

  • McKesson Corp (MCK) – McKesson Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, lack of earnings stability over the last ten years, and the high PEmg and PB ratios, while the Enterprising Investor is concerned with the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of Cardinal Health (CAH) and 5 Undervalued Companies for the Defensive Investor.  From a valuation side of things, the company appears fairly valued after growing its EPSmg (normalized earnings) from $3.57 in 2010 to $6.27 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 9.96% 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 Ugly (Speculative and Overvalued)

Mr. Market

  • Gamestop Corp (GME) – Gamestop Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, lack of sufficient earnings stability or growth over the last ten years, and the high PEmg ratio.  Meanwhile, the Enterprising Investor has concerns with the low current ratio, and the lack of sufficient earnings stability or growth over the five year period.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities such as Apple Inc. (AAPL).  From a valuation side of things, the company appears to be significantly overvalued after seeings its EPSmg (normalized earnings) drop from $1.92 in 2010 to $1.41 for 2014.  This demonstrated drop in earnings leads the ModernGraham valuation model to return an estimate of intrinsic value well below the market price.

 

  • Intercontinental Exchange Group (ICE) – Intercontinental Exchange Group is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, the short dividend record, and the high PEmg ratio.  The Enterprising Investor has significant concerns with the high level of debt relative to current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation perspective, the company appears overvalued after growing its EPSmg (normalized earnings) from $4.37 in 2010 to an estimated $6.77 for 2014.  This demonstrated level of growth does not support the market’s implied estimate of 9.84% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the price.

 

  • Kinder Morgan Inc. (KMI) – Kinder Morgan does not have a long enough operating history as a publicly traded company to qualify for either the Defensive Investor or the Enterprising Investor; however, it is still useful for value investors to take a brief look at the company and keep it on the radar for the future.  In the meantime, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the lack of earnings data for more than 4 years prohibits the ModernGraham valuation model from determining an estimate of intrinsic value; however, the market is currently implying an estimate of 12.26% earnings growth.  If one does not believe the company will achieve that growth rate, the price would appear to be overvalued.

Disclaimer:  The author 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.

2 thoughts on “18 Companies in the Spotlight This Week – 5/17/14

    1. Scott,

      Thanks for the comment. I’m glad you like the site! Right now I’m working my way through the S&P 500, but later this year I’ll start looking at other companies too.

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