15 Companies in the Spotlight This Week – 7/5/14

image (7)We evaluated 15 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research. We also put each company through the ModernGraham valuation model based on Benjamin Graham’s value investing formulas in order to determine an intrinsic value for each. Here’s a summary of the ModernGraham Valuations. To see a listing and screenings of all the valuations, be sure to sign up to be a premium subscriber!

The Elite (Defensive or Enterprising and Undervalued)

Aetna Inc. (AET)

Aetna is suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor’s only concern with the company is the low current ratio and despite the Enterprising Investor’s concerns with the level of debt relative to the current assets, the company qualifies for the investor type by default. 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 it to other opportunities such as through a review of ModernGraham’s valuation of UnitedHealth Group Inc. (UNH) and ModernGraham’s valuation of Cigna Corp (CI). As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.20 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 1.22% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.  (See the full valuation)

Agilent Technologies (A)

Agilent Technologies qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the lack of earnings stability over the last ten years, the short dividend record, and the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’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 and comparing it to other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.73 in 2014. This level of demonstrated growth supports the market’s implied estimate of 6.37% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation)

Carefusion Corp. (CFN)

Carefusion is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the short earnings history, lack of dividend payments, and the high PEmg ratio. The Enterprising Investor’s only concern is 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 comparing it to other opportunities such as through a review of ModernGraham’s valuation of C.R. Bard Inc. (BCR) . As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.26 in 2014. This level of demonstrated growth supports the market’s implied estimate of 5.81% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Coach Inc. (COH)

Coach qualifies for either the Defensive Investor or the Enterprising Investor. The Defensive Investor’s only concern with the company is the short dividend history while the company passes all of the requirements of the Enterprising Investor. 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 it to other opportunities such as through a review of ModernGraham’s valuation of Ralph Lauren (RL). As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.20 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 1.22% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.  (See the full valuation)

Motorola Solutions Inc. (MSI)

Motorola Solutions qualifies for the Enterprising Investor but not the Defensive Investor. The only requirements of the Defensive Investor which the company passes are the size and the current ratio requirements. The company passes all of the Enterprising Investor’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 and comparing it to other opportunities through a review of ModernGraham’s valuation of Cisco Systems (CSCO). From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $1.92 in 2010 to an estimated $2.98 in 2014. This strong level of demonstrated growth outpaces the market’s implied estimate of 6.94% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.  (See the full valuation)

Qualcomm Inc. (QCOM)

Qualcomm is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios, but the company passes all of the 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 and comparing it to other opportunities.  From a valuation side of things, the company appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.64 in 2010 to an estimated $3.68 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 6.48% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price. (See the full valuation)

TJX Companies (TJX)

The TJX Companies qualify for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PB ratio, but the company passes all of the 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 and comparing it to other opportunities through a review of ModernGraham’s valuation of Nordstrom Inc. (JWN) and ModernGraham’s valuation of Urban Outfitters (URBN).  From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.30 in 2011 to an estimated $2.69 for 2015.  This strong level of demonstrated growth outpaces the market’s implied estimate of 5.55% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)

The Good (Defensive or Enterprising and Fairly Valued)

C.R. Bard (BCR)

C.R. Bard qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’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 and comparing it to other opportunities. As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.53 in 2010 to an estimated $7.13 in 2014. This level of demonstrated growth supports the market’s implied estimate of 5.83% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Family Dollar Stores (FDO)

Family Dollar qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio and the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’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 and comparing it to other opportunities such as through a review of ModernGraham’s valuation of Dollar General (DG). As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.26 in 2014. This level of demonstrated growth supports the market’s implied estimate of 5.81% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Raytheon Corp (RTN)

Raytheon is suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor’s only concern is the low current ratio, and the company passes all of the requirements of the Enterprising Investor. 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 it to other opportunities through a review of ModernGraham’s valuation of The Boeing Company (BA) and ModernGraham’s valuation of L3 Communications (LLL). As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.36 in 2010 to an estimated $6.00 for 2014. This level of growth supports the market’s implied estimate of 3.62% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

Biogen IDEC (BIIB)

Biogen qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the short dividend record and the high PEmg and PB ratios, while the Enterprising Investor’s only concern is 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 comparing it to other opportunities such as through a review of ModernGraham’s valuation of Abbvie (ABBV) and ModernGraham’s valuation of Pfizer Inc. (PFE). This level of demonstrated growth does not support the market’s implied estimate of 16.96% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.  (See the full valuation)

Schlumberger Ltd. (SLB)

Schlumberger Limited qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’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 and comparing it to other opportunities. As for a valuation, the company appears to be overvalued after despite growing its EPSmg (normalized earnings) from $3.47 in 2010 to an estimated $4.70 in 2014. This level of demonstrated growth does not support the market’s implied estimate of 8.26% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation)

Sysco Corporation (SYY)

Sysco Corporation qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio, lack of sufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor’s only major 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 comfortable proceeding with further research into the company and comparing it to other opportunities. As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.80 in 2010 to only an estimated $1.84 in 2014. This level of demonstrated growth supports the market’s implied estimate of 5.83% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)

The Bad (Speculative and Undervalued or Fairly Valued)

The Ugly (Speculative and Overvalued)

Mr. MarketVertex Pharmaceuticals (VRTX)

Vertex Pharmaceuticals does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor has major concerns with the lack of earnings stability over the last ten years, the lack of dividends, the insufficient earnings growth, and the high PEmg and PB ratios. The Enterprising Investor has concerns with the lack of dividend payments and the insufficient earnings stability over the last five years. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities such as through a review of ModernGraham’s valuation of Johnson & Johnson (JNJ) and ModernGraham’s valuation of Bristol-Myers Squibb (BMY). As for a valuation, the company appears significantly overvalued considering it has not earned a profit in all but one of the last ten years. Such a demonstrated result does not fare well in the ModernGraham valuation model, based on Benjamin Graham’s valuation formula.  (See the full valuation)

Waste Management (WM)

Waste Management does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns with the level of debt relative to the current assets and the lack of earnings growth over the last five years. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities. From a valuation side of things, the company appears significantly overvalued after seeing its EPSmg (normalized earnings) drop from $2.07 in 2010 to only $1.58 for 2014. This demonstrated drop in earnings definitely does not support the market’s implied estimate of 9.96% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.  (See the full valuation)

Disclaimer: The author held a long position in Apple Inc. (AAPL), Deere & Co. (DE), and Dover Corp (DOV), 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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