Dun & Bradstreet Annual Valuation – 2014 $DNB

Benjamin 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 the 5 Highest Dividend Yields Among Undervalued Companies for the Enterprising 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 Dun & Bradstreet (DNB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Dun & Bradstreet Corporation (D&B), is the source of commercial information and insight on businesses, enabling customers to Decide with Confidence. The database is enhanced by its DUNSRight Quality Process, which transforms commercial data into valuable insight which is the foundation of its global solutions. Customers use D&B Risk Management Solutions to mitigate credit and supplier risk, increase cash flow and drive profitability; D&B Sales & Marketing Solutions to provide data management capabilities that provide marketing solutions to increase revenue from new and existing customers, and D&B Internet Solutions to convert prospects into clients by enabling business professionals to research companies, executives and industries. In April 2014, the Company acquired the social data matching business unit of Fliptop. In April 2014, Dun & Bradstreet Corp acquired Indicee, a provider of cloud-based analytics and business intelligence (BI) space. DNB Chart

DNB data by YCharts

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 = 3/5

  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 – PASS

Valuation Summary

Key Data:

Recent Price $112.38
MG Value $102.22
MG Opinion Fairly Valued
Value Based on 3% Growth $94.69
Value Based on 0% Growth $55.51
Market Implied Growth Rate 4.35%
Net Current Asset Value (NCAV) -$56.61
PEmg 17.21
Current Ratio 0.90
PB Ratio -3.89

Balance Sheet – 3/31/2014

Current Assets $781,400,000
Current Liabilities $866,900,000
Total Debt $1,513,800,000
Total Assets $1,807,200,000
Intangible Assets $763,700,000
Total Liabilities $2,875,900,000
Outstanding Shares 37,000,000

Earnings Per Share

2014 (estimate) $7.40
2013 $6.54
2012 $6.42
2011 $5.28
2010 $4.98
2009 $5.99
2008 $5.58
2007 $4.90
2006 $3.70
2005 $3.19
2004 $2.90

Earnings Per Share – ModernGraham

2014 (estimate) $6.53
2013 $6.01
2012 $5.71
2011 $5.36
2010 $5.27
2009 $5.17


Dividend History
DNB Dividend Chart

DNB Dividend data by YCharts

Conclusion:

Dun & Bradstreet does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor has concerns with the low current ratio and the short dividend history 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 such as through a review of ModernGraham’s valuation of Equifax Inc. (EFX) and ModernGraham’s valuation of Moody’s Corporation (MCO). From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $5.27 in 2010 to an estimated $6.53 for 2014. This level of demonstrated growth supports the market’s implied estimate of 4.35% 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.

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 Dun & Bradstreet (DNB)?  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.

Disclaimer:  The author did not hold a position in Dun & Bradstreet (DNB) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.


Posted

in

,

by

Tags:

Comments

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.