17 Companies in the Spotlight This Week – 7/19/14

image (7)We evaluated 17 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)

Capital One Financial (COF)

Capital One is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned by the lack of sufficient earnings growth over the last ten years, 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 explore other opportunities through a review of ModernGraham’s valuation of Discover Financial Services (DFS) and ModernGraham’s Valuation of American Express (AXP).  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $3.90 in 2010 to an estimated $6.96 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 1.78% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the market price.  (See the full valuation)

HCP Inc. (HCP)

logoHCP Inc. is a rare REIT which qualifies for the Defensive Investor and thus also the Enterprising Investor.  The Defensive Investor’s only concern at this time is the low current ratio and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the Defensive Investor is satisfied.  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.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $0.66 in 2010 to an estimated $2.12 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 5.52% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

Lennar Corporation (LEN)

Lennar_corporation_logoLennar Corporation qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings stability and growth over the last ten years. The Enterprising Investor has no major concerns at this time. 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 including a review of ModernGraham’s valuation of D&R Horton (DHI). From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $3.23 in 2010 to an estimated gain of $2.10 for 2014. This level of demonstrated growth is greater than the market’s implied estimate of 5.34% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value greater than the price.  (See the full valuation)

Petsmart Inc. (PETM)

header-logo_no_tagPetsmart qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio and the high PB ratio. The Enterprising Investor has no issues presently as the company passes all of the investor type’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. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.75 in 2011 to an estimated $3.67 for 2015. This level of demonstrated growth is greater than the market’s implied estimate of 5.27% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above than the price.  (See the full valuation)

SLM Corporation (SLM)

Sallie_Mae_logo_2009SLM Corporation is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the lack of stable earnings over the last ten years and the lack of consistent dividend payments over the last ten years.  However, the company passes all of the Enterprising Investor’s requirements and the investor type thus has no significant initial concerns. 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 ModernGraham’s valuation of Discover Financial Services (DFS).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.28 in 2010 to an estimated $1.53 for 2014.  This level of demonstrated growth supports the market’s implied estimate of negative 1.52% 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)

The Good (Defensive or Enterprising and Fairly Valued)

Covidien plc (COV)

Covidien will be acquired by Medtronic in the very near future, in a fair deal.  Medtronic is assuming the role of an Enterprising Investor, as Covidien qualifies for that investor type but not the Defensive Investor.  The Defensive Investor has concerns with the lack of earnings stability over the last ten years, the lack of a strong dividend history, and the high PEmg and PB ratios at this time, while the Enterprising Investor is only concerned by the high level of debt relative to the net current assets.  As for a valuation, the company appears fairly valued at the price Medtronic is offering, after growing its EPSmg (normalized earnings) from $2.18 in 2010 to an estimated $3.71 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.07% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling within a margin of safety in relation to the price.  (See the full valuation)

Dow Chemical Company (DOW)

Dow Chemical qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings growth over the last ten years and the high PEmg ratio. The Enterprising Investor’s only issue is with 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 including a review of ModernGraham’s valuation of Exxon Mobil (XOM) and ModernGraham’s valuation of Monsanto (MON). From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.41 in 2010 to only an estimated $2.35 for 2014. This level of demonstrated growth does not support the market’s implied estimate of 6.73% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below than the price.  (See the full valuation)

Eli Lilly & Co. (LLY)

Eli Lilly & Company is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio, lack of stable earnings over the last ten years, and high PB ratio.  However, the company passes all of the Enterprising Investor’s requirements and the investor type thus has no significant initial concerns. 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 ModernGraham’s valuation of Bristol-Myers Squibb (BMY) and ModernGraham’s valuation of Pfizer Inc. (PFE).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.72 in 2010 to an estimated $3.63 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.41% 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)

Nordstrom Inc. (JWN)

Nordstrom qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio and the high PB ratio. The Enterprising Investor’s only issue is with 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 including a review of ModernGraham’s valuation of Macy’s (M) and ModernGraham’s valuation of The TJX Companies (TJX). From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.37 in 2011 to an estimated $3.58 for 2015. This level of demonstrated growth supports the market’s implied estimate of 5.21% 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)

Roper Industries (ROP)

Roper Industries qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the high PEmg and PB ratios while the Enterprising Investor is only concerned by 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. From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.91 in 2010 to an estimated $5.30 for 2014. This level of demonstrated growth supports the market’s implied estimate of 9.39% 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)

FLIR Systems Inc. (FLIR)

FLIR Systems qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the short dividend history and the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’s initial requirements.  As a result, Enterprising Investors following the ModernGraham approach, which is based on Benjamin Graham’s methods, should feel comfortable conducting further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of L-3 Communications (LLL) and ModernGraham’s valuation of Raytheon Company (RTN).  As for a valuation, the company appears overvalued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to only an estimated $1.39 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 7.9% 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)

Microchip Technology Inc. (MCHP)

Microchip Technology is suitable for the Enterprising Investor but not the Defensive Investor, who has concerns with the lack of earnings stability over the last ten years and the high PEmg and PB ratios.  The Enterprising Investor, on the other hand, has no major concerns as the company passes all of the investor type’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 Analog Devices Inc. (ADI).  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.31 in 2010 to only $1.47 in 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 12.23% 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)

The Bad (Speculative and Undervalued or Fairly Valued)

Invesco Ltd. (IVZ)

Invesco is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio and the high PEmg ratio, while the Enterprising Investor has concerns with the 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.08 in 2010 to an estimated $1.89 for 2014.  This level of earnings growth is greater than the market’s implied estimate of 5.84% 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)

Kroger Company (KR)

Kroger Company is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the high PB ratio 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 ModernGraham’s valuation of Whole Foods Market (WFM).  From a valuation standpoint, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.32 in 2011 to an estimated $2.66 for 2015. This level of demonstrated growth is greater than the market’s implied estimate of 5.03% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above than the price.  (See the full valuation)

Nielsen N.V. (NLSN)

Nielsen is not suitable for either the Defensive Investor or the Enterprising Investor.  In fact, the only thing the Defensive Investor likes about the company is the fact that it has a market cap greater than $2 billion.  The Enterprising Investor has significant concerns with the 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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from a loss of $0.52 in 2010 to an estimated gain of $1.32 for 2014.  This level of earnings growth supports the market’s implied estimate of 14.16% 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)

Starwood Hotels & Resorts (HOT)

Starwood Hotels & Resorts is not suitable for either the Defensive Investor or the Enterprising Investor.  In fact, the only things the Defensive Investor likes about the company are the fact that it has a market cap greater than $2 billion and the fact that its dividend record.  The Enterprising Investor has significant concerns with the 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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.49 in 2010 to an estimated $2.62 for 2014.  This level of earnings growth supports the market’s implied estimate of 11.63% 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 Ugly (Speculative and Overvalued)

McGraw Hill Financial Inc. (MHFI)

Mr. MarketMcGraw Hill does not qualify for the Defensive Investor or the Enterprising Investor.  The Defensive Investor has issues with the low current ratio, the lack of earnings stability over the last ten years, and the high PEmg and PB ratios.  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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.56 in 2010 to only an estimated $3.04 in 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 9.21% 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)

Disclaimer: The author did not hold a position in any of the 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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Comments

One response to “17 Companies in the Spotlight This Week – 7/19/14”

  1. Dear Dividend Avatar

    Thanks for the analysis. I just added HCP to my portfolio the other day. Seemed like a safe place to go.

    Regards,
    Dear Dividend

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