Feature Value Investing Weekly

17 Companies in the Spotlight This Week – 8/2/14

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)

Helmerich & Payne (HP)

logo_HPIHelmerich & Payne qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios while 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.39 in 2010 to an estimated $5.65 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.08% 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)

International Paper Co. (IP)

500px-International_Paper.svgInternational Paper is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, lack of earnings stability or sufficient growth over the last ten years, and the high PB ratio.  The Enterprising Investor’s only initial concern is the 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 undervalued after growing its EPSmg (normalized earnings) from $0.85 in 2010 to an estimated $2.78 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.74% 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)

Mattel Inc. (MAT)

200px-Mattel-brand.svgMattel qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the high PB ratio, while the Enterprising Investor has no concerns.  Therefore, 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 including a review of ModernGraham’s valuation of Hasbro Inc. (HAS).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.53 in 2010 to an estimated $2.21 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.72% 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)

Northrop Grumman Corp (NOC)

northrop_grumman_logoNorthrop Grumman qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor has concerns regarding the low current ratio and the lack of earnings stability over the last ten years, but 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 comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Lockheed Martin (LMT) and ModernGraham’s valuation of Raytheon Corp (RTN).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.77 in 2010 to an estimated $8.08 for 2014.  This low level of demonstrated growth outpaces the market’s implied estimate of 3.39% 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)

U.S. Bancorp (USB)

500px-U.S._Bancorp_logo.svgU.S. Bancorp is suitable for the Enterprising Investor as the company passes all of the investor type’s requirements, but is not suitable for the Defensive Investor as it has shown insufficient growth in earnings over the last ten years.  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 Fifth Third Bancorp (FITB) and ModernGraham’s valuation of JP Morgan Chase (JPM).  From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.66 in 2010 to an estimated $2.82 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.33% 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)

Wells Fargo & Company (WFC)

500px-Wells_Fargo_Bank.svgWells Fargo qualifies for either Defensive Investors or for Enterprising Investors.  In fact, 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 it to other opportunities through a review of ModernGraham’s valuation of Fifth Third Bancorp (FITB) and ModernGraham’s valuation of JP Morgan Chase (JPM).  From a valuation perspective, the company appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2010 to an estimated $3.56 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 3.00% 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)

Whole Foods Market Inc. (WFM)

500px-Whole_Foods_Market_logo.svgWhole Foods Market is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, lack of a stable dividend record, and high PEmg and PB ratios.  The Enterprising Investor has no initial 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 including a review of ModernGraham’s valuation of Kroger (KR).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.56 in 2010 to an estimated $1.31 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 9.83% 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 Good (Defensive or Enterprising and Fairly Valued)

Cisco Systems Inc. (CSCO)

Cisco Systems qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue is with the short dividend history, while the Enterprising Investor has no initial concerns with the company.  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 including a review of ModernGraham’s valuation of Microsoft (MSFT).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.20 in 2010 to an estimated $1.65 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.40% 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)

Fastenal Co. (FAST)

Fastenal is suitable 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 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 including a review of ModernGraham’s valuation of W.W. Grainger (GWW).  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.80 in 2010 to an estimated $1.45 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.03% 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)

Joy Global Inc. (JOY)

Joy Global qualifies for both the Defensive Investor and the Enterprising Investor.  The company achieves the rare feat of passing all of the requirements of both investor types, and as a result there are no initial concerns.  Therefore, 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 including a review of ModernGraham’s valuation of Caterpillar Inc. (CAT).  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.89 in 2010 to an estimated $4.87 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.20% 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)

Kohls Corporation (KSS)

Kohls Cororation is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio and the short dividend history while 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 comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Macy’s Inc. (M) and ModernGraham’s valuation of Nordstrom (JWN).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.33 in 2011 to an estimated $4.11 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 2.00% 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)

Principal Financial Group (PFG)

Principal Financial Group is suitable for the Enterprising Investor as the company passes all of the investor type’s requirements, but is not suitable for the Defensive Investor as it has shown insufficient growth in earnings over the last ten years.  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 Aflac Inc. (AFL).  From a valuation side of things, the company appears fairly valued after growing its EPSmg (normalized earnings) from $2.18 in 2010 to an estimated $3.12 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.80% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.  (See the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

Corning Inc. (GLW)

Corning Inc. is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s main concern at this point is the short dividend history while the Enterprising Investor is concerned with 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 feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of 3M Company (MMM).  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.01 in 2010 to only an estimated $1.43 for 2014. Clearly, this demonstrated drop in earnings does not support the market’s implied estimate of 3.43% 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)

Fluor Corporation (FLR)

Fluor qualifies for the Enterprising Investor but not the Defensive Investor, who has concerns with the low current ratio and the high PEmg and PB ratios at this time.  The company passes all of the Enterprising Investor’s requirements, though.  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 Jacobs Engineering Group (JEC).  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.95 in 2010 to only an estimated $3.52 for 2014. This level of demonstrated growth does not support the market’s implied estimate of 6.54% 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)

Legg Mason Inc. (LM)

Legg Mason is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the poor earnings stability and lack of growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor’s only concern is the lack of earnings stability over the last five years.  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 Citigroup (C) and ModernGraham’s valuation of Franklin Resources (BEN). From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from a loss of $2.06 in 2010 to an estimated $0.68 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 33.05% 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)

Mead Johnson Nutrition (MJN)

Mead Johnson is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio, poor earnings stability over the last ten years, short dividend history and the high PEmg and PB ratios.  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 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 overvalued after growing its EPSmg (normalized earnings) from $2.51 in 2010 to an estimated $3.12 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 10.94% 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)

The Bad (Speculative and Undervalued or Fairly Valued)

No companies met these criteria this week.

The Ugly (Speculative and Overvalued)

Mr. MarketGeneral Motors Inc. (GM)

General Motors is not suitable for either Defensive Investors or Enterprising Investors.  The Defensive Investor has a multitude of concerns including the low current ratio, the lack of earnings stability or growth over the last ten years, and the short dividend record.  The Enterprising Investor is concerned with the high 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 through a review of ModernGraham’s valuation of Ford Motor Company (F).  From a valuation side of things, the company appears to be significantly overvalued after seeing its EPSmg (normalized earnings) drop from $20.45 in 2010 to an estimated $3.01 for 2014.  This demonstrated drop in earnings does not support the market’s implied estimate of 1.58% 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 held a long position in Ford Motor Company (F) 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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