Feature Value Investing Weekly

20 Companies in the Spotlight This Week – 8/16/14

image (7)We evaluated 19 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)

Eastman Chemical Company (EMN)

200px-Eastman_Chemical_Company_logo.svgEastman Chemical Company qualifies for either the Defensive Investor or the Enterprising Investor.  In fact, the only requirement of either investor type which the company does not pass is the Enterprising Investor’s requirement of low debt to net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of The Dow Chemical Company (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 $5.63 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 2.84% 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)

Eaton Corporation (ETN)

220px-Eaton_Color_logoEaton Corporation is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio and the lack of sufficient earnings growth over the last ten years.  The Enterprising Investor is only concerned with the high level of debt relative to the current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with 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 $2.49 in 2010 to an estimated $3.88 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.47% 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)

Fidelity National Information Services (FIS)

320px-FidelityNatlInfoFidelity National is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio and the high PEmg ratio.  The Enterprising Investor is only concerned 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 research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Visa Inc. (V).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.10 in 2010 to an estimated $2.13 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 8.70% 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)

Lincoln National Corporation (LNC)

LfglogoLincoln National is suitable for Enterprising Investor but not for Defensive Investors.  The Defensive Investor is concerned by the insufficient earnings stability or growth over the last ten years, though 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 undervalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $4.18 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.94% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

UnitedHealth Group (UNH)

UnitedHealth_Group_logoUnitedHealth Group is suitable for the Defensive Investor and therefore is also suitable for the Enterprising Investor.  The Defensive Investor’s only initial concern is the low current ratio, and the Enterprising Investor is willing to overlook concerns about 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 feel comfortable proceeding with 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 $3.36 in 2010 to an estimated $5.24 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.53% 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)

Unum Group Inc. (UNM)

Unum-logoUnum Group qualifies for either the Defensive Investor or the Enterprising Investor after passing all of the requirements of each investor type.  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 Aflac Inc. (AFL).  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $2.25 in 2010 to only an estimated $2.99 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.47% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

Yahoo Inc. (YHOO)

200px-Yahoo!_logo.svgYahoo Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns regarding the company’s lack of dividend payments, insufficient growth over the last ten years, and the high PEmg and PB ratios.  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 research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Microsoft Corporation (MSFT) and ModernGraham’s valuation of Google Inc. (GOOG).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.57 in 2010 to an estimated $1.47 for 2014.  This level of demonstrated growth outpaces  the market’s implied estimate of 8.03% 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)

Ace Limited (ACE)

Ace Limited qualifies for either the Defensive Investor or the Enterprising Investor.  In fact, the company achieves the rare feat of passing all of the requirements of both investor types.  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.  As for a valuation, the company appears fairly valued after growing its EPSmg (normalized earnings) from $7.24 in 2010 to an estimated $8.67 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 1.72% 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)

Danaher Corporation (DHR)

Danaher Corporation is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only initial concern with the company is the high PEmg ratio, while the Enterprising Investor has no initial concerns.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Thermo Fisher Scientific (TMO).  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.09 in 2010 to an estimated $3.43 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.66% 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)

Flowserve Corporation (FLS)

Flowserve Corporation is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the lack of dividend payments, and the high PEmg and PB ratios.  The Enterprising Investor has no major initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with 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 $2.20 in 2010 to an estimated $3.23 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.03% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well within a safety margin relative to the price.  (See the full valuation)

Hess Corporation (HES)

Hess Corporation is suitable for either Defensive Investors or Enterprising Investors.  The Defensive Investor’s only concern is the low current ratio and the Enterprising Investor’s only issue is with the 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 comfortable proceeding with research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Chevron Corporation (CVX).  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $5.38 in 2010 to an estimated $6.67 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.23% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well within a safety margin relative to the price.  (See the full valuation)

The Travelers Companies (TRV)

The Travelers Companies qualifies for either the Defensive Investor or the Enterprising Investor.  In fact, the company achieves the rare feat of passing all of the requirements of both investor types.  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.  As for a valuation, the company appears fairly valued after growing its EPSmg (normalized earnings) from $6.19 in 2010 to an estimated $7.57 for 2014.  This level of demonstrated growth supports 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 within a margin of safety relative to the market price.  (See the full valuation)

Varian Medical Systems Inc. (VAR)

Varian Medical Systems is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the lack of dividend payments, and the high PEmg and PB ratios.  The Enterprising Investor is also concerned with the lack of dividend payments, but has no other initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with 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 $2.52 in 2010 to an estimated $3.80 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.96% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well within a safety margin relative to the price.  (See the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

H&R Block Inc. (HRB)

H&R Block qualifies  for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio, the lack of sufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor’s only issue is with the low current ratio.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Intuit Inc. (INTU).  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to only $1.56 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 6.42% 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)

Nike Inc. (NKE)

Nike Incorporated is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the 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 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 $1.70 in 2010 to only $2.60 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 10.55% 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)

Berkshire Hathaway (BRK.B)

Berkshire Hathaway does not qualify for either the Defensive Investor or the Enterprising Investor because it does not pay dividends.  The company passes all of the remaining requirements of each investor type.  Warren Buffett has stated many times that the lack of dividend payments is because he believes he can achieve a higher rate of return than his individual investors; however, dividends remain an essential part of value investing.  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 fairly valued after growing its EPSmg (normalized earnings) from $4.40 in 2010 to only an estimated $6.61 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 5.65% 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)

Denbury Resources Inc. (DNR)

Denbury Resources does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has major concerns with the current ratio, the short dividend history, and the lack of sufficient earnings stability over the last ten years.  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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.66 in 2010 to an estimated $1.12 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.11% 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)

Kansas City Southern (KSU)

Kansas City Southern does not qualify for the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the lack of a long dividend history, and the high PEmg and PB ratios.  The Enterprising Investor’s concern is 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 opportunites.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.21 in 2010 to an estimated $3.60 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.24% 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)

Mr. MarketConAgra Foods Inc. (CAG)

ConAgra Foods does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns about the low current ratio, the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the net 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 overvalued after seeing its EPSmg (normalized earnings) drop from $1.40 in 2010 to only $1.32 for 2014.  This demonstrated drop in earnings 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)

McCormick & Company (MKC)

McCormick & Company does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns about the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the 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 explore other opportunities.  From a valuation side of things, the company appears overvalued after growing its EPSmg (normalized earnings) from $2.11 in 2010 to only an estimated $2.90 for 2014.  This low level of demonstrated growth in earnings does not support the market’s implied estimate of 7.62% 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.

 

 

 

 

 

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.

Back To Top