Feature Value Investing Weekly

14 Companies in the Spotlight This Week – 10/11/14

image (7)We evaluated 14 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)

220px-Aetna_logo_2012Aetna Inc. qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only initial concern is the low current ratio.  The Enterprising Investor qualifies by default despite concerns 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 feel comfortable proceeding with 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 $3.38 in 2010 to an estimated $5.41 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.28% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

Agilent Technologies (A)

500px-Agilent.svgAgilent Technologies qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the lack of earnings stability over the last ten years, the short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor has no 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. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.60 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.68% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

BorgWarner Inc. (BWA)

220px-BorgWarner.svgBorgWarner is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, the lack of stable dividend payments over the last ten years, and the high PB ratio.  The Enterprising Investor’s only initial concern is 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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.99 in 2010 to an estimated $2.78 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.49% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

CareFusion Corporation (CFN)

Care_Fusion_LogoCareFusion is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns regarding the short earnings history, the lack of dividend payments and the high PEmg ratio.  The Enterprising Investor’s only initial 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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.26 in 2010 to an estimated $1.66 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 9.65% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

Leucadia National Corporation (LUK)

220px-Leucadia-logoLeucadia National Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, lack of earnings stability over the last ten years, and the poor dividend history.  The Enterprising Investor’s only initial concern is 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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.20 in 2010 to an estimated $1.85 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.87% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)

The Good (Defensive or Enterprising and Fairly Valued)

Biogen Idec Inc. (BIIB)

Biogen Idec qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns regarding the lack of dividend payments and the high PEmg and PB ratios.  The Enterprising Investor’s only initial 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. From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.04 in 2010 to an estimated $8.18 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 15.74% 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.  (Read the full valuation)

Family Dollar Stores Inc. (FDO)

Family Dollar is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns regarding the low current ratio and the high PEmg and PB ratios, while 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 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 $2.06 in 2010 to an estimated $3.35 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.42% 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.  (Read the full valuation)

The Hershey Company (HSY)

The Hershey Company is suitable 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.  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 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 $2.24 in 2010 to an estimated $3.55 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.99% 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.  (Read the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

Alexion Pharmaceuticals (ALXN)

Alexion Pharmaceuticals qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns including the lack of earnings stability or growth over the last ten years, the lack of dividend payments and the high PEmg and PB ratios.  The Enterprising Investor’s only initial 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. As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.17 in 2010 to an estimated $2.21 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 33.73% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

DTE Energy Company (DTE)

DTE Energy 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 qualifies for Enterprising Investors by default despite concerns regarding the company’s level of debt relative to current assets.  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.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.17 in 2010 to an estimated $4.07 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.22% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

EQT Corporation (EQT)

EQT qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low level of earnings growth over the last ten years along with the high PEmg and PB ratios while the Enterprising Investor is concerned with 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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.64 in 2010 to an estimated $2.49 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 13.66% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

Sysco Corporation (SYY)

Sysco Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the poor current ratio, the lack of earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor has no 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. From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.80 in 2010 to only an estimated $1.82 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.13% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)

The Bad (Speculative and Undervalued or Fairly Valued)

Alliance Data Systems Corporation (ADS)

Alliance Data Systems does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the lack of dividend payments and the high PEmg and PB ratios while the Enterprising Investor is concerned with the level of debt relative to the net current assets and the lack of dividends.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.07 in 2010 to an estimated $8.39 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 10.85% 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.  (Read the full valuation)

The Ugly (Speculative and Overvalued)

Mr. Market

CME Group Inc. (CME)

CME Group does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, lack of sufficient earnings growth over the last ten years and the high PEmg ratio while the Enterprising Investor is concerned 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 at this time.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.95 in 2010 to an estimated $3.14 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 8.67% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read 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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