18 Companies in the Spotlight This Week – 10/25/14

image (7)We evaluated 18 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)

Allstate Corporation (ALL)

500px-Allstate.svgEnterprising Investors following the ModernGraham approach should keep a keen eye on Allstate and pour some time into conducting further research. The Defensive Investor may not feel the same way, with concerns regarding the lack of earnings stability or growth over the last ten years. However, Enterprising Investors have no initial concerns, and should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

The company has grown its EPSmg (normalized earnings) from $1.94 in 2010 to an estimated $4.08 for 2014. This is an outstanding level of growth, which significantly outpaces the market’s implied estimate of only 3.18%. As a result of the strong growth demonstrated historically, the ModernGraham valuation model returns an estimate of intrinsic value well above the price, supporting a clear conclusion that the company is significantly undervalued. Enterprising Investors are therefore encouraged to proceed with further research to determine whether Allstate Corporation is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Capital One Financial (COF)

500px-Capital_One_Financial_logo.svgDefensive Investors, the most conservative level of ModernGraham style investing, may not be interested in Capital One Financial due to the unstable earnings and low earnings growth over the last ten years, but Enterprising Investors should be very interested. The company passes all of the investor types’ requirements, and they should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

In recent years, the company has grown its EPSmg (normalized earnings) from $3.20 in 2010 to an estimated $6.86 for 2014. This is an outstanding level of growth, which significantly outpaces the market’s implied estimate of only 1.46%. In fact, the actual growth demonstrated by the company is greater than twenty percent. As a result of the strong growth demonstrated historically, the ModernGraham valuation model returns an estimate of intrinsic value well above the price, supporting a clear conclusion that the company is significantly undervalued. Enterprising Investors are therefore encouraged to proceed with further research to determine whether Capital One Financial is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Dow Chemical Company (DOW)

200px-Dow_Chemical_Company_logo.svgDow Chemical is suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor’s only concern is the insufficient level of earnings growth over the last ten years, while the Enterprising Investor’s only issue is with the high level of debt relative to the net current assets. However, these issues are not enough to deter either investor type from proceeding with further research. In fact, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

As for the valuation, the company has grown its EPSmg (normalized earnings) from $1.44 in 2010 to an estimated $2.40 for 2014. This demonstrated growth exceeds the market’s implied estimate of 5.33%. In fact, the demonstrated growth, after being discounted by a margin of safety, supports an estimate of 10.10% growth. As a result, the ModernGraham valuation model returns an estimate of intrinsic value well above the market price at this time, and the company appears to be undervalued by the market. Value Investors are therefore encouraged to proceed with further research to determine whether Dow Chemical is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Nvidia Corporation (NVDA)

197px-Nvidia_logo.svgNvidia should attract all Enterprising Investors with its strong financial condition as it passes all of the investor type’s requirements. The Defensive Investor should not be so keen on the company due to its insufficient level of earnings growth or stability over the last ten years, short dividend history, and high PEmg ratio. As a result, only Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

The company has grown its EPSmg (normalized earnings) from $0.33 in 2011 to an estimated $0.84 for 2015. This level of demonstrated growth is fairly strong, and outpaces the market’s implied estimate of 6.10%. Based on the demonstrated growth, and lessened by a margin of safety, the ModernGraham valuation model estimates growth over the next 7-10 years to be very high. As a result, the company appears to be significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

Petsmart Inc. (PETM)

header-logo_no_tagPetsmart is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the low current ratio and the high PB ratio. The Enterprising Investor, on the other hand, has no initial issues with the company as it has passed all of the investor type’s requirements. As a result, the Enterprising Investor should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.75 in 2011 to an estimated $3.62 for 2014. This demonstrated growth exceeds the market’s implied estimate of 5.27%. In fact, the demonstrated growth over the last several years is greater than 20% per year. Though sustaining a level of growth that high over the long-term is not likely, the company would have to see a significant drop in its growth in order to drop to the market’s estimate. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the market price at this time, and the company appears to be undervalued by the market. Value Investors are therefore encouraged to proceed with further research to determine whether Petsmart is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

SLM Corporation (SLM)

Sallie_Mae_logo_2009SLM Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s lack of earnings or dividend stability over the last ten years, while 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 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 $0.15 in 2010 to an estimated $1.57 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of negative 1.45% 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)

Torchmark Corporation (TMK)

Torchmark_LogoTorchmark is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, indicating there should be no initial concerns with the company’s financials.  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 undervalued after growing its EPSmg (normalized earnings) from $2.41 in 2010 to an estimated $3.67 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.75% 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)

Eli Lilly & Co. (LLY)

Eli Lilly qualifies for the Enterprising Investor but not the Defensive Investor due to the low current ratio, lack of earnings stability over the last ten years, and the high PB ratio. Defensive Investors should look to other opportunities while Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

The company has grown its EPSmg (normalized earnings) from $2.72 in 2010 to an estimated $3.58 for 2014. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 4.85% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.  (See the full valuation on Seeking Alpha)

Humana Inc. (HUM)

Humana qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s short dividend history while the Enterprising Investor has no initial issues with the company.  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 fairly valued after growing its EPSmg (normalized earnings) from $5.41 in 2010 to an estimated $7.56 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.36% 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)

Juniper Networks (JNPR)

Juniper Networks is an intriguing company worthy of consideration by Enterprising Investors, as the investor type’s only gripe with the company is the lack of dividends. However, the company should not attract Defensive Investors following the ModernGraham approach because of the poor earnings stability or growth over the last ten years, the high PEmg ratio and the lack of dividends. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

The company has grown its EPSmg (normalized earnings) from $0.59 in 2010 to an estimated $0.94 for 2014. This growth is in line with the market’s implied estimate of 6.13%, at least within a margin of safety of the figure. As a result, the ModernGraham valuation model churns out an estimate of intrinsic value falling within a margin of safety relative to the price indicating the company is fairly valued at the present time. Value investors are therefore encouraged to proceed with further research to determine whether Juniper Networks Inc. is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Mosaic Company (MOS)

Mosaic Company is currently fairly valued by the ModernGraham valuation model, and should be on the watch list of all Defensive Investors and Enterprising Investors. The Defensive Investor’s only concern with the company is the short dividend history while the Enterprising Investor has no initial concerns. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

The company has grown its EPSmg (normalized earnings) from $2.78 in 2010 to an estimated $3.44 for 2014. This growth is in line with the market’s implied estimate of 1.68%, falling within a margin of safety of the figure. This leads the ModernGraham valuation model to return an estimate of intrinsic value near the market’s current price indicating the company is fairly valued at the present time. Value investors are therefore encouraged to proceed with further research to determine whether Mosaic Company is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Quest Diagnostics Inc. (DGX)

Quest Diagnostics is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the debt level relative to the current assets because the company qualifies for the more conservative Defensive Investor.  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 to be fairly valued after growing its EPSmg (normalized earnings) from $3.40 in 2010 to an estimated $4.15 for 2014.  This level of demonstrated growth supports 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 within a margin of safety relative to the price.  (See the full valuation)

Roper Industries Inc. (ROP)

Roper Industries qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s high PEmg and PB ratios.  The Enterprising Investor’s only initial issue is 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.  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 does not support the market’s implied estimate of 9.37% 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)

Archer Daniels Midland (ADM)

Archer Daniels passes the requirements of both the Defensive Investor and the Enterprising Investor.  Both investor types are only concerned initially by the lack of sufficient growth in earnings in recent 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.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.87 in 2010 to only an estimated $2.34 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.44% 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)

Boston Properties Inc. (BXP)

Boston Properties is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the company’s low level of growth over the last ten years and the high PEmg and PB ratios.  The Enterprising Investor’s only 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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.98 in 2010 to an estimated $3.74 in 2014.  This level of demonstrated growth does not support the market’s implied estimate of 11.75% 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 (MCHP)

Microchip Technologies qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s level of growth over the last ten years, and 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 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 $1.60 in 2011 to only an estimated $1.75 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 6.72% 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)

HCP Inc. (HCP)

HCP Inc. does not qualify for either the Defensive Investor or the Enterprising Investor at this time.  The Defensive Investor has concerns with the current ratio as well as the level of earnings growth over the last ten years.  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 undervalued after growing its EPSmg (normalized earnings) from $1.34 in 2010 to an estimated $2.18 for 2014.  This level of demonstrated growth is greater than 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 market price.  (See the full valuation)

Southwest Airlines Company (LUV)

Southwest Airlines does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, along with the high PEmg and PB ratios.  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 at this time.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.44 in 2010 to an estimated $1.03 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 12.40% 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)

The Ugly (Speculative and Overvalued)

Mr. Market

No companies fit these criteria this week.

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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