We evaluated 28 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)
American Express Company (AXP)
Enterprising Investors following the ModernGraham approach should keep a keen eye on American Express and pour some time into conducting further research. The Defensive Investor may not feel the same way, with concerns regarding the high PB ratio. 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.
To determine an estimate of the intrinsic value, one must consider the company’s earnings. Here, the company has grown its EPSmg (normalized earnings) from $2.64 in 2010 to an estimated $4.67 for 2014. This is a high level of growth, approximately 15% each year. Even adjusting for a margin of safety to assume the company will not do as well in the future, a conservative growth estimate may be around 11.5%, which is well below the market’s implied forecast of only 5.15% earnings growth over the next 7-10 years. As a result, 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 American Express is suitable for their own individual portfolios. Â (See the full valuation on Seeking Alpha)
BlackRock Inc. (BLK)
BlackRock definitely passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the high PEmg ratio, while the Enterprising Investor has slight concerns regarding the level of debt relative to the net current assets. Neither investor type is sufficiently disturbed by the financials and 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.
When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $7.56 in 2010 to an estimated $15.97 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 6.11% over the next 7-10 years. In fact, the historical growth is around 22% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and therefore returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time. Â (See the full valuation on Seeking Alpha)
Dollar Tree Inc. (DLTR)
Dollar Tree is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of dividend payments 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 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 $1.14 in 2010 to an estimated $2.62 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.19% 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)
Helmerich & Payne (HP)
Helmerich & Payne is suitable for either the Defensive Investor or the Enterprising Investor.  In fact, the company passes all of the requirements of both investor types, which is a very 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.99 in 2010 to an estimated $5.58 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)
International Paper Co. (IP)
International Paper Co. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, as well as the insufficient earnings growth or stability over the last ten years.  The Enterprising Investor’s only 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 undervalued after growing its EPSmg (normalized earnings) from $0.80 in 2010 to an estimated $2.75 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.62% 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)
Joy Global Inc. (JOY)
Joy Global Inc. achieves the rare feat of passing all of the requirements of both the Defensive Investor and the Enterprising Investor, so neither investor type has any 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.89 in 2010 to an estimated $4.85 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.08% 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)
Mattel Inc. (MAT)
Mattel Inc. achieves the rare feat of passing all of the requirements of both the Defensive Investor and the Enterprising Investor, so neither investor type has any 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.52 in 2010 to an estimated $2.12 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.04% 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)
Time Warner Inc. (TWX)
Time Warner qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns including the low current ratio, the lack of earnings stability or 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 undervalued after growing its EPSmg (normalized earnings) from a loss of $0.17 in 2010 to an estimated gain of $3.47 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.11% 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)
The Good (Defensive or Enterprising and Fairly Valued)
FMC Technologies (FMC)
FMC Technologies is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, the lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor’s only issue is with 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 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 $1.39 in 2010 to an estimated $2.17 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.39% 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)
Kohl’s Corporation (KSS)
Kohl’s Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, as well as the short dividend history.  The Enterprising Investor’s only 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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.32 in 2011 to an estimated $4.11 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 2.35% 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)
After reviewing the data, Nordstrom should satisfy the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio as well as the high PEmg and PB ratios, while the Enterprising Investor’s only issue with the company is the high level of debt relative to the net current assets. Therefore, Enterprising Investors 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 $2.37 in 2011 to an estimated $3.52 for 2015. This is a fairly strong level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 5.92% 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. Â (See the full valuation on Seeking Alpha)
Principal Financial Group (PFG)
Principal Financial Group qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is turned off by the level of earnings growth 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 fairly valued after growing its EPSmg (normalized earnings) from $2.16 in 2010 to an estimated $3.10 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.17% 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)
Whole Foods Market (WFM)
Whole Foods Markets qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, the short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor’s only issue is with the 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 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 $0.57 in 2010 to an estimated $1.32 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 10.19% 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)
Chipotle Mexican Grill Inc. (CMG)
Though Chipotle satisfies the value investor’s appetite, the company does not satisfy the Defensive Investor’s requirements due to its lack of dividend payments and high PEmg and PB ratios. The company does, however, qualify for the less conservative Enterprising Investor whose only issue is the lack of dividend payments. 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.
Determining the intrinsic value requires looking at the company’s earnings growth and examining the market’s implied estimate of further growth. The company has grown its EPSmg (normalized earnings) from $3.77 in 2010 to an estimated $10.37 for 2014. This level of demonstrated growth, while very impressive, does not support the market’s implied estimate for earnings growth of 26.13% over the next 7-10 years. The ModernGraham valuation model caps any estimate of growth at 15% as a margin of safety under the belief that any growth higher than that is not sustainable in the long-term. Therefore, the model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time. Â (See the full valuation on Seeking Alpha)
Corning Inc. (GLW)
Corning Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the short dividend history and the lack of sufficient earnings growth over the last ten years, while the Enterprising Investor’s only initial concern is the low earnings growth 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.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.01 in 2010 to an estimated $1.42 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 2.32% 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 Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PB ratio, 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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.94 in 2010 to an estimated $3.51 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 4.98% 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)
L3 Communications Holdings Inc. (LLL)
L3 Communications is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio while 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 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 $7.38 in 2010 to an estimated $8.14 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 2.79% 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)
Legg Mason Inc. (LM)
Legg Mason is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s lack of earnings stability or growth over the last ten years and the high PEmg ratio.  The Enterprising Investor’s only issue is with 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.  When it comes to the valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from a loss of $1.36 in 2011 to an estimated gain of $0.99 for 2015.  This level of demonstrated growth does not quite support the market’s implied estimate of 21.61% 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)
Mead Johnson Nutrition Company (MJN)
Mead Johnson Nutrition qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, the short earnings and dividend history, and the high PEmg and PB ratios.  The Enterprising Investor’s only 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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.13 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 12.18% 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)
Total System Services (TSS)
Total System Services is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the level of earnings growth over the last ten  years as well as the high PEmg and PB ratios.  The Enterprising Investor’s only 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 overvalued after growing its EPSmg (normalized earnings) from $1.12 in 2010 to only an estimated $1.43 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 6.43% 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)
Xilinx Inc. (XLNX)
On the surface, Xilinx. Inc. should attract both the Defensive Investor and the Enterprising Investor. The only requirement of either investor type which the company fails to satisfy is the Defensive Investor’s requirement of a low PB ratio. As a result, both types of value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
The next step is to consider the company’s intrinsic value through an analysis of the company’s earnings growth and a comparison to the market’s implied estimate of further earnings growth. In this case, the company has grown its EPSmg (normalized earnings) from $1.64 in 2011 to only an estimated $2.16 for 2015. This low level of demonstrated growth does not support the market’s implied estimate for earnings growth of 5.73% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time. Â (See the full valuation on Seeking Alpha)
The Bad (Speculative and Undervalued or Fairly Valued)
Ametek Inc. (AME)
Ametek Inc. does not satisfy either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, and 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 undervalued after growing its EPSmg (normalized earnings) from $1.00 in 2010 to an estimated $2.02 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 8.34% 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)
DirecTV (DTV)
DirecTV presents a speculative situation, as it does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio and the lack of dividends, while the Enterprising Investor also takes issue with the level of debt relative to the current assets and the lack of dividends. As a result, any purchase of DirecTV stock is made with a speculative nature behind it. That said, any speculator interested in pursuing the company should still proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.
With regard to that intrinsic value, the company has grown its EPSmg (normalized earnings) from $1.53 in 2010 to an estimated $4.78 for 2014. This high level of demonstrated growth is greater than the market’s implied estimate for earnings growth of 4.56% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value well above the current price, indicating the company is undervalued at the present time. It would appear that AT&T may be getting a good deal in this purchase over the long-term. Â (See the full valuation on Seeking Alpha)
Marathon Petroleum Corporation (MPC)
Marathon Petroleum Corporation does not satisfy either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, as well as the short earnings and dividend history.  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 undervalued after growing its EPSmg (normalized earnings) from $0.58 in 2010 to an estimated $6.92 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.05% 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)
Newell Rubbermaid Inc. (NWL)
Newell Rubbermaid does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the lack of earnings stability or growth over the last ten years, and 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 $0.86 in 2010 to an estimated $1.48 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.55% 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)
First Solar Inc. (FSLR)
First Solar does not satisfy either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the lack of dividend payments, the lack of earnings stability over the last ten years, and the high PEmg ratio.  The Enterprising Investor has concerns with the lack of dividend payments and the lack of earnings stability or 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 at this time.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $5.69 in 2010 to only an estimated $1.92 for 2014.  This demonstrated lack of growth does not support the market’s implied estimate of 10.6% 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)
Prologis Inc. (PLD)
Prologis Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the lack of sufficient earnings growth or 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 and the lack of stable earnings over the last five years.  As a result, value investors following the ModernGraham approach should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from a loss of $1.65 in 2010 to only an estimated loss of $0.25 in 2014.  While this demonstrated growth is somewhat promising, no company with a negative EPSmg will have a strong intrinsic value. The ModernGraham valuation model returns an estimate of intrinsic value that is well below the market price.  (See the full valuation)
Sempra Energy (SLE)
Sempra Energy does not satisfy either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the lack of earnings growth over the last ten years, and the high PEmg ratio.  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 overvalued after growing its EPSmg (normalized earnings) from $4.00 in 2010 to only an estimated $4.13 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 8.80% 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:Â 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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