27 Companies in the Spotlight This Week – 11/8/14

image (7)We evaluated 27 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)

Assurant Inc. (AIZ)

220px-Assurant_LogoAssurant Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the level of growth in earnings 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.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $3.64 in 2010 to an estimated $5.93 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.54% 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)

Bed Bath & Beyond Inc. (BBBT)

500px-Bedbath&beyond.svgBed Bath & Beyond is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s lack of dividend payments and high PB ratio, while the Enterprising Investor is only concerned with the lack of dividends.  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 $2.38 in 2011 to an estimated $4.59 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 3.09% 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)

Cummins Inc. (CMI)

Logo_cumminsCummins Inc. definitely passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the high PB ratio, while the Enterprising Investor has no initial concerns. This indicates the company presents a low risk level as its fundamentals are very strong. 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 $3.83 in 2010 to an estimated $8.39 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 4.43% over the next 7-10 years. In fact, the historical growth is around 23.75% 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.  (See the full valuation)

Discover Financial Services (DFS)

Discover_FinancialDiscover Financial Services qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the short dividend history 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 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 $1.72 in 2010 to an estimated $4.59 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.70% 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)

LyondellBasell Industries (LYB)

220px-Logo_Lyondellbasell.svgLyondellBasell Industries is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s short history post-bankruptcy, 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 undervalued after growing its EPSmg (normalized earnings) from $0.93 in 2010 to an estimated $6.25 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.08% 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)

M&T Bank Corporation (MTB)

MTBM&T Bank Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low level of growth in earnings over the last ten years 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 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 $4.95 in 2010 to an estimated $7.38 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.02% 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)

Pall Corporation (PLL)

pll logoPall Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio along with its high PEmg and PB ratios, 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 undervalued after growing its EPSmg (normalized earnings) from $1.63 in 2010 to an estimated $3.46 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 9.01% 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)

Ross Stores Inc. (ROST)

220px-Ross_Stores_Inc._(logo)Ross Stores Inc. is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio in addition to its high PEmg and PB ratios, while the Enterprising Investor is only concerned 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 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 $1.66 in 2011 to an estimated $3.68 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 6.73% 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)

Snap-on Inc. (SNA)

220px-Snap-on_logo.svgSnap-on qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s high PEmg and PB ratios, 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 undervalued after growing its EPSmg (normalized earnings) from $3.02 in 2010 to an estimated $5.76 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.23% 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)

TE Connectivity Ltd (TEL)

LogoTEConnectivityTE Connectivity Ltd is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, lack of earnings stability over the last ten years, short dividend history and 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 undervalued after growing its EPSmg (normalized earnings) from a loss of $0.35 in 2010 to a gain of $3.28 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.17% 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)

U.S. Bancorp (USB)

500px-U.S._Bancorp_logo.svgEnterprising Investors following the ModernGraham approach should keep a keen eye on U.S. Bancorp and pour some time into conducting further research. The Defensive Investor may not feel the same way, with concerns regarding the level of earnings 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.

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 $1.66 in 2010 to an estimated $2.82 for 2014. This is a high level of growth, approximately 14% 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 10.6%, which is well above the market’s implied forecast of only 3.43% 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 U.S. Bancorp is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Wells Fargo and Company (WFC)

500px-Wells_Fargo_Bank.svgWells Fargo performs extremely well in the initial stages of the analysis, passing all of the requirements of both the Enterprising Investor and the Defensive Investor. Any value investor following the ModernGraham approach based on Benjamin Graham’s teachings 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. Wells Fargo has grown its EPSmg (normalized earnings) from $1.83 in 2010 to an estimated $3.58 for 2014. This is a high level of growth, approximately 19.25% 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 14.4%, which is well above the market’s implied forecast of only 3.19% earnings growth over the next 7-10 years. The company would have to see a significant slowdown in growth in order to be valued at the market’s current price. 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. All value investors are therefore encouraged to proceed with further research to determine whether Wells Fargo is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

The Good (Defensive or Enterprising and Fairly Valued)

Cisco Systems Inc. (CSCO)

Cisco Systems Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the short dividend history, while the Enterprising Investor has no initial issues 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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.20 in 2010 to $1.54 for 2014.  This level of demonstrated growth supports 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 within a margin of safety relative to the price.  (See the full valuation)

E I Du Pont De Nemours and Co. (DD)

Du Pont is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio and 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 fairly valued after growing its EPSmg (normalized earnings) from $2.70 in 2010 to $4.00 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.53% 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 Company (FAST)

Fastenal Company is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s high PEmg and PB ratios, 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 fairly valued after growing its EPSmg (normalized earnings) from $0.80 in 2010 to an estimated $1.46 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 10.86% 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)

Priceline.com (PCLN)

After reviewing the data, Priceline should satisfy the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the lack of dividend payments as well as the high PEmg and PB ratios, while the Enterprising Investor’s only issue with the company is the lack of dividends. 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 $7.40 in 2010 to an estimated $35.40 for 2014. This is very strong and impressive level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 11.98% over the next 7-10 years. In fact, actual historical growth is about 75% per year, clearly unsustainable, but the market is aware of that and has priced in a drop in the level of growth. 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)

Robert Half International (RHI)

Robert Half International is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low level of earnings growth over the last ten years and the high PEmg and PB ratios, 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 fairly valued after growing its EPSmg (normalized earnings) from $0.88 in 2010 to an estimated $1.69 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.91% 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)

3M Company (MMM)

3M Company is not a great opportunity for Defensive Investors, as the company has a low current ratio and high PEmg and PB ratios. However, the less conservative Enterprising Investor has no initial concerns and is willing to proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.

When estimating the intrinsic value, it is critical to consider the company’s historical earnings results in combination with a review of the market’s implied estimate for further growth. In this case, the company has grown its EPSmg (normalized earnings) from $5.14 in 2010 to an estimated $6.71 for 2014. While this is a strong level of demonstrated growth, it does not quite support the market’s implied estimate for earnings growth of 6.96% over the next 7-10 years. In order to reach that growth rate, the company would need to achieve higher growth than it has in the recent past. 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.  (See the full valuation on Seeking Alpha)

Allergan Inc. (AGN)

At the initial phase of an analysis, Allergan appears suitable for the Enterprising Investor but not the Defensive Investor due to the lack of earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor’s only initial concern is the lack of earnings stability over the last five years. 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 shown strong growth in raising its EPSmg (normalized earnings) from $1.10 in 2010 to an estimated $3.88 for 2014. However, the market is implying an earnings growth rate of 19.30% for the next 7-10 years. Such a rate is not sustainable for such a long period, and the ModernGraham model caps the growth rate at 15% as part of a margin of safety. As a result, the model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.  (See the full valuation on Seeking Alpha)

AT&T Inc. (T)

After looking over the company’s fundamentals, AT&T qualifies for the Defensive Investor as the only concern at this time is the low current ratio. The Enterprising Investor has many other concerns but is willing to overlook them as it passes the more conservative Defensive Investor requirements. As a result, 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.

Estimating the intrinsic value requires examining the company’s earnings history. AT&T has seen its EPSmg (normalized earnings) drop from $2.48 in 2010 to only an estimated $2.31 for 2014. This demonstrated drop in earnings does not support the market’s implied estimate of 3.3% earnings growth. In recent years, the company has actually seen an average annual drop in earnings of around 1.4%. Clearly, there would have to see a significant change in its level of growth in order to meet the market’s estimated growth level. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.  (See the full valuation on Seeking Alpha)

Becton Dickinson and Company (BDX)

Becton Dickinson certainly should attract the Enterprising Investor’s initial attention as the company passes all of the investor type’s requirements. Defensive Investors, on the other hand, should look at other opportunities at this time, with concerns regarding the high PEmg and PB ratios. That said, Enterprising Investors are less conservative and should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

Such a determination 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 $4.71 in 2010 to an estimated $6.05 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 6.22% over the next 7-10 years. A more conservative estimate for growth would be around 4.27% based on the historical performance of the company and discounting for possible changes in the future. As a result, the ModernGraham valuation model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.  (See the full valuation on Seeking Alpha)

Microsoft Corporation (MSFT)

Microsoft Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the high PB 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 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 $2.12 in 2011 to only an estimated $2.49 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 5.3% 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)

Paychex Inc. (PAYX)

Paychex Inc. is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the low current ratio, lack of earnings growth over the last ten years and the high PEmg and PB ratios. The Enterprising Investor’s only issue with the company is the low current ratio. 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 $1.42 in 2011 to an estimated $1.67 for 2015. This demonstrated growth does not support the market’s implied estimate of 9.48%. In fact, the demonstrated growth over the last several years is only 3.6% per year. The company would have to see a significant change in its level of growth in order to meet the market’s estimated growth level. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.  (See the full valuation on Seeking Alpha)

The Bad (Speculative and Undervalued or Fairly Valued)

Time Warner Cable Inc. (TWC)

Time Warner Cable does not qualify for either the Defensive Investor or Enterprising Investor.  The Defensive Investor has multiple concerns including the low current ratio, short dividend history, lack of stable earnings over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by 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 at this time.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $1.61 in 2010 to a gain of $6.57 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.80% 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 Ugly (Speculative and Overvalued)

Mr. Market

Loews Corporation (L)

Loews Corporation is not suitable for the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low level of growth in earnings over the last ten years in addition to the high PEmg ratio.  The Enterprising Investor is concerned by the lack of 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 overvalued after seeing its EPSmg (normalized earnings) drop from $3.92 in 2010 to only an estimated $2.14 for 2014.  This demonstrated lack of growth does not support the market’s implied estimate of 5.83% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the market price.  (See the full valuation)

News Corp (NWSA)

News Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  Quite simply, the company does not have a long enough stand alone history in order to satisfy either investor type’s requirements.  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, it is difficult for the ModernGraham valuation model to estimate an intrinsic value based on such a short earnings history.  In addition, the company has not yet achieved a positive EPSmg (normalized earnings), which does not help its cause.  The intrinsic value therefore cannot be found via the earnings, but may be found in the balance sheet.  It should be noted that the Net Current Asset Value of the company is $3.49, so that gives a lower limit to the intrinsic value.  Speculators should be very cautious when valuing this company.  (See the full valuation)

United Parcel Service Inc. (UPS)

After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the high PEmg and PB ratios, while the Enterprising Investor has concerns with the high level of debt relative to the net current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $2.57 in 2010 to an estimated $3.77 for 2014. This level of demonstrated growth is fairly strong, but does not support the market’s implied estimate of 9.39%. Based on the demonstrated growth, and lessened by a margin of safety, the ModernGraham valuation model estimates a more conservative growth over the next 7-10 years to be around 7%. As a result, the company appears to be significantly overvalued at the present time.  (See the full valuation on Seeking Alpha)

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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