Enterprising Investors following the ModernGraham approach should keep a keen eye on Ameriprise Financial and pour some time into conducting further research. The Defensive Investor may not feel the same way, with concerns regarding the earnings stability over the last ten years as well as the high PEmg and PB ratios. 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 $2.77 in 2010 to an estimated $6.30 for 2014. This is a high level of growth, approximately 25.5% 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 capped at 15%, which is well above the market’s implied forecast of only 6.06% 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 Ameriprise Financial is suitable for their own individual portfolios.
Disclaimer: Â The author did not hold a positionÂ in Ameriprise Financial (AMP)Â orÂ in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Â Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.