Feature Value Investing Weekly

30 Companies in the Spotlight This Week – 11/15/14

image (7)We evaluated 30 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)

Ameriprise Financial Inc. (AMP)

220px-Ameriprise_LogoEnterprising 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.  (See the full valuation on Seeking Alpha)

CMS Energy Corporation (CMS)

220px-CMS_Energy_Logo.svgCMS Energy is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, short dividend history, insufficient earnings growth or stability over the last ten years and high PEmg ratio.  The Enterprising Investor is only concerned by 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 $0.75 in 2010 to an estimated $1.61 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 5.99% 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)

Eastman Chemical Company (EMN)

200px-Eastman_Chemical_Company_logo.svgEastman Chemical qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has no initial concerns while the Enterprising Investor is only slightly concerned by 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 undervalued after growing its EPSmg (normalized earnings) from $2.07 in 2010 to an estimated $5.65 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 3.05% 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)

Eaton Corporation plc (ETN)

220px-Eaton_Color_logoEaton Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor is only slightly concerned by 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 undervalued after growing its EPSmg (normalized earnings) from $2.51 in 2010 to an estimated $4.72 for 2014.  This level of demonstrated growth is greater than 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)

Hess Corporation (HES)

200px-Hess_Corporation_Logo.svgHess Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor is only slightly concerned by 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 undervalued after growing its EPSmg (normalized earnings) from $5.38 in 2010 to an estimated $7.75 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 1.06% 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)

H&R Block Inc. (HRB)

logo-hrbH&R Block is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by 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 $0.89 in 2011 to an estimated $1.60 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 6.02% 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)

Lincoln National Corporation (LNC)

LfglogoLincoln National Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of stable earnings over the last ten years, and 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 $1.25 in 2010 to an estimated $4.28 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.33% 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)

PNC Financial Services Group Inc. (PNC)

pnc_main_logoPNC Financial Group Inc. 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 $4.73 in 2010 to an estimated $6.55 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.47% 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)

Travelers Companies (TRV)

500px-The_Travelers_Companies.svgTravelers Companies is suitable for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, which is an impressive accomplishment.  As a result, intelligent 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 $6.17 in 2010 to an estimated $8.018 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.18% 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)

Unum Group (UNM)

Unum-logoUnum Group is suitable for both the Defensive Investor and the Enterprising Investor, having passed all of the requirements of both investor types.  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 undervalued after growing its EPSmg (normalized earnings) from $2.25 in 2010 to an estimated $2.96 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.42% 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)

The Good (Defensive or Enterprising and Fairly Valued)

Fidelity National Information Services Inc. (FIS)

Fidelity National Information Services Inc. is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned by the low current ratio, insufficient earnings growth over the last ten years, 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 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 an estimated $2.07 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 9.9% 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)

Flowserve Corporation (FLS)

Flowserve Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns regarding the short dividend history as well as 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 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 $2.20 in 2010 to an estimated $3.20 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.24% 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)

St. Jude Medical Inc. (STJ)

St. Jude Medical qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by 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 $2.03 in 2010 to an estimated $2.98 for 2014.  This level of demonstrated growth supports than the market’s implied estimate of 6.83% 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)

Textron Inc. (TXT)

Textron Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability or growth over the last ten years, the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by 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 $1.08 in 2010 to an estimated $1.68 for 2014.  This level of demonstrated growth supports than the market’s implied estimate of 8.23% 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)

Varian Medical Systems Inc. (VAR)

Varian Medical Systems Inc. is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned by the lack of dividends and the high PEmg and PB ratios.  The Enterprising Investor’s only initial concern is 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 fairly valued after growing its EPSmg (normalized earnings) from $2.45 in 2010 to $3.73 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.16% 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)

Autodesk Inc. (ADSK)

At the initial phase of an analysis, Autodesk appears suitable for the Enterprising Investor but not the Defensive Investor due to the lack of earnings 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. 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 some growth in raising its EPSmg (normalized earnings) from $0.80 in 2011 to an estimated $1.07 for 2015. However, the market is implying an earnings growth rate of 23.25% for the next 7-10 years. In contrast, the average growth rate the company has achieved over the last few years is only 6.77%. There would have to be a significant change in the company’s prospects in order to meet the market’s implied forecast, especially for such a long period of time. 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)

Celgene Inc. (CELG)

Celgene Corporation is suitable for the Enterprising Investor, but not the Defensive Investor, who is concerned with the lack of earnings stability over the last ten years, the lack of dividend payments, and the high PEmg and PB ratios. The Enterprising Investor’s only issue with the company is the lack of dividend payments. 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 $0.23 in 2010 to an estimated $2.25 for 2014. While this demonstrated growth is very strong, it does not support the market’s implied estimate of 19.69%. Such a high growth rate is most likely unsustainable, and conservative investors will be very hesitant to proceed with using any rate that high. 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)

Nike Inc. (NKE)

Nike Inc. is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned by the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns as the company passes all of the investor type’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 to be overvalued after growing its EPSmg (normalized earnings) from $1.90 in 2010 to an estimated $2.98 for 2014.  While this level of demonstrated growth is strong, it does not support the market’s implied estimate of 11.48% 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)

DaVita Healthcare Partners Inc. (DVA)

DaVita Healthcare Partners does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of dividend payments, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the high level of debt relative to the current assets along with the lack of dividend payments.  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 $1.88 in 2010 to an estimated $2.98 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 8.63% 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)

Home Depot Inc. (HD)

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 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 $1.86 in 2011 to an estimated $3.55 for 2015. This level of demonstrated growth is fairly strong, and is within a margin of safety relative to the market’s implied estimate of 9.51%. As a result, the company appears to be fairly valued at the present time.  (See the full valuation on Seeking Alpha)

International Business Machines (IBM)

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 PB ratio, 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 $9.66 in 2010 to an estimated $14.74 for 2014. This level of demonstrated growth is very strong, and significantly higher than the market’s implied estimate of only 1.3%. 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 7.9%. The company would have to see a significant slowdown in growth in order to be worth the current price. As a result, International Business Machines appears to be significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

McDonald’s Corporation (MCD)

McDonald’s Corp does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio along with the high PB ratio.  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 fairly valued after growing its EPSmg (normalized earnings) from $3.83 in 2010 to an estimated $5.19 for 2014.  This demonstrated lack of growth supports the market’s implied estimate of 4.91% 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)

Micron Technology Inc. (MU)

Micron Technology Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the lack of earnings stability over the last ten years, lack of dividend payments, and the high PB and PEmg ratios.  The Enterprising Investor is similarly concerned by the lack of earnings stability over the last five years along with the lack of dividend payments.  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 a loss of $0.45 in 2010 to an estimated $1.09 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 11.03% 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)

Northrop Grumman Corporation (NOC)

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 lack of earnings stability over the last ten years, while the Enterprising Investor has concerns with the high level of debt relative to the 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 $3.88 in 2010 to an estimated $8.38 for 2014. This level of demonstrated growth is fairly strong, and is higher than the market’s implied estimate of 3.88%. Based on the demonstrated growth, and lessened by a margin of safety, the ModernGraham valuation model estimates a conservative growth over the next 7-10 years to be considerably higher than the market forecast. As a result, the company appears to be significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

SunTrust Banks Inc. (STI)

SunTrust does not come out well in the initial stages of the analysis, as it does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned by the lack of earnings stability during the last ten years, along with the lack of earnings growth over the last ten years. The Enterprising Investor is concerned with the lack of earnings stability over the last five years. As a result, any value investor following the ModernGraham approach based on Benjamin Graham’s teachings should explore other opportunities at this time.

To determine an estimate of the intrinsic value, one must consider the company’s earnings. SunTrust Banks has grown its EPSmg (normalized earnings) from $0.30 in 2010 to an estimated $2.57 for 2014. This is a high level of growth, which is well above the market’s implied forecast of only 3.5% 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 speculators are therefore encouraged to proceed with further research to determine whether SunTrust Banks is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

The Ugly (Speculative and Overvalued)

Mr. Market

Duke Energy Corporation (DUK)

Duke Energy Corporation 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, an insufficient level of earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor takes issue with the level of debt relative to the current assets. As a result, any purchase of Duke Energy 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 $3.09 in 2010 to only an estimated $3.79 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 6.50% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value below the current price, indicating the company is overvalued at the present time.  (See the full valuation on Seeking Alpha)

Frontier Communications Corp (FTC)

Frontier Communciations Corp does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the lack of earnings growth over the last ten years along with the high PEmg ratio.  The Enterprising Investor is similarly concerned by the lack of earnings growth over the last five years along with the high 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 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 $0.45 in 2010 to only an estimated $0.15 for 2014.  This demonstrated lack of growth clearly does not support the market’s implied estimate of 17.74% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.  (See the full valuation)

Goldman Sachs (GS)

Goldman Sachs does not perform well in the initial stages of the ModernGraham analysis, having not met the requirements of either the Defensive Investor or the Enterprising Investor. Specifically, the Defensive Investor is turned away by the lack of earnings growth over the last ten years and the Enterprising Investor is similarly concerned by the lack of growth over the last five years. As a result, any value investor following the ModernGraham approach based on Benjamin Graham’s teachings should explore other opportunities at this time or proceed with extreme caution when continuing to review this company.

To determine an estimate of the intrinsic value, one must consider the company’s earnings. Goldman Sachs has seen its EPSmg (normalized earnings) drop from $15.80 in 2010 to an estimated $4.00 for 2014. This drop in earnings is approximately a loss of 2.28% each year. Even assuming the company’s drop in earnings will be lessened in the future, a conservative growth estimate may be around a loss of 1.7% annually, which clearly does not support the market’s implied forecast of 2.58% earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the price, supporting a conclusion that the company is overvalued.  (See the full valuation on Seeking Alpha)

Merck & Company (MRK)

Merck & Company does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings growth over the last ten years along with the high PEmg and PB ratios.  The Enterprising Investor is similarly concerned by the lack of earnings growth over the last five years along with the high 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 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 $2.66 in 2010 to only an estimated $2.23 for 2014.  This demonstrated lack of growth clearly does not support 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 well below the price.  (See the full valuation)

Molson Coors Brewing Co. (TAP)

Molson Coors is not suitable for either the Defensive Investor or Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the high PEmg ratio.  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 overvalued after growing its EPSmg (normalized earnings) from $3.20 in 2010 to only an estimated $3.43 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 6.99% 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: The author held a long position in Home Depot (HD) but did not hold a position in any of the other 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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