Precision Castparts Corp. appears to not be quite strong enough for the Defensive Investor, who is very conservative and has stringent requirements. However, The Enterprising Investor should be very intrigued as the company passes all of the investor type’s requirements and therefore the initial stage of the analysis presents no concerns. Enterprising 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 $6.81 in 2011 to an estimated $11.25 for 2015. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 5.83% over the next 7-10 years. In fact, the historical growth is around 13.06% per year, so the market is expecting a very significant drop in earnings growth. Even though the ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, the model still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.
Be sure to check out previous ModernGraham valuations of Precision Castparts Corporation (PCP)Â for better perspective!
Disclaimer: Â The author did not hold a positionÂ in Precision Castparts Corporation (PCP)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.