32 Companies in the Spotlight This Week – 12/6/14

We evaluated 32 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)

Chevron Corporation (CVX)

Chevron Corporation passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the low current ratio while the Enterprising Investor is willing to overlook concerns because the company 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.

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 $8.58 in 2010 to an estimated $11.38 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 0.81% over the next 7-10 years. In fact, the historical growth is around 6.53% 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 on Seeking Alpha)

FMC Corporation (FMC)

FMC Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, short dividend history, and the high PB ratio.  The Enterprising Investor, on the other hand, has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.38 in 2010 to an estimated $2.88 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 5.08% 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)

The Gap Inc. (GPS)

The Gap Inc. qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, and the high PB ratio.  The Enterprising Investor, on the other hand, has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.52 in 2010 to an estimated $2.43 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 3.86% 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)

Harman International Industries Inc. (HAR)

Harman International Industries is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of sufficient earnings growth or stability over the last ten years, lack of dividend stability, and the high PEmg and PB ratios.  The Enterprising Investor, on the other hand, has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.31 in 2011 to an estimated $3.76 for 2015.  This level of demonstrated growth is greater than 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 above the price.  (See the full valuation)

PPG Industries Inc. (PPG)

PPG Industries performs quite well in the ModernGraham model, and is suitable for Enterprising Investors. 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 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 $3.69 in 2010 to an estimated $11.54 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate 5.24% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 42.56% per year, which is clearly unsustainable over a long period of time. As a result, the ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur. The ModernGraham estimate is capped at 15% annual growth, which is still significantly higher than the market estimate. A significant slowdown would have to occur to justify a price as low as the market is demonstrating. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

Teradata Corporation (TDC)

Teradata fares quite well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the low current ratio, lack of dividends, and the high PB ratio, while the Enterprising Investor is only initially concerned by the lack of dividends. 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.

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 $1.47 in 2010 to an estimated $2.43 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for 4.92% earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 12.93% 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, but it may be unrealistic that the company would see such a significant slowdown in growth over the long term. Therefore, the model returns an estimate of intrinsic value above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

The Good (Defensive or Enterprising and Fairly Valued)

Genuine Parts Company (GPC)

Genuine Parts Company qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, and the poor 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.83 in 2010 to an estimated $4.20 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.86% 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)

Hormel Foods Corporation (HRL)

Hormel Foods Corporation qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.25 in 2010 to an estimated $1.96 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 9.12% 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)

Intuitive Surgical Inc. (ISRG)

Intuitive Surgical 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 is only concerned initially by the lack of dividend payments. 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 $6.38 in 2010 to an estimated $14.96 for 2014. This is very strong and an impressive level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 13.03% over the next 7-10 years. In fact, actual historical growth is about 26.89% 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)

Lorillard Inc. (LO)

Lorillard Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of dividend stability over the last ten years, and the poor PEmg and PB ratios.  The Enterprising Investor’s only initial concern is 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.94 in 2010 to an estimated $3.01 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)

Marsh & McLennan Companies (MMC)

Marsh & McLennan qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings growth or stability over the last ten years, and the poor PEmg and PB ratios.  The Enterprising Investor’s only initial concern is 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.32 in 2010 to an estimated $2.35 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.79% 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)

Moody’s Corporation (MCO)

Moody’s Corporation qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the high 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.39 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 10.52% 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)

Parker Hannifin Corporation (PH)

Parker Hannifin Corporation qualifies for 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.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.71 in 2011 to an estimated $7.10 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 4.81% 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)

Ralph Lauren Corporation (RL)

Ralph Lauren Corporation qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios.  The Enterprising Investor, on the other hand, has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.76 in 2011 to an estimated $7.93 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 7.29% 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)

Edwards Lifesciences Corporation (EW)

Edwards Lifesciences Corp is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of dividends as well as the high PEmg and PB ratios, while the Enterprising Investor is only concerned by the lack of dividend payments.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.55 in 2010 to an estimated $2.91 for 2015.  This level of demonstrated growth, while strong, does not support the market’s implied estimate of 18.04% 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)

General Electric Company (GE)

After looking over the company’s fundamentals, General Electric qualifies for both the Enterprising Investor and the even more conservative Defensive Investor. Both investor types should be concerned with the lack of earnings growth, but those concerns are not great enough on their own to turn away investors before considering the intrinsic value. As a result, all value investors should feel 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. General Electric has seen its EPSmg (normalized earnings) stay relatively flat from $1.39 in 2010 to only an estimated $1.38 for 2014. This demonstrated level of earnings growth does not support the market’s implied estimate of 5.2% earnings growth. This is particularly true because the company has not actually grown its earnings at all over the last few years, so there would need to be a significant change in the company’s earnings in order to justify the market’s current long-term estimates. As a result, our 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)

Nucor Corporation (NUE)

Nucor Corp is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings growth or stability over the last ten years as well as the high PEmg ratio, while the Enterprising Investor is only 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.12 in 2010 to only an estimated $1.78 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 11.2% 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)

Patterson Companies (PDCO)

Patterson Companies qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the short dividend history as well as 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.77 in 2010 to only an estimated $2.06 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 7.54% 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)

Sigma-Aldrich Corporation (SIAL)

Sigma-Aldrich qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.77 in 2010 to an estimated $3.97 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 12.96% 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)

Urban Outfitters Inc. (URBN)

Urban Outfitters Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of dividends as well as the high PB ratio, while the Enterprising Investor is only concerned by the lack of dividends.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.28 in 2011 to only an estimated $1.62 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 5.57% 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)

Apache Corporation (APA)

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 and insufficient earnings growth over the last ten years, 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 investor 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 $4.63 in 2010 to an estimated $6.38 for 2014. This level of demonstrated growth is fairly strong, and significantly higher than the market’s implied estimate of only 0.63%. 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 around 5.66%. As a result, Apache Corporation appears to be significantly undervalued at the present time.  (See the full valuation on Seeking Alpha)

Constellation Brands Inc. (STZ)

Constellation Brands Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, the lack of earnings stability or growth over the last ten years, lack of dividend payments and the high PB ratio.  The Enterprising Investor is concerned by the level of debt relative to the net 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 undervalued after growing its EPSmg (normalized earnings) from $0.43 in 2011 to an estimated $4.88 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 5.42% 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)

Mylan Inc. (MYL)

Mylan Inc. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, the lack of earnings stability over the last ten years, lack of dividend payments and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the 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 undervalued after growing its EPSmg (normalized earnings) from $0.28 in 2010 to only an estimated $2.10 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 9.52% 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)

Anadarko Petroleum Corporation (APC)

Anadarko Petroleum 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 stability or growth over the last ten  years and the high PEmg ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets as well as 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 $3.57 in 2010 to only an estimated $2.14 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 14.19% 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)

Aon PLC (AON)

Aon does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by 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 $2.94 in 2010 to only an estimated $3.95 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.47% 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)

Cabot Oil & Gas Corporation (COG)

Cabot Oil and Gas Corporation does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, the insufficient level of earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by 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 $0.35 in 2010 to only an estimated $0.59 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 23.66% 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)

Colgate-Palmolive (CL)

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 $1.97 in 2010 to an estimated $2.59 for 2014. This level of demonstrated growth is fairly strong, but does not support the market’s implied estimate of 9.18%. As a result, the company appears to be overvalued at the present time.  (See the full valuation on Seeking Alpha)

General Dynamics Corporation (GD)

After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor has numerous concerns, including the low current ratio, the lack of earnings stability or growth, and high PEmg and PB ratios while the Enterprising Investor has concerns with the low current ratio, as well as the lack of earnings growth or stability over the last five years. 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 seen its EPSmg (normalized earnings) drop from $6.13 in 2010 to only an estimated $5.52 for 2014. This lack of demonstrated growth is in stark contrast to the market’s implied estimate of 8.93%. There would have to be a shift in the company’s growth in order to be worth the current market pricing. As a result, the company appears to be significantly overvalued at the present time.  (See the full valuation on Seeking Alpha)

Entergy Corporation (ETR)

Entergy is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio and the insufficient level of earnings growth over the last ten years.  The Enterprising Investor is concerned by the level of debt relative to the current assets along with the lack of earnings 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 $6.24 in 2010 to only an estimated $5.36 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 3.58% 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)

Lowe’s Companies (LOW)

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 insufficient earnings growth over the last ten years as well as 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 $1.47 in 2011 to an estimated $2.07 for 2015. This level of demonstrated growth is fairly strong, but does not support the market’s implied estimate of 11.22%. 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 6%. As a result, the company appears to be significantly overvalued at the present time.  (See the full valuation on Seeking Alpha)

Pepco Holdings Inc. (POM)

Pepco Holdings is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, the insufficient level of earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets along with the lack of earnings 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 $0.94 in 2010 to only an estimated $0.58 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 19.44% 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)

Rockwell Collins Inc. (COL)

Rockwell Collins Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio and the high PB ratio.  The Enterprising Investor is concerned by 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 $3.64 in 2010 to only $4.30 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.65% 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 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.