CareFusion Corporation Quarterly Valuation – January 2015 $CFN
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how CareFusion Corporation (CFN) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): CareFusion Corporation is a global medical technology company. The Company operates in two business segments: Medical Systems and Procedural Solutions. The Company’s primary product brands include: Alaris intravenous (IV) infusion systems; Pyxis and Rowa automated medication dispensing and supply management systems; AVEA, Vela and LTV Series respiratory ventilators; ChloraPrep skin antiseptic products; MaxGuard, MaxPlus, MaxZero, SmartSite and Texium needle-free IV infusion valves, administration sets and accessories; V. Mueller and Snowden-Pencer open surgical and laparoscopic instrumentation; PleurX, Achieve and Temno interventional specialty products; AirLife disposable ventilator circuits and oxygen masks used for providing respiratory therapy; Vital Signs single-use consumables for respiratory care and anesthesiology; Jaeger and SensorMedics cardiopulmonary diagnostic equipment, and MedMined data mining surveillance software and analytics.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â FAIL
- Dividend Record – has paid a dividend for at least 10 straight years -Â FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â FAIL
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â FAIL
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $59.77 |
| MG Value | $68.73 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $29.68 |
| Value Based on 0% Growth | $17.40 |
| Market Implied Growth Rate | 10.35% |
| Net Current Asset Value (NCAV) | -$2.75 |
| PEmg | 29.20 |
| Current Ratio | 4.96 |
| PB Ratio | 2.32 |
Balance Sheet – September 2014
| Current Assets | $3,106,000,000 |
| Current Liabilities | $626,000,000 |
| Total Debt | $1,988,000,000 |
| Total Assets | $9,007,000,000 |
| Intangible Assets | $4,312,000,000 |
| Total Liabilities | $3,676,000,000 |
| Outstanding Shares | 207,000,000 |
Earnings Per Share
| 2015 (estimate) | $2.80 |
| 2014 | $1.96 |
| 2013 | $1.72 |
| 2012 | $1.30 |
| 2011 | $1.10 |
| 2010 | $0.87 |
| 2009 | $2.58 |
| 2008 | $0.00 |
| 2007 | $0.00 |
| 2006 | $0.00 |
| 2005 | $0.00 |
Earnings Per Share – ModernGraham
| 2015 (estimate) | $2.05 |
| 2014 | $1.58 |
| 2013 | $1.43 |
| 2012 | $1.24 |
| 2011 | $1.11 |
| 2010 | $0.98 |
Dividend History
CareFusion Corporation does not pay a dividend.
Conclusion:
CareFusion Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short operating history, lack of dividends, and the high PEmg ratio. The Enterprising Investor’s only concern is 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 fairly valued after growing its EPSmg (normalized earnings) from $1.11 in 2011 to an estimated $2.05 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 10.35% 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.
Be sure to check out previous ModernGraham valuations of CareFusion Corporation (CFN)Â for greater perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on CareFusion Corporation (CFN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer:  The author did not hold a position in CareFusion Corporation (CFN) or 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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
