We evaluated 27 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)
Assurant Inc. (AIZ)
Assurant Inc. is suitable for the Enterprising Investor, but not the Defensive Investor, who is concerned by the low level of earnings growth over the last ten years.  The less conservative Enterprising Investor looks at a shorter horizon and has no initial concerns.  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 $3.64 in 2010 to $5.86 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 0.99% annual 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.  (Read the full valuation)
Bed Bath & Beyond Inc. (BBBY)
Bed Bath & Beyond does fairly well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of dividend payments, along with the high PB ratio, while the Enterprising Investor is only concerned by the lack of dividend payments. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.38 in 2011 to an estimated $4.63 for 2014. This is a strong level of demonstrated growth which is well above the market’s implied estimate of 4.13% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 19% per year, which is clearly unsustainable over the long term. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time. Â (Read the full valuation on Seeking Alpha)
Blackrock Inc. (BLK)
Blackrock Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the high PEmg ratio, while the Enterprising Investor is concerned with the net current assets. 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 $5.83 in 2010 to $16.03 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of only 6.95% over the next 7-10 years. In fact, the historical growth is around 22.38% 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. Â (Read the full valuation on Seeking Alpha)
Cisco Systems Inc. (CSCO)
Cisco Systems Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the short dividend history, while the Enterprising Investor has no initial concerns. 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 $1.21 in 2011 to an estimated $1.73 for 2015. This level of demonstrated growth is well above the market’s implied estimate for earnings growth of only 3.61% over the next 7-10 years. In fact, the historical growth is around 8.59% per year, so the market is expecting a 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. Â (Read the full valuation on Seeking Alpha)
Cummins Inc. (CMI)
Cummins Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the high PB ratio, while the Enterprising Investor has no initial concerns. 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, Cummins Inc. has grown its EPSmg (normalized earnings) from $3.83 in 2010 to $8.48 for 2014. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.81% over the next 7-10 years. In fact, the historical growth is around 24.2% 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 still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time. Â (Read the full valuation on Seeking Alpha)
Discover Financial Services (DFS)
Discover Financial Services qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the inconsistent dividend record, 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 $1.72 in 2010 to $4.47 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.32% 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.  (Read the full valuation)
LyondellBasell Industries (LYB)
LyondellBasell Industries is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the short operating and dividend history post bankruptcy, along with the high PB ratio. 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.93 in 2010 to $6.25 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 2.8% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)
M&T Bank Corporation (MTB)
M&T Bank Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings growth 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 $4.95 in 2010 to $7.39 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.94% 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.  (Read the full valuation)
Priceline Group Inc. (PCLN)
Priceline Group does fairly well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of dividend payments, along with the high PEmg and PB ratios, while the Enterprising Investor is only concerned by the lack of dividend payments. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $7.40 in 2010 to an estimated $35.92 for 2014. This is a strong level of demonstrated growth which is well above the market’s implied estimate of 9.9% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 77% per year, which is clearly unsustainable over the long term. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time. Â (Read the full valuation on Seeking Alpha)
Ross Stores Inc. (ROST)
Ross Stores Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, along with the high PEmg and PB ratios. The Enterprising Investor is only initially concerned by the low current ratio.  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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.66 in 2011 to an estimated $3.71 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 8.61% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)
Snap-on Inc. (SNA)
Snap-on Inc. is suitable 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.02 in 2010 to $5.84 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 8.2% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation)
T.E. Connectivity Limited (TEL)
TE Connectivity does fairly well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the low current ratio, short dividend record, and the high PB ratio, while the Enterprising Investor is only concerned by the level of debt relative to current assets. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $0.57 in 2011 to an estimated $3.66 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 5.27% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 108% per year, which is clearly unsustainable over the long term. The ModernGraham valuation model reduces the historical growth to a much more conservative figure, assuming that some slowdown will occur, but still estimates a growth higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time. Â (Read the full valuation on Seeking Alpha)
U.S. Bancorp (USB)
U.S. Bancorp passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor is concerned by the insufficient earnings growth over the last ten years 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 $1.66 in 2010 to $2.84 for 2014. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.55% over the next 7-10 years. In fact, the historical growth is around 14.3% 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. Â (Read the full valuation on Seeking Alpha)
Wells Fargo & Company (WFC)
Wells Fargo & Co. passes the initial requirements of the Enterprising Investor as well as the more conservative Defensive Investor. In fact, the company passes all of the requirements of both investor types, which is a rare accomplishment. 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 $1.83 in 2010 to $3.60 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.37% over the next 7-10 years. In fact, the historical growth is around 19.4% 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 still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time. Â (Read the full valuation on Seeking Alpha)
The Good (Defensive or Enterprising and Fairly Valued)
Fastenal Company (FAST)
Fastenal Company is suitable 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.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.80 in 2010 to $1.46 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 10.21% 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.  (Read the full valuation)
Mattel Inc. (MAT)
Mattel Inc. qualifies for both the Defensive Investor and the Enterprising Investor after satisfying all of both investor types’ requirements, which is a rare accomplishment.  Neither investor type will have any initial concerns about the financial position of the company. 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.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.52 in 2010 to $2.03 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.7% 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.  (Read the full valuation)
Pall Corporation (PLL)
Pall Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio along with 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.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.06 in 2011 to $3.66 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 9.83% 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.  (Read the full valuation)
Robert Half International (RHI)
Robert Half International is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the insufficient level of earnings growth over the last ten years along with 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.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.88 in 2010 to $1.71 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 13.64% 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.  (Read the full valuation)
The Mediocre (Defensive or Enterprising and Overvalued)
Mead Johnson Nutrition (MJN)
Mead Johnson Nutrition is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability over the last ten years, dividend history, and the high PEmg and PB ratios. The Enterprising Investor’s only initial concern is the level of debt relative to 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.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.10 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 11.83% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)
Microsoft Corporation (MSFT)
Microsoft passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the high PB ratio, while the Enterprising Investor has no initial concerns. 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 $2.12 in 2011 to $2.40 for 2015. This is a strong level of demonstrated growth but it is below the market’s implied estimate for earnings growth of 4.64% over the next 7-10 years. In fact, the historical growth is around 2.56% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time. Â (Read the full valuation on Seeking Alpha)
Paychex Inc. (PAYX)
Paychex Inc. is suitable for the Enterprising Investor, but not the more conservative Defensive Investor, who is concerned with the low current ratio, insufficient earnings growth over the last ten years, as well as the high PEmg and PB ratios. The Enterprising Investor, on the other hand, is only concerned by the low current ratio. 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 $1.42 in 2011 to only an estimated $1.66 for 2015. This demonstrated growth does not support the market’s implied estimate of 10.15%. 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. Â (Read the full valuation on Seeking Alpha)
The Bad (Speculative and Undervalued or Fairly Valued)
Jabil Circuit Inc. (JBL)
Jabil Circuit Inc. is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio and the insufficient earnings stability over the last ten years. 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 undervalued after growing its EPSmg (normalized earnings) from a loss of $0.23 in 2011 to an estimated $1.67 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 2.35% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)
Macy’s Inc. (M)
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, insufficient earnings stability over the last ten years, and high PB ratio, 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 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 a loss of $1.03 in 2011 to an estimated gain of $3.61 for 2014. This level of demonstrated growth is fairly strong, and significantly higher than the market’s implied estimate of only 4.73%. As a result, the company appears to be significantly undervalued at the present time. Â (Read the full valuation on Seeking Alpha)
The Ugly (Speculative and Overvalued)
Dominion Resources Inc. (D)
Dominion Resources Inc. is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, insufficient earnings growth over the last ten years, as well as 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 $3.45 in 2010 to only an estimated $2.74 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 9.47% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)
Kellogg Company (K)
Kellogg Company is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, insufficient earnings growth over the last ten years, as well as 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 $3.11 in 2010 to only $2.98 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.36% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)
Noble Energy Inc. (NBL)
Noble Energy Inc. is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, insufficient earnings growth or stability over the last ten years, as well as the high PEmg 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 despite growing its EPSmg (normalized earnings) from $1.83 in 2010 to an estimated $2.32 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.72% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)
Owens-Illinois Inc. (OI)
Owens-Illinois Inc. is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, insufficient earnings growth or stability over the last ten years, lack of dividends, as well as the high PEmg PB ratio. The Enterprising Investor is concerned by the level of debt relative to the current assets, lack of earnings stability or growth over the last five years and the lack of dividends.  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 $1.50 in 2010 to $0.24 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 50.21% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (Read the full valuation)
Disclaimer:Â 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.
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