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 – July 2015. 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 stock analysis showing a specific look at how Acxiom Corporation (ACXM) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Acxiom Corporation is an enterprise data, analytics and software-as-a-service Company. The Company operates in three segments: Marketing and Data Services, IT Infrastructure Management and Other Services. The Marketing and data services segment includes global lines of business for Customer Data Integration, Consumer Insight Solutions, the Marketing Management Services and E-mail Fulfillment and Agency Services. It provides data sourcing; data activation via analytics, integration and enhancement; the building and managing of customer marketing databases and partner integration. The information technology (IT) Infrastructure management segment provides mainframe, server hosting and cloud computing services. The Company has experience in hosting, processing-intensive database environments and maintaining secure IT environment. The Other services segment includes the Company’s United Kingdom fulfillment business providing outsourced call-center operations e-mail fulfillment.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – 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 – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – FAIL
- Dividend Record – currently pays a dividend – FAIL
- Earnings growth – EPSmg greater than 5 years ago – PASS
|Value Based on 3% Growth||$2.67|
|Value Based on 0% Growth||$1.56|
|Market Implied Growth Rate||45.70%|
|Net Current Asset Value (NCAV)||-$2.65|
Balance Sheet – March 2015
Earnings Per Share
Earnings Per Share – ModernGraham
Acxiom Corporation does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, lack of dividends, and the high PEmg ratio. The Enterprising Investor is concerned by the level of debt relative to the net current assets, the lack of dividends, and the insufficient earnings stability over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a speculative attitude. As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.17 in 2011 to only $0.18 for 2015. This level of earnings growth does not support the market’s implied estimate of 45.7% annual earnings decrease over the next 7-10 years, and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.
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 Acxiom Corporation (ACXM)? 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 any 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.