Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Companies Benjamin Graham Would Invest In Today -Â JuneÂ 2016.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how EQT Corporation (EQT)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): EQT Corporation (EQT) is an energy company. The Company operates through two business segments: EQT Production and EQT Midstream. EQT Production is a natural gas producer in the Appalachian Basin with over 10 trillion cubic feet equivalent (Tcfe) of natural gas, natural gas liquid (NGL) and crude oil reserves across approximately 3.4 million acres, including approximately 630,000 gross acres in the Marcellus play. EQT Midstream provides gathering, transmission and storage services for the Company’s produced gas and for the independent third parties across the Appalachian Basin. Its EQT Production segment conducts lateral horizontal and completion drilling in the Appalachian Basin. EQT Production’s properties are located in Pennsylvania, West Virginia, Kentucky and Virginia. EQT Midstream owns or operates approximately 8,250 miles of gathering lines and approximately 180 compressor units, as well as other general property and equipment.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of EQT – July 2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$13,786,917,298||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||5.12||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-91.30%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||394.02||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.27||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||5.12||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||1.61||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$2.92|
|MG Value based on 0% Growth||$1.71|
|Market Implied Growth Rate||192.76%|
|% of Intrinsic Value||N/A|
EQT Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.86 in 2012 to an estimated $0.2 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 192.76% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
EQT Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$40.73|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2016|
|Total Current Assets||$2,156,358,000|
|Total Current Liabilities||$421,348,000|
|Shares Outstanding (Diluted Average)||157,195,000|
Earnings Per Share History
|Next Fiscal Year Estimate||-$2.64|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.20|
Other ModernGraham posts about the company
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
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