Leucadia National Corp Valuation – July 2016 $LUK

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 10 Companies Benjamin Graham Would Invest In Today - June 2016.  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 Leucadia National Corp (LUK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Leucadia National Corporation (Leucadia) is a diversified holding company focused on return on investment and long-term value creation to maximize shareholder value. The Company’s financial services businesses include Jefferies Group LLC (investment banking and capital markets), Leucadia Asset Management (asset management), Berkadia (commercial mortgage banking and servicing), FXCM (a publicly traded company providing online foreign exchange trading), HomeFed Corporation (HomeFed) (a publicly traded real estate company) and Foursight Capital and Chrome Capital (vehicle finance). The Company also owns and has investments in an array of other businesses, including National Beef (beef processing), HRG Group (HRG), Vitesse Energy and Juneau Energy (oil and gas exploration and development), Garcadia (automobile dealerships), Linkem (fixed wireless broadband services in Italy), Conwed Plastics and Idaho Timber (manufacturing) and Golden Queen (a gold and silver mining project).


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Downloadable PDF version of this valuation:

ModernGraham Valuation of LUK – 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 $6,489,285,930 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.37 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -104.96% Fail
6. Moderate PEmg Ratio PEmg < 20 35.64 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.66 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 1.37 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.82 Pass
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

LUK value chart July 2016

EPSmg $0.50
MG Growth Estimate -4.25%
MG Value $3.14
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $7.30
MG Value based on 0% Growth $4.28
Market Implied Growth Rate 13.57%
Current Price $17.94
% of Intrinsic Value 571.41%

Leucadia National Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the low current ratio, 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 $2.31 in 2012 to an estimated $0.5 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.57% 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.

Leucadia National Corp. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

LUK charts July 2016

Net Current Asset Value (NCAV) $3.14
Graham Number $9.03
PEmg 35.64
Current Ratio 1.37
PB Ratio 0.66
Current Dividend $0.25
Dividend Yield 1.40%
Number of Consecutive Years of Dividend Growth 1


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $34,212,141,000
Total Current Liabilities $24,930,951,000
Long-Term Debt $7,620,461,000
Total Assets $43,134,365,000
Intangible Assets $2,622,351,000
Total Liabilities $33,043,060,000
Shares Outstanding (Diluted Average) 372,367,000

Earnings Per Share History

Next Fiscal Year Estimate $0.13
Dec2015 $0.74
Dec2014 -$0.54
Dec2013 $1.06
Dec2012 $3.44
Dec2011 $0.10
Dec2010 $7.85
Dec2009 $2.25
Dec2008 -$11.00
Dec2007 $2.10
Dec2006 $0.85
Dec2005 $7.14
Dec2004 $0.67
Dec2003 $0.52
Dec2002 $0.96
Dec2001 -$0.05
Dec2000 $0.70
Dec1999 $1.21
Dec1998 $0.29
Dec1997 $3.55
Dec1996 $0.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.50
Dec2015 $0.78
Dec2014 $1.33
Dec2013 $2.49
Dec2012 $2.31
Dec2011 $1.25
Dec2010 $1.35
Dec2009 -$1.17
Dec2008 -$1.94
Dec2007 $2.48
Dec2006 $2.45
Dec2005 $2.79
Dec2004 $0.60
Dec2003 $0.59
Dec2002 $0.63
Dec2001 $0.69
Dec2000 $1.10

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
Leucadia National Corporation Annual Valuation – 2015 $LUK
58 Companies in the Spotlight This Week – 1/31/15
Leucadia National Corporation Quarterly Valuation – January 2015 $LUK
5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – December 2014

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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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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