Company Profile (excerpt from Reuters): Leucadia National Corporation (Leucadia), incorporated on May 24, 1968, is a diversified holding company focused on return on investment and long-term value. The Company’s segments, based on requirements, are Jefferies, National Beef, and Corporate and other. The Company’s financial services businesses include Jefferies Group LLC (investment banking and capital markets), Leucadia Asset Management (asset management), Berkadia Commercial Mortgage, LLC (commercial mortgage banking and servicing), FXCM Group, LLC (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, Inc. (HRG), Vitesse Energy, LLC and Juneau Energy, LLC (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 Mining Company, LLC (a gold and silver mining project).
Downloadable PDF version of this valuation:
ModernGraham Valuation of LUK – March 2018
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 | $8,098,087,309 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.38 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 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 | -75.20% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 25.18 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 0.82 | 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 | 1.38 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.72 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.90 |
| MG Growth Estimate | -4.25% |
| MG Value | $6.60 |
| Opinion | Overvalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $13.09 |
| MG Value based on 0% Growth | $7.67 |
| Market Implied Growth Rate | 8.34% |
| Current Price | $22.73 |
| % of Intrinsic Value | 344.32% |
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 growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the low current ratio, and the lack of earnings 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 $1.69 in 2014 to an estimated $0.9 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.34% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Leucadia National Corp. revealed the company was trading below its Graham Number of $33.32. The company pays a dividend of $0.33 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 25.18, which was below the industry average of 25.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.6.
Leucadia National Corp. receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $6.60 |
| Graham Number | $33.32 |
| PEmg | 25.18 |
| Current Ratio | 1.38 |
| PB Ratio | 0.82 |
| Current Dividend | $0.33 |
| Dividend Yield | 1.43% |
| Number of Consecutive Years of Dividend Growth | 1 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2017 |
| Total Current Assets | $39,483,108,000 |
| Total Current Liabilities | $28,592,753,000 |
| Long-Term Debt | $7,885,783,000 |
| Total Assets | $47,169,108,000 |
| Intangible Assets | $2,463,180,000 |
| Total Liabilities | $37,063,151,000 |
| Shares Outstanding (Diluted Average) | 366,580,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $1.74 |
| Dec2017 | $0.45 |
| Dec2016 | $0.34 |
| 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 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.90 |
| Dec2017 | $0.53 |
| Dec2016 | $0.79 |
| Dec2015 | $1.07 |
| Dec2014 | $1.69 |
| 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 | $0.59 |
| Dec2003 | $0.59 |
| Dec2002 | $0.63 |
Recommended Reading:
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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.  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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