Alaska Air Group Inc Valuation – February 2019 $ALK

Company Profile (excerpt from Reuters): Alaska Air Group, Inc., incorporated on March 15, 1985, is the holding company of Alaska Airlines (Alaska), Virgin America Inc., Horizon Air (Horizon) and other business units. The Company operates through three segments: Mainline, Regional and Horizon. Its Mainline segment includes Alaska’s and Virgin America’s scheduled air transportation for passengers and cargo throughout the United States, and in parts of Canada, Mexico, Costa Rica and Cuba. Its Regional segment includes Horizon’s and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the United States under capacity purchased arrangements (CPAs). Its Horizon segment includes the capacity sold to Alaska under CPA. Alaska and Virgin America operate fleets of narrowbody passenger jets. Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a CPA.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ALK – February 2019

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 $7,682,438,587 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.61 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 210.23% Pass
6. Moderate PEmg Ratio PEmg < 20 10.79 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.07 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 0.61 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -1.40 Fail
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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.78
MG Growth Estimate 4.34%
MG Value $99.39
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $83.87
MG Value based on 0% Growth $49.16
Market Implied Growth Rate 1.14%
Current Price $62.40
% of Intrinsic Value 62.78%

Alaska Air Group, Inc. 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, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $4.49 in 2015 to an estimated $5.78 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.14% 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 above the price.

At the time of valuation, further research into Alaska Air Group, Inc. revealed the company was trading below its Graham Number of $64.14. The company pays a dividend of $1.28 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.79, which was below the industry average of 10.79. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-43.17.

Alaska Air Group, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$43.17
Graham Number $64.14
PEmg 10.79
Current Ratio 0.61
PB Ratio 2.07
Current Dividend $1.28
Dividend Yield 2.05%
Number of Consecutive Years of Dividend Growth 6

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 12/1/2018
Total Current Assets $1,787,000,000
Total Current Liabilities $2,942,000,000
Long-Term Debt $1,617,000,000
Total Assets $10,912,000,000
Intangible Assets $2,070,000,000
Total Liabilities $7,161,000,000
Shares Outstanding (Diluted Average) 124,488,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.01
Dec2018 $3.52
Dec2017 $7.75
Dec2016 $6.41
Dec2015 $6.56
Dec2014 $4.42
Dec2013 $3.58
Dec2012 $2.20
Dec2011 $1.67
Dec2010 $1.71
Dec2009 $0.84
Dec2008 -$0.94
Dec2007 $0.77
Dec2006 -$0.35
Dec2005 -$0.05
Dec2004 -$0.14
Dec2003 $0.13
Dec2002 -$1.12
Dec2001 -$0.41
Dec2000 -$0.64
Dec1999 $1.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.78
Dec2018 $5.69
Dec2017 $6.43
Dec2016 $5.39
Dec2015 $4.49
Dec2014 $3.20
Dec2013 $2.40
Dec2012 $1.57
Dec2011 $1.10
Dec2010 $0.68
Dec2009 $0.13
Dec2008 -$0.19
Dec2007 $0.14
Dec2006 -$0.22
Dec2005 -$0.21
Dec2004 -$0.33
Dec2003 -$0.34

Recommended Reading:

Other ModernGraham posts about the company

Alaska Air Group Inc Valuation – May 2018 $ALK
8 Best Stocks for Value Investors This Week – 12/27/16
Alaska Air Group Inc Valuation – December 2016 $ALK
Alaska Air Group Inc. Analysis – Initial Coverage $ALK

Other ModernGraham posts about related companies

Delta Air Lines Inc Valuation – January 2019 $DAL
United Continental Holdings Inc Valuation – January 2019 $UAL
JetBlue Airways Corp Valuation – August 2018 $JBLU
SkyWest Inc Valuation – July 2018 $SKYW
American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL
American Airlines Group Inc Valuation – February 2017 $AAL

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.

Alaska Air Group Inc Valuation – May 2018 $ALK

Company Profile (excerpt from Reuters): Alaska Air Group, Inc., incorporated on March 15, 1985, is the holding company of Alaska Airlines (Alaska), Virgin America Inc., Horizon Air (Horizon) and other business units. The Company operates through three segments: Mainline, Regional and Horizon. Its Mainline segment includes Alaska’s and Virgin America’s scheduled air transportation for passengers and cargo throughout the United States, and in parts of Canada, Mexico, Costa Rica and Cuba. Its Regional segment includes Horizon’s and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the United States under capacity purchased arrangements (CPAs). Its Horizon segment includes the capacity sold to Alaska under CPA. Alaska and Virgin America operate fleets of narrowbody passenger jets. Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a CPA.

ALK Chart

ALK data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ALK – May 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 $7,821,974,491 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.71 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 368.88% Pass
6. Moderate PEmg Ratio PEmg < 20 10.03 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.28 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 0.71 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.35 Fail
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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.32
MG Growth Estimate 14.59%
MG Value $238.22
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $91.65
MG Value based on 0% Growth $53.73
Market Implied Growth Rate 0.76%
Current Price $63.39
% of Intrinsic Value 26.61%

Alaska Air Group, Inc. 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, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $3.2 in 2014 to an estimated $6.32 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.76% 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 above the price.

At the time of valuation, further research into Alaska Air Group, Inc. revealed the company was trading above its Graham Number of $57.44. The company pays a dividend of $1.2 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 10.03, which was below the industry average of 15.91, 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 $-42.83.

Alaska Air Group, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$42.83
Graham Number $57.44
PEmg 10.03
Current Ratio 0.71
PB Ratio 2.28
Current Dividend $1.20
Dividend Yield 1.89%
Number of Consecutive Years of Dividend Growth 5

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 3/1/2018
Total Current Assets $2,114,000,000
Total Current Liabilities $2,992,000,000
Long-Term Debt $2,062,000,000
Total Assets $10,848,000,000
Intangible Assets $2,075,000,000
Total Liabilities $7,409,000,000
Shares Outstanding (Diluted Average) 123,630,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.85
Dec2017 $8.35
Dec2016 $6.54
Dec2015 $6.56
Dec2014 $4.42
Dec2013 $3.58
Dec2012 $2.20
Dec2011 $1.67
Dec2010 $1.71
Dec2009 $0.84
Dec2008 -$0.94
Dec2007 $0.77
Dec2006 -$0.35
Dec2005 -$0.05
Dec2004 -$0.14
Dec2003 $0.13
Dec2002 -$1.12
Dec2001 -$0.41
Dec2000 -$0.64
Dec1999 $1.27
Dec1998 $1.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.32
Dec2017 $6.67
Dec2016 $5.44
Dec2015 $4.49
Dec2014 $3.20
Dec2013 $2.40
Dec2012 $1.57
Dec2011 $1.10
Dec2010 $0.68
Dec2009 $0.13
Dec2008 -$0.19
Dec2007 $0.14
Dec2006 -$0.22
Dec2005 -$0.21
Dec2004 -$0.33
Dec2003 -$0.34
Dec2002 -$0.36

Recommended Reading:

Other ModernGraham posts about the company

8 Best Stocks for Value Investors This Week – 12/27/16
Alaska Air Group Inc Valuation – December 2016 $ALK
Alaska Air Group Inc. Analysis – Initial Coverage $ALK

Other ModernGraham posts about related companies

Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL
American Airlines Group Inc Valuation – February 2017 $AAL
Southwest Airlines Co Valuation – February 2017 $LUV
JetBlue Airways Corporation Valuation – Initial Coverage $JBLU
SkyWest Inc Valuation – Initial Coverage $SKYW
Alaska Air Group Inc Valuation – December 2016 $ALK
American Airlines Group Inc Valuation – August 2016 $AAL
Delta Air Lines Inc Valuation – July 2016 $DAL
Southwest Airlines Company Valuation – October 2015 Update $LUV

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.

Alaska Air Group Inc Valuation – December 2016 $ALK

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 Stocks for Using A Benjamin Graham Value Investing Strategy – December 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 Alaska Air Group Inc (ALK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Alaska Air Group, Inc. is a holding company of Alaska Airlines (Alaska) and Horizon Air (Horizon). The Company’s segments include Alaska Mainline, Alaska Regional and Horizon. Its Alaska Mainline segment operates the Boeing 737 part of Alaska’s business. It offers north/south service within the western United States, Canada, Mexico and Costa Rica, as well as passenger and dedicated cargo services to and within the state of Alaska. Its regional operations consist of flights operated by Horizon, SkyWest Airlines, Inc. and Peninsula Airways, Inc. Its Horizon segment operates regional aircraft. It boasts over 1,200 daily flights to approximately 120 destinations. It offers over 290 daily flights to approximately 50 destinations from California, including over 110 daily nonstop flights to approximately 30 destinations from over three Bay Area airports and approximately 105 daily nonstop flights to over 40 destinations from approximately four Los Angeles area airports.

ALK Chart

ALK data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of ALK – December 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 $10,960,142,125 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.70 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 2544.87% Pass
6. Moderate PEmg Ratio PEmg < 20 16.15 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.86 Fail
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 1.70 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.26 Fail
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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $5.53
MG Growth Estimate 15.00%
MG Value $212.93
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $80.19
MG Value based on 0% Growth $47.01
Market Implied Growth Rate 3.83%
Current Price $89.34
% of Intrinsic Value 41.96%

Alaska Air Group, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, the poor dividend history, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.57 in 2012 to an estimated $5.53 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.83% 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 above the price.

At the time of valuation, further research into Alaska Air Group, Inc. revealed the company was trading above its Graham Number of $59.71. The company pays a dividend of $1.03 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 16.15, which was below the industry average of 17.26, 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 $-18.05.

Alaska Air Group, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$18.05
Graham Number $59.71
PEmg 16.15
Current Ratio 1.70
PB Ratio 3.86
Current Dividend $1.03
Dividend Yield 1.15%
Number of Consecutive Years of Dividend Growth 4

[/not-level-free]

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 9/1/2016
Total Current Assets $3,600,000,000
Total Current Liabilities $2,123,000,000
Long-Term Debt $1,861,000,000
Total Assets $8,699,000,000
Intangible Assets $0
Total Liabilities $5,835,000,000
Shares Outstanding (Diluted Average) 123,833,000

Earnings Per Share History

Next Fiscal Year Estimate $6.82
Dec2015 $6.56
Dec2014 $4.42
Dec2013 $3.58
Dec2012 $2.20
Dec2011 $1.67
Dec2010 $1.71
Dec2009 $0.84
Dec2008 -$0.94
Dec2007 $0.77
Dec2006 -$0.35
Dec2005 -$0.05
Dec2004 -$0.14
Dec2003 $0.13
Dec2002 -$1.12
Dec2001 -$0.41
Dec2000 -$0.64
Dec1999 $1.27
Dec1998 $1.20
Dec1997 $0.88
Dec1996 $0.51

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.53
Dec2015 $4.49
Dec2014 $3.20
Dec2013 $2.40
Dec2012 $1.57
Dec2011 $1.11
Dec2010 $0.69
Dec2009 $0.13
Dec2008 -$0.19
Dec2007 $0.14
Dec2006 -$0.22
Dec2005 -$0.21
Dec2004 -$0.33
Dec2003 -$0.34
Dec2002 -$0.36
Dec2001 $0.17
Dec2000 $0.52

Recommended Reading:

Other ModernGraham posts about the company

Alaska Air Group Inc. Analysis – Initial Coverage $ALK

Other ModernGraham posts about related companies

Delta Air Lines Inc Valuation – July 2016 $DAL
Southwest Airlines Company Valuation – October 2015 Update $LUV
Alaska Air Group Inc. Analysis – Initial Coverage $ALK
American Airlines Group Analysis – 2015 Initial Coverage $AAL
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
Southwest Airlines Company Annual Valuation – 2014 $LUV

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.

Alaska Air Group Inc. Analysis – Initial Coverage $ALK

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 Alaska Air Group Inc. (ALK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Alaska Air Group, Inc. is a holding company of Alaska Airlines Inc. (Alaska) and Horizon Air Industries Inc. (Horizon). The Company operates Alaska Airlines and Horizon Air airlines, which together with its partner regional airlines serve approximately 100 cities through a network in Alaska, the Lower 48, Hawaii, Canada and Mexico. The Company operates in three segments: Alaska Mainline, Alaska Regional and Horizon. Alaska Mainline is the Boeing 737 part of Alaska’s business. Alaska Regional is Alaska’s shorter distance network. Horizon operates regional aircraft. In 2014, the Company carried approximately 29 million passengers. Alaska operates a fleet of passenger jets (mainline) and contracts with Horizon SkyWest Airlines Inc. (SkyWest) and Peninsula Airways, Inc. (PenAir) for regional capacity under which Alaska receives all passenger revenue from those flights. Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska.

[level-free]

To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of ALK – August 2015

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 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 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 Fail
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
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 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg 4.25
MG Growth Estimate 15.00%
MG Value $163.71
Opinion Undervalued
MG Value based on 3% Growth $61.66
MG Value based on 0% Growth $36.14
Market Implied Growth Rate 5.09%
Current Price $79.45
% of Intrinsic Value 48.53%

Alaska Air Group Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings stability or growth over the last ten years, the short dividend history, and high PB ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.11 in 2011 to an estimated $4.25 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.09% 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 above 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 Alaska Air Group Inc. (ALK)?  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.

Stage 3: Information for Further Research

ALK charts August 2015

Net Current Asset Value (NCAV) -$20.01
PEmg 18.68
Current Ratio 0.86
PB Ratio 4.66
Dividend Yield 0.82%
Number of Consecutive Years of Dividend Growth 3

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $1,654,000,000
Total Current Liabilities $1,927,000,000
Long-Term Debt $629,000,000
Total Assets $6,480,000,000
Intangible Assets $0
Total Liabilities $4,261,000,000
Outstanding Shares 130,255,000

Earnings Per Share History

Next Fiscal Year Estimate $5.86
Dec14 $4.42
Dec13 $3.58
Dec12 $2.20
Dec11 $1.67
Dec10 $1.71
Dec09 $0.84
Dec08 -$0.94
Dec07 $0.77
Dec06 -$0.35
Dec05 -$0.05
Dec04 -$0.14
Dec03 $0.13
Dec02 -$1.12
Dec01 -$0.41
Dec00 -$0.64
Dec99 $1.27
Dec98 $1.20
Dec97 $0.88
Dec96 $0.51
Dec95 $0.32

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.25
Dec14 $3.20
Dec13 $2.40
Dec12 $1.57
Dec11 $1.11
Dec10 $0.69
Dec09 $0.13
Dec08 -$0.19
Dec07 $0.14
Dec06 -$0.22
Dec05 -$0.21
Dec04 -$0.33
Dec03 -$0.34
Dec02 -$0.36
Dec01 $0.17
Dec00 $0.52
Dec99 $1.01

Recommended Reading:

Other ModernGraham posts about the company

None

Other ModernGraham posts about related companies

American Airlines Group Analysis – 2015 Initial Coverage $AAL
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
Southwest Airlines Company Annual Valuation – 2014 $LUV

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.  This is not investment advice and all readers should speak with a registered investment adviser prior to making any investment decision.  ModernGraham is not affiliated with the company in any manner.

[/level-mg-stocks-screens-subscriber]

CVS Health Corp Valuation – March 2019 #CVS

Company Profile (excerpt from Reuters): CVS Health Corporation, incorporated on August 22, 1996, together with its subsidiaries, is an integrated pharmacy healthcare company. The Company provides pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations, which include distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Company delivers products and services by advising patients on their medications at its CVS Pharmacy locations; introducing programs for clients at CVS Caremark; delivering care to patients with complex conditions through CVS Specialty, and providing access to care at CVS MinuteClinic. As of December 31, 2016, the Company had more than 9,700 retail locations and more than 1,100 walk-in healthcare clinics.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVS – March 2019

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 $74,484,932,860 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.03 Fail
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 55.69% Pass
6. Moderate PEmg Ratio PEmg < 20 13.21 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.10 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 1.03 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 57.90 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.33
MG Growth Estimate 1.58%
MG Value $50.55
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $62.85
MG Value based on 0% Growth $36.84
Market Implied Growth Rate 2.35%
Current Price $57.26
% of Intrinsic Value 113.27%

CVS Health 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 over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability 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 growing its EPSmg (normalized earnings) from $3.92 in 2015 to an estimated $4.33 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.35% 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 CVS Health Corp revealed the company was trading below its Graham Number of $82.45. The company pays a dividend of $2 per share, for a yield of 3.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.21, which was below the industry average of 27.69, 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 $-82.59.

CVS Health 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) -$82.59
Graham Number $82.45
PEmg 13.21
Current Ratio 1.03
PB Ratio 1.10
Current Dividend $2.00
Dividend Yield 3.49%
Number of Consecutive Years of Dividend Growth 15

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 12/1/2018
Total Current Assets $45,243,000,000
Total Current Liabilities $44,009,000,000
Long-Term Debt $71,444,000,000
Total Assets $196,456,000,000
Intangible Assets $115,202,000,000
Total Liabilities $137,913,000,000
Shares Outstanding (Diluted Average) 1,122,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.71
Dec2018 -$0.57
Dec2017 $6.44
Dec2016 $4.90
Dec2015 $4.63
Dec2014 $3.96
Dec2013 $3.74
Dec2012 $3.02
Dec2011 $2.57
Dec2010 $2.49
Dec2009 $2.55
Dec2008 $2.18
Dec2007 $1.92
Dec2006 $1.60
Dec2005 $1.45
Dec2004 $1.10
Dec2003 $1.03
Dec2002 $0.88
Dec2001 $0.50
Dec2000 $0.92
Dec1999 $0.78

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.33
Dec2018 $3.39
Dec2017 $5.16
Dec2016 $4.36
Dec2015 $3.92
Dec2014 $3.43
Dec2013 $3.07
Dec2012 $2.68
Dec2011 $2.45
Dec2010 $2.31
Dec2009 $2.13
Dec2008 $1.83
Dec2007 $1.57
Dec2006 $1.34
Dec2005 $1.13
Dec2004 $0.94
Dec2003 $0.85

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2018
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2018
CVS Health Corp Valuation – June 2018 $CVS
6 Best Stocks for Value Investors This Week – 3/26/17
CVS Health Corp Valuation – March 2017 $CVS

Other ModernGraham posts about related companies

Dollar Tree Inc Valuation – March 2019 #DLTR
TJX Companies Inc Valuation – February 2019 $TJX
Tractor Supply Co Valuation – February 2019 $TSCO
Tapestry Inc Valuation – February 2019 $TPR
Dollar General Corp Valuation – February 2019 $DG
Tiffany & Co Valuation – February 2019 $TIF
Best Buy Co Inc Valuation – February 2019 $BBY
Macy’s Inc Valuation – January 2019 $M
Ross Stores Inc Valuation – January 2019 $ROST
Walgreens Boots Alliance Inc Valuation – December 2018 $WBA

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.

American Airlines Group Inc Valuation – March 2019 #AAL

Company Profile (excerpt from Reuters): American Airlines Group Inc., incorporated on February 16, 1982, is a holding company. The Company’s primary business activity is the operation of a network air carrier, providing scheduled air transportation for passengers and cargo. The Company operates through American segment, which provides air transportation for passengers and cargo. Together with its regional airline subsidiaries and third-party regional carriers operating as American Eagle, its airline operated an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries, principally from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, District of Columbia, as of December 31, 2016. In the fiscal year ended December 31, 2016, approximately 199 million passengers boarded its mainline and regional flights.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAL – March 2019

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 $14,392,244,457 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 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 -141.07% Fail
6. Moderate PEmg Ratio PEmg < 20 7.09 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.26 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 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.67 Fail
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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.52
MG Growth Estimate 15.00%
MG Value $174.07
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $65.56
MG Value based on 0% Growth $38.43
Market Implied Growth Rate -0.71%
Current Price $32.04
% of Intrinsic Value 18.41%

American Airlines Group Inc 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, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $1.37 in 2015 to an estimated $4.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.71% annual earnings loss 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 above the price.

At the time of valuation, further research into American Airlines Group Inc revealed the company was trading below its Graham Number of $55.21. The company pays a dividend of $0.4 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 7.09, which was below the industry average of 10.49, 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 $-86.27.

American Airlines Group Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$86.27
Graham Number $55.21
PEmg 7.09
Current Ratio 1.12
PB Ratio 1.26
Current Dividend $0.40
Dividend Yield 1.25%
Number of Consecutive Years of Dividend Growth 0

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 12/1/2018
Total Current Assets $19,257,000,000
Total Current Liabilities $17,121,000,000
Long-Term Debt $20,650,000,000
Total Assets $70,878,000,000
Intangible Assets $15,322,000,000
Total Liabilities $59,108,000,000
Shares Outstanding (Diluted Average) 461,916,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.50
Dec2018 $3.03
Dec2017 $2.61
Dec2016 $4.65
Dec2015 $11.07
Dec2014 $3.93
Dec2013 -$6.54
Dec2012 -$7.52
Dec2011 -$15.83
Dec2010 -$3.78
Dec2009 -$13.36
Dec2008 -$21.85
Dec2007 $4.77
Dec2006 $2.62
Dec2005 -$13.87
Dec2004 -$12.69
Dec2003 -$20.78
Dec2002 -$60.46
Dec2001 -$30.60
Dec2000 $13.47
Dec1999 $16.76

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.52
Dec2018 $4.37
Dec2017 $4.41
Dec2016 $3.91
Dec2015 $1.37
Dec2014 -$4.30
Dec2013 -$8.75
Dec2012 -$10.72
Dec2011 -$11.55
Dec2010 -$8.38
Dec2009 -$9.90
Dec2008 -$8.18
Dec2007 -$3.56
Dec2006 -$12.16
Dec2005 -$22.26
Dec2004 -$25.04
Dec2003 -$26.25

Recommended Reading:

Other ModernGraham posts about the company

American Airlines Group Inc Valuation – May 2018 $AAL
American Airlines Group Inc Valuation – February 2017 $AAL
American Airlines Group Inc Valuation – August 2016 $AAL
American Airlines Group Analysis – 2015 Initial Coverage $AAL

Other ModernGraham posts about related companies

Alaska Air Group Inc Valuation – February 2019 $ALK
Delta Air Lines Inc Valuation – January 2019 $DAL
United Continental Holdings Inc Valuation – January 2019 $UAL
JetBlue Airways Corp Valuation – August 2018 $JBLU
SkyWest Inc Valuation – July 2018 $SKYW
American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL

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.

Loews Corporation Valuation – March 2019 #L

Company Profile (excerpt from Reuters): Loews Corporation, incorporated on November 12, 1969, is a holding company. The Company, through its subsidiaries, is engaged in commercial property and casualty insurance; operation of offshore oil and gas drilling rigs; transportation and storage of natural gas and natural gas liquids, and operation of a chain of hotels. The Company has five segments consisted of its four individual operating subsidiaries, CNA Financial Corporation (CNA), Diamond Offshore Drilling, Inc. (Diamond Offshore), Boardwalk Pipeline Partners, LP (Boardwalk Pipeline) and Loews Hotels Holding Corporation (Loews Hotels), and the Corporate segment.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of L – March 2019

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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,593,697,452 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 24.16% Fail
5. Moderate PEmg Ratio PEmg < 20 17.63 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.69 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.66
MG Growth Estimate 15.00%
MG Value $102.38
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $38.56
MG Value based on 0% Growth $22.60
Market Implied Growth Rate 4.56%
Current Price $46.88
% of Intrinsic Value 45.79%

Loews Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.32 in 2015 to an estimated $2.66 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.56% 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 above the price.

At the time of valuation, further research into Loews Corporation revealed the company was trading below its Graham Number of $67.38. The company pays a dividend of $0.25 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 17.63, which was below the industry average of 26.11, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Loews Corporation performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Graham Number $67.38
PEmg 17.63
PB Ratio 0.69
Dividend Yield 0.53%
TTM Dividend $0.25
Number of Consecutive Years of Dividend Growth 0

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 12/1/2018
Long-Term Debt & Capital Lease Obligation $11,359,000,000
Total Assets $78,316,000,000
Intangible Assets $1,276,000,000
Total Liabilities $56,930,000,000
Shares Outstanding (Diluted Average) 314,530,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.40
Dec2018 $1.99
Dec2017 $3.45
Dec2016 $1.93
Dec2015 $0.72
Dec2014 $1.55
Dec2013 $1.53
Dec2012 $1.43
Dec2011 $2.62
Dec2010 $3.07
Dec2009 $1.30
Dec2008 $9.05
Dec2007 $3.65
Dec2006 $3.75
Dec2005 $1.72
Dec2004 $1.88
Dec2003 -$1.28
Dec2002 $1.64
Dec2001 -$0.96
Dec2000 $3.10
Dec1999 $0.56

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.66
Dec2018 $2.17
Dec2017 $2.12
Dec2016 $1.44
Dec2015 $1.32
Dec2014 $1.76
Dec2013 $1.91
Dec2012 $2.57
Dec2011 $3.40
Dec2010 $3.92
Dec2009 $4.19
Dec2008 $5.09
Dec2007 $2.73
Dec2006 $2.02
Dec2005 $0.97
Dec2004 $0.69
Dec2003 $0.27

Recommended Reading:

Other ModernGraham posts about the company

Loews Corp Valuation – May 2018 $L
Most Overvalued Stocks of the S&P 500 – March 2017
Loews Corporation – February 2017 $L
Loews Corporation Valuation – November 2015 Update $L
The Best Companies of the Retail Industry – August 2015

Other ModernGraham posts about related companies

Anthem Inc Valuation – February 2019 $ANTM
Arthur J Gallagher & Co Valuation – February 2019 $AJG
Brighthouse Financial Inc Valuation – February 2019 $BHF
Allstate Corp Valuation – February 2019 $ALL
Hartford Financial Services Group Inc Valuation – February 2019 $HIG
Unum Group Valuation – February 2019 $UNM
Everest Re Group Ltd Valuation – February 2019 $RE
Cigna Corp Valuation – January 2019 $CI
MetLife Inc Valuation – January 2019 $MET
Aflac Inc Valuation – January 2019 $AFL

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.

Southwest Airlines Co Valuation – March 2019 #LUV

Company Profile (excerpt from Reuters): Southwest Airlines Co. (Southwest), incorporated on March 9, 1967, operates Southwest Airlines, a passenger airline that provides scheduled air transportation in the United States and near-international markets. Southwest provides point-to-point service. As of December 31, 2016, Southwest operated a total of 723 Boeing 737 aircraft and served 101 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and eight near-international countries: Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize and Cuba. During the fiscal year ended December 31, 2016, the Company commenced international service out of Los Angeles International Airport by introducing service to Liberia, Costa Rica, and later to three airports in Mexico’s coastal regions: Cancun, San Jose del Cabo/Los Cabos and Puerto Vallarta. Southwest bundles fares into three categories: Wanna Get Away, Anytime and Business Select.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LUV – March 2019

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 $28,679,031,872 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.64 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 922.14% Pass
6. Moderate PEmg Ratio PEmg < 20 11.74 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.94 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 0.64 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -0.96 Fail
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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.42
MG Growth Estimate 15.00%
MG Value $170.14
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $64.08
MG Value based on 0% Growth $37.56
Market Implied Growth Rate 1.62%
Current Price $51.88
% of Intrinsic Value 30.49%

Southwest Airlines Co qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2015 to an estimated $4.42 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.62% 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 above the price.

At the time of valuation, further research into Southwest Airlines Co revealed the company was trading above its Graham Number of $41.89. The company pays a dividend of $0.61 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 11.74, which was above the industry average of 10.49. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.33.

Southwest Airlines Co performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.33
Graham Number $41.89
PEmg 11.74
Current Ratio 0.64
PB Ratio 2.94
Current Dividend $0.61
Dividend Yield 1.17%
Number of Consecutive Years of Dividend Growth 7

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 12/1/2018
Total Current Assets $5,028,000,000
Total Current Liabilities $7,905,000,000
Long-Term Debt $2,771,000,000
Total Assets $26,243,000,000
Intangible Assets $1,369,000,000
Total Liabilities $16,390,000,000
Shares Outstanding (Diluted Average) 559,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.45
Dec2018 $4.29
Dec2017 $5.57
Dec2016 $3.45
Dec2015 $3.27
Dec2014 $1.64
Dec2013 $1.05
Dec2012 $0.56
Dec2011 $0.23
Dec2010 $0.61
Dec2009 $0.13
Dec2008 $0.24
Dec2007 $0.84
Dec2006 $0.61
Dec2005 $0.60
Dec2004 $0.38
Dec2003 $0.46
Dec2002 $0.23
Dec2001 $0.63
Dec2000 $0.79
Dec1999 $0.59

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.42
Dec2018 $4.15
Dec2017 $3.72
Dec2016 $2.53
Dec2015 $1.83
Dec2014 $1.01
Dec2013 $0.64
Dec2012 $0.40
Dec2011 $0.35
Dec2010 $0.44
Dec2009 $0.40
Dec2008 $0.53
Dec2007 $0.64
Dec2006 $0.52
Dec2005 $0.47
Dec2004 $0.43
Dec2003 $0.49

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Investor – June 2018
Southwest Airlines Co Valuation – May 2018 $LUV
Southwest Airlines Co Valuation – February 2017 $LUV
Southwest Airlines Company Valuation – October 2015 Update $LUV
18 Companies in the Spotlight This Week – 10/25/14

Other ModernGraham posts about related companies

Alaska Air Group Inc Valuation – February 2019 $ALK
Delta Air Lines Inc Valuation – January 2019 $DAL
United Continental Holdings Inc Valuation – January 2019 $UAL
JetBlue Airways Corp Valuation – August 2018 $JBLU
SkyWest Inc Valuation – July 2018 $SKYW
American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL

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.

Noble Energy Inc Valuation – January 2019 $NBL

Company Profile (excerpt from Reuters): Noble Energy, Inc., incorporated on December 29, 1969, is an independent energy company. The Company is engaged in crude oil, natural gas and natural gas liquids (NGLs) exploration, development, production and acquisition. The Company’s segments include United States, including the onshore DJ Basin, Permian Basin and Eagle Ford Shale; Eastern Mediterranean, including offshore Israel and Cyprus; West Africa, including offshore Equatorial Guinea, Cameroon and Gabon; Other International and Corporate, including new ventures, such as offshore the Falkland Islands, Suriname and Newfoundland; and Midstream. The Company’s portfolio of assets is diversified through the United States and international projects and production mix among crude oil, natural gas and NGLs. Its business focuses on both the United States unconventional basins and certain global conventional basins.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NBL – January 2019

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 $10,521,992,216 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.81 Fail
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 -208.97% Fail
6. Moderate PEmg Ratio PEmg < 20 -18.33 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.93 Fail
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 0.81 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -16.07 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

EPSmg -$1.20
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth -$17.35
MG Value based on 0% Growth -$10.17
Market Implied Growth Rate -13.41%
Current Price $21.93
% of Intrinsic Value N/A

Noble Energy, Inc. 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, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the 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 $2.69 in 2014 to an estimated $-1.2 for 2018. This level of negative earnings does not support a positive valuation.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 Noble Energy, Inc. revealed the company was trading below its Graham Number of $26.07. The company pays a dividend of $0.4 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was -18.33, which was below the industry average of 41.28, 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 $-18.65.

Noble Energy, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$18.65
Graham Number $26.07
PEmg -18.33
Current Ratio 0.81
PB Ratio 0.93
Current Dividend $0.40
Dividend Yield 1.82%
Number of Consecutive Years of Dividend Growth 0

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 9/1/2018
Total Current Assets $1,727,000,000
Total Current Liabilities $2,124,000,000
Long-Term Debt $6,381,000,000
Total Assets $22,147,000,000
Intangible Assets $1,719,000,000
Total Liabilities $10,753,000,000
Shares Outstanding (Diluted Average) 484,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.48
Dec2017 -$2.38
Dec2016 -$2.32
Dec2015 -$6.07
Dec2014 $3.27
Dec2013 $2.69
Dec2012 $2.86
Dec2011 $1.27
Dec2010 $2.06
Dec2009 -$0.38
Dec2008 $3.79
Dec2007 $2.73
Dec2006 $1.90
Dec2005 $2.06
Dec2004 $1.39
Dec2003 $0.34
Dec2002 $0.04
Dec2001 $0.59
Dec2000 $0.86
Dec1999 $0.22
Dec1998 -$0.72

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$1.20
Dec2017 -$2.01
Dec2016 -$1.19
Dec2015 -$0.15
Dec2014 $2.69
Dec2013 $2.16
Dec2012 $1.91
Dec2011 $1.58
Dec2010 $1.83
Dec2009 $1.82
Dec2008 $2.74
Dec2007 $2.03
Dec2006 $1.51
Dec2005 $1.17
Dec2004 $0.70
Dec2003 $0.37
Dec2002 $0.32

Recommended Reading:

Other ModernGraham posts about the company

Noble Energy Inc Valuation – March 2018 $NBL
5 Speculative and Overvalued Companies to Avoid – July 2016
Noble Energy Inc Valuation – July 2016 $NBL
27 Companies in the Spotlight This Week – 2/14/15
Noble Energy Inc. Annual Valuation – 2015 $NBL

Other ModernGraham posts about related companies

ONEOK Inc Valuation – January 2019 $OKE
Marathon Oil Corp Valuation – January 2019 $MRO
HollyFrontier Corp Valuation – January 2019 $HFC
Hess Corp Valuation – January 2019 $HES
Cimarex Energy Co Valuation – January 2019 $XEC
EQT Corp Valuation – January 2019 $EQT
Helmerich & Payne Inc Valuation – January 2019 $HP
Williams Companies Inc Valuation – January 2019 $WMB
Exxon Mobil Corp Valuation – November 2018 $XOM
Chevron Corp Valuation – November 2018 $CVX

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.

Delta Air Lines Inc Valuation – January 2019 $DAL

Company Profile (excerpt from Reuters): Delta Air Lines, Inc., incorporated on March 16, 1967, provides scheduled air transportation for passengers and cargo throughout the United States and across the world. The Company’s segments include Airline and Refinery. The Company’s route network is centered around a system of hub, international gateway and airports that the Company operates in Amsterdam, Atlanta, Boston, Detroit, London-Heathrow, Los Angeles, Minneapolis-St. Paul, New York-LaGuardia, New York- John F Kennedy International Airport, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Each of these operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub or gateway to domestic and international cities and to other hubs or gateways. The Company’s route network includes its international joint ventures, its alliances with other foreign airlines, its membership in SkyTeam and agreements with multiple domestic regional carriers that operate as Delta Connection. Its subsidiaries include Monroe Energy, LLC and MIPC, LLC (collectively Monroe).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DAL – January 2019

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 $32,258,373,426 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.35 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 476.21% Pass
6. Moderate PEmg Ratio PEmg < 20 8.28 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.35 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 0.35 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -0.67 Fail
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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.68
MG Growth Estimate 2.86%
MG Value $80.81
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $82.35
MG Value based on 0% Growth $48.27
Market Implied Growth Rate -0.11%
Current Price $47.04
% of Intrinsic Value 58.21%

Delta Air Lines, Inc. 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, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $4.77 in 2015 to an estimated $5.68 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.11% annual earnings loss 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 above the price.

At the time of valuation, further research into Delta Air Lines, Inc. revealed the company was trading below its Graham Number of $52.28. The company pays a dividend of $1.31 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 8.28, which was below the industry average of 9.65, 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 $-58.71.

Delta Air Lines, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$58.71
Graham Number $52.28
PEmg 8.28
Current Ratio 0.35
PB Ratio 2.35
Current Dividend $1.31
Dividend Yield 2.78%
Number of Consecutive Years of Dividend Growth 6

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 12/1/2018
Total Current Assets $6,495,000,000
Total Current Liabilities $18,754,000,000
Long-Term Debt $8,270,000,000
Total Assets $60,270,000,000
Intangible Assets $14,610,000,000
Total Liabilities $46,593,000,000
Shares Outstanding (Diluted Average) 683,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.09
Dec2018 $5.67
Dec2017 $4.95
Dec2016 $5.79
Dec2015 $5.63
Dec2014 $0.78
Dec2013 $12.29
Dec2012 $1.19
Dec2011 $1.01
Dec2010 $0.70
Dec2009 -$1.50
Dec2008 -$19.08
Dec2007 $2.11
Dec2006 -$31.58
Dec2005 -$23.75
Dec2004 -$41.07
Dec2003 -$6.40
Dec2002 -$10.44
Dec2001 -$9.99
Jun2000 $8.15
Jun1999 $7.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.68
Dec2018 $5.17
Dec2017 $5.24
Dec2016 $5.31
Dec2015 $4.77
Dec2014 $3.96
Dec2013 $4.61
Dec2012 -$0.67
Dec2011 -$2.18
Dec2010 -$5.81
Dec2009 -$10.96
Dec2008 -$18.02
Dec2007 -$18.37
Dec2006 -$26.62
Dec2005 -$22.21
Dec2004 -$18.27
Dec2003 -$5.35

Recommended Reading:

Other ModernGraham posts about the company

Delta Air Lines Inc Valuation – March 2018 $DAL
Delta Air Lines Inc Valuation – July 2016 $DAL
40 Companies in the Spotlight This Week – 2/21/15
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
14 Companies in the Spotlight This Week – 2/22/14

Other ModernGraham posts about related companies

United Continental Holdings Inc Valuation – January 2019 $UAL
JetBlue Airways Corp Valuation – August 2018 $JBLU
SkyWest Inc Valuation – July 2018 $SKYW
American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL
American Airlines Group Inc Valuation – February 2017 $AAL
Southwest Airlines Co Valuation – February 2017 $LUV

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.

Back To Top