Altria Group Inc Valuation – January 2019 $MO

Company Profile (excerpt from Reuters): Altria Group, Inc., incorporated on August 27, 2009, is a holding company. The Company’s segments include smokeable products, smokeless products and wine. The Company’s subsidiaries include Philip Morris USA Inc. (PM USA), which is engaged in the manufacture and sale of cigarettes in the United States; John Middleton Co. (Middleton), which is engaged in the manufacture and sale of machine-made cigars and pipe tobacco, and UST LLC (UST), which, through its subsidiaries, including U.S. Smokeless Tobacco Company LLC (USSTC) and Ste. Michelle Wine Estates Ltd. (Ste. Michelle), is engaged in the manufacture and sale of smokeless tobacco products and wine. Its other operating companies include Nu Mark LLC (Nu Mark), a subsidiary that is engaged in the manufacture and sale of tobacco products, and Philip Morris Capital Corporation (PMCC), a subsidiary that maintains a portfolio of finance assets. Other subsidiaries include Altria Group Distribution Company, which provides sales, distribution and consumer engagement services to certain its operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas, such as legal, regulatory, finance, human resources and external affairs, to the Company and its subsidiaries. The Company’s financial services business (conducted through PMCC) holds investments in finance leases, principally in transportation (including aircraft), power generation, real estate and manufacturing equipment.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MO – 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 $90,682,708,546 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.60 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 227.13% Pass
6. Moderate PEmg Ratio PEmg < 20 10.25 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.86 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 0.60 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.42 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 $4.71
MG Growth Estimate 15.00%
MG Value $181.28
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $68.28
MG Value based on 0% Growth $40.02
Market Implied Growth Rate 0.87%
Current Price $48.26
% of Intrinsic Value 26.62%

Altria 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, high PB 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 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 $2.21 in 2014 to an estimated $4.71 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.87% 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 Altria Group Inc revealed the company was trading above its Graham Number of $26.74. The company pays a dividend of $2.54 per share, for a yield of 5.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.25, which was below the industry average of 19.84, 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 $-12.37.

Altria 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) -$12.37
Graham Number $26.74
PEmg 10.25
Current Ratio 0.60
PB Ratio 5.86
Current Dividend $2.54
Dividend Yield 5.26%
Number of Consecutive Years of Dividend Growth 8

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 $5,165,000,000
Total Current Liabilities $8,646,000,000
Long-Term Debt $11,896,000,000
Total Assets $43,953,000,000
Intangible Assets $17,692,000,000
Total Liabilities $28,457,000,000
Shares Outstanding (Diluted Average) 1,883,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.93
Dec2017 $5.31
Dec2016 $7.28
Dec2015 $2.67
Dec2014 $2.56
Dec2013 $2.26
Dec2012 $2.06
Dec2011 $1.64
Dec2010 $1.87
Dec2009 $1.54
Dec2008 $2.36
Dec2007 $4.62
Dec2006 $5.71
Dec2005 $4.99
Dec2004 $4.56
Dec2003 $4.52
Dec2002 $5.21
Dec2001 $3.87
Dec2000 $3.73
Dec1999 $3.19
Dec1998 $2.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.71
Dec2017 $4.74
Dec2016 $4.09
Dec2015 $2.41
Dec2014 $2.21
Dec2013 $1.98
Dec2012 $1.86
Dec2011 $1.98
Dec2010 $2.50
Dec2009 $3.16
Dec2008 $4.13
Dec2007 $4.97
Dec2006 $5.10
Dec2005 $4.74
Dec2004 $4.53
Dec2003 $4.38
Dec2002 $4.09

Recommended Reading:

Other ModernGraham posts about the company

Altria Group Inc Valuation – March 2018 $MO
Altria Group Inc Valuation – June 2016 $MO
5 Speculative and Overvalued Companies to Avoid – January 2015
Altria Group Inc. Annual Valuation – 2015 $MO
14 Companies in the Spotlight This Week – 1/25/14

Other ModernGraham posts about related companies

Molson Coors Brewing Co Valuation – January 2019 $TAP
Boston Beer Company Inc Valuation – July 2018 $SAM
Constellation Brands Inc Valuation – May 2018 $STZ
Brown-Forman Corp Valuation – May 2018 $BF.B
Philip Morris International Inc Valuation – March 2018 $PM
Altria Group Inc Valuation – March 2018 $MO
Molson Coors Brewing Co Valuation – March 2018 $TAP
Molson Coors Brewing Co Valuation – Initial Coverage $TAP
Constellation Brands Inc Valuation – February 2017 $STZ
Brown-Forman Corporation – February 2017 $BF.B

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.

Altria Group Inc Valuation – March 2018 $MO

Company Profile (obtained from Marketwatch): Altria Group, Inc. is a holding company which engages in the production and market of tobacco products. It operates through the following segments: Smokeable Products, Smokeless Products, and Wine. The Smokeable Products segment comprised of cigarettes manufactured and sold by PM USA and machine-made large cigars and pipe tobacco manufactured and sold by Middleton. The Smokeless products segment manufactured and sold by or on behalf of USSTC and PM USA. The Wine segment producer of Washington State wines, primarily Chateau Ste. Michelle and Columbia Crest, and owns wineries in or distributes wines from several other wine regions. The company was founded in 1919 and is headquartered in Richmond, VA.

MO Chart

MO data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MO – 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 $120,089,418,546 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 220.59% Pass
6. Moderate PEmg Ratio PEmg < 20 13.74 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.82 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 0.64 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.32 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 $4.60
MG Growth Estimate 15.00%
MG Value $177.05
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $66.68
MG Value based on 0% Growth $39.09
Market Implied Growth Rate 2.62%
Current Price $63.19
% of Intrinsic Value 35.69%

Altria 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, high PB 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 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 $2.21 in 2014 to an estimated $4.6 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.62% 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 Altria Group Inc revealed the company was trading above its Graham Number of $25.6. The company pays a dividend of $2.54 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.74, which was below the industry average of 25.91, 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 $-12.34.

Altria 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) -$12.34
Graham Number $25.60
PEmg 13.74
Current Ratio 0.64
PB Ratio 7.82
Current Dividend $2.54
Dividend Yield 4.02%
Number of Consecutive Years of Dividend Growth 8

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 $4,344,000,000
Total Current Liabilities $6,792,000,000
Long-Term Debt $13,030,000,000
Total Assets $43,202,000,000
Intangible Assets $17,707,000,000
Total Liabilities $27,825,000,000
Shares Outstanding (Diluted Average) 1,903,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.60
Dec2017 $5.31
Dec2016 $7.28
Dec2015 $2.67
Dec2014 $2.56
Dec2013 $2.26
Dec2012 $2.06
Dec2011 $1.64
Dec2010 $1.87
Dec2009 $1.54
Dec2008 $2.36
Dec2007 $4.62
Dec2006 $5.71
Dec2005 $4.99
Dec2004 $4.56
Dec2003 $4.52
Dec2002 $5.21
Dec2001 $3.87
Dec2000 $3.73
Dec1999 $3.19
Dec1998 $2.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.60
Dec2017 $4.74
Dec2016 $4.09
Dec2015 $2.41
Dec2014 $2.21
Dec2013 $1.98
Dec2012 $1.86
Dec2011 $1.98
Dec2010 $2.50
Dec2009 $3.16
Dec2008 $4.13
Dec2007 $4.97
Dec2006 $5.10
Dec2005 $4.74
Dec2004 $4.53
Dec2003 $4.38
Dec2002 $4.09

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – January 2015
Altria Group Inc. Annual Valuation – 2015 $MO
14 Companies in the Spotlight This Week – 1/25/14
Altria Group Inc. (MO) Annual Valuation

Other ModernGraham posts about related companies

Molson Coors Brewing Co Valuation – Initial Coverage $TAP
Constellation Brands Inc Valuation – February 2017 $STZ
Brown-Forman Corporation – February 2017 $BF.B
Boston Beer Company Inc Valuation – Initial Coverage $SAM
Constellation Brands Inc Valuation – August 2016 $STZ
Reynolds American Inc Valuation – July 2016 $RAI
Philip Morris International Inc Valuation – June 2016 $PM
Altria Group Inc Valuation – June 2016 $MO
Constellation Brands Inc Valuation – January 2016 Update $STZ
Molson Coors Brewing Co. Valuation – November 2015 Update $TAP

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.

Altria Group Inc Valuation – June 2016 $MO

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 Altria Group Inc (MO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Altria Group, Inc. is a holding company. The Company’s subsidiaries include Philip Morris USA Inc. (PM USA), which is engaged in the manufacture and sale of cigarettes in the United States; John Middleton Co. (Middleton), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco, and UST LLC (UST), which through its subsidiaries, including U.S. Smokeless Tobacco Company LLC (USSTC) and Ste. Michelle Wine Estates Ltd. (Ste. Michelle), is engaged in the manufacture and sale of smokeless tobacco products and wine. Its segments include smokeable products, smokeless products and wine. The smokeable products segment uses over four manufacturing and processing facilities. The smokeless products segment uses over four smokeless tobacco manufacturing and processing facilities located in Franklin Park, Illinois; Hopkinsville, Kentucky; Nashville, Tennessee, and Richmond, Virginia. Its wine segment uses approximately 11 wine-making facilities.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MO – June 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 $131,436,699,567 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.87 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 -2.93% Fail
6. Moderate PEmg Ratio PEmg < 20 25.04 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 47.76 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 0.87 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -11.49 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

MO value chart June 2016

EPSmg $2.68
MG Growth Estimate 6.57%
MG Value $57.92
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $38.80
MG Value based on 0% Growth $22.75
Market Implied Growth Rate 8.27%
Current Price $67.02
% of Intrinsic Value 115.70%

Altria 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 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. 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 $1.86 in 2012 to an estimated $2.68 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.27% 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.

Altria Group Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

MO charts June 2016

Net Current Asset Value (NCAV) -$12.18
Graham Number $9.80
PEmg 25.04
Current Ratio 0.87
PB Ratio 47.76
Current Dividend $2.22
Dividend Yield 3.30%
Number of Consecutive Years of Dividend Growth 7

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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 3/1/2016
Total Current Assets $7,498,000,000
Total Current Liabilities $8,616,000,000
Long-Term Debt $12,846,000,000
Total Assets $34,063,000,000
Intangible Assets $17,308,000,000
Total Liabilities $31,318,000,000
Shares Outstanding (Diluted Average) 1,956,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.04
Dec2015 $2.67
Dec2014 $2.56
Dec2013 $2.26
Dec2012 $2.06
Dec2011 $1.64
Dec2010 $1.87
Dec2009 $1.54
Dec2008 $2.36
Dec2007 $4.62
Dec2006 $5.71
Dec2005 $4.99
Dec2004 $4.56
Dec2003 $4.52
Dec2002 $5.21
Dec2001 $3.87
Dec2000 $3.75
Dec1999 $3.19
Dec1998 $2.20
Dec1997 $2.58
Dec1996 $2.56

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.68
Dec2015 $2.41
Dec2014 $2.21
Dec2013 $1.98
Dec2012 $1.86
Dec2011 $1.98
Dec2010 $2.50
Dec2009 $3.16
Dec2008 $4.13
Dec2007 $4.97
Dec2006 $5.10
Dec2005 $4.74
Dec2004 $4.53
Dec2003 $4.38
Dec2002 $4.09
Dec2001 $3.39
Dec2000 $3.06

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – January 2015
Altria Group Inc. Annual Valuation – 2015 $MO
14 Companies in the Spotlight This Week – 1/25/14
Altria Group Inc. (MO) Annual Valuation

Other ModernGraham posts about related companies

Constellation Brands Inc Valuation – January 2016 Update $STZ
Molson Coors Brewing Co. Valuation – November 2015 Update $TAP
Brown-Forman Corporation Analysis – September 2015 Update $BF/B
Brown-Forman Corporation Analysis – June 2015 Update $BF.B
Philip Morris International Annual Valuation – 2015 $PM
Brown-Forman Corporation Quarterly Valuation – March 2015 $BF.B
Lorillard Inc. Quarterly Valuation – March 2015 $LO
Reynolds American Inc. Annual Valuation – 2015 $RAI
Altria Group Inc. Annual Valuation – 2015 $MO
Brown-Forman Corporation Quarterly Valuation – December 2014 $BF.B

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.

Altera Corporation Analysis – October 2015 Update $ALTR

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 Most Undervalued Companies for the Defensive Investor – September 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 Altera Corporation (ALTR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Altera Corporation is a semiconductor company that designs and sells a range of products, including programmable logic devices (PLDs), highly integrated power devices, pre-defined design building blocks and development software. PLDs consist of field-programmable gate arrays (FPGAs), which are semiconductor integrated circuits, or chips, that the Company’s customers program to perform desired logic and processing functions in their electronic systems. Highly integrated power devices, known as power system-on-chip devices (PowerSoCs), which simplify and drive the miniaturization of power circuitry found in the electronic systems of the Company’s PLD customers. Pre-defined design building blocks, known as intellectual property (IP) cores, which can be licensed by customers to add standard functions to their PLD designs. Development software is used by customers to develop, compile and verify their designs, and then program their designs into the Company’s PLDs.

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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.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ALTR – October 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 $15,162,891,044 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.57 Pass
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 35.76% Pass
6. Moderate PEmg Ratio PEmg < 20 35.64 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.60 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 4.57 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.67 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

ALTR value Chart October 2015

EPSmg $1.41
MG Growth Estimate -3.45%
MG Value $2.24
Opinion Overvalued
MG Value based on 3% Growth $20.40
MG Value based on 0% Growth $11.96
Market Implied Growth Rate 13.57%
Current Price $50.13
% of Intrinsic Value 2236.06%

Altera Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned by the short dividend history and the high PEmg and PB ratios, while the Enterprising Investor is only concerned by the lack of earnings growth over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.83 in 2011 to an estimated $1.41 for 2015.  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.

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 Altera Corporation (ALTR)?  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

ALTR Charts October 2015

Net Current Asset Value (NCAV) $1.33
Graham Number $15.95
PEmg 35.64
Current Ratio 4.57
PB Ratio 4.60
Dividend Yield 1.44%
Number of Consecutive Years of Dividend Growth 9

 

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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 $2,868,562,000
Total Current Liabilities $628,206,000
Long-Term Debt $1,493,406,000
Total Assets $5,784,456,000
Intangible Assets $141,741,000
Total Liabilities $2,464,663,000
Shares Outstanding (Diluted Average) 304,604,000

Earnings Per Share History

Next Fiscal Year Estimate $1.03
Dec14 $1.52
Dec13 $1.36
Dec12 $1.72
Dec11 $2.35
Dec10 $2.49
Dec09 $0.84
Dec08 $1.18
Dec07 $0.82
Dec06 $0.88
Dec05 $0.74
Dec04 $0.72
Dec03 $0.39
Dec02 $0.22
Dec01 -$0.10
Dec00 $1.19
Dec99 $0.54
Dec98 $0.39
Dec97 $0.34
Dec96 $0.29
Dec95 $0.24

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.41
Dec14 $1.69
Dec13 $1.77
Dec12 $1.89
Dec11 $1.83
Dec10 $1.46
Dec09 $0.93
Dec08 $0.93
Dec07 $0.78
Dec06 $0.70
Dec05 $0.54
Dec04 $0.45
Dec03 $0.36
Dec02 $0.38
Dec01 $0.47
Dec00 $0.68
Dec99 $0.41

Recommended Reading:

Other ModernGraham posts about the company

Altera Corporation Analysis – July 2015 Update $ALTR
27 Companies in the Spotlight This Week – 4/4/15
15 Companies in the Spotlight This Week – 12/27/14
Altera Corporation Quarterly Valuation – December 2014 $ALTR
17 Companies in the Spotlight This Week – 9/27/2014

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The Best Stocks of the IT Hardware Industry – September 2015

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.

Altera Corporation Analysis – July 2015 Update $ALTR

altera-logo-v3Benjamin 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 – June 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 Altera Corporation (ALTR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Altera Corporation is a semiconductor company that designs and sells a range of products, including programmable logic devices (PLDs), highly integrated power devices, pre-defined design building blocks and development software. PLDs consist of field-programmable gate arrays (FPGAs), which are semiconductor integrated circuits, or chips, that the Company’s customers program to perform desired logic and processing functions in their electronic systems. Highly integrated power devices, known as power system-on-chip devices (PowerSoCs), which simplify and drive the miniaturization of power circuitry found in the electronic systems of the Company’s PLD customers. Pre-defined design building blocks, known as intellectual property (IP) cores, which can be licensed by customers to add standard functions to their PLD designs. Development software is used by customers to develop, compile and verify their designs, and then program their designs into the Company’s PLDs.

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. 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 - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $50.45
MG Value $2.83
MG Opinion Overvalued
Value Based on 3% Growth $20.74
Value Based on 0% Growth $12.16
Market Implied Growth Rate 13.39%
Net Current Asset Value (NCAV) $2.28
PEmg 35.28
Current Ratio 4.95
PB Ratio 4.63

Balance Sheet – March 2015

Current Assets $3,155,000,000
Current Liabilities $638,000,000
Total Debt $1,493,000,000
Total Assets $5,767,000,000
Intangible Assets $144,000,000
Total Liabilities $2,464,000,000
Outstanding Shares 303,300,000

Earnings Per Share

2015 (estimate) $1.10
2014 $1.52
2013 $1.36
2012 $1.72
2011 $2.35
2010 $2.49
2009 $0.84
2008 $1.18
2007 $0.82
2006 $0.88
2005 $0.74

Earnings Per Share – ModernGraham

2015 (estimate) $1.43
2014 $1.69
2013 $1.77
2012 $1.89
2011 $1.83
2010 $1.46

Dividend History

Conclusion:

Altera Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history as well as the high PEmg and PB ratios.  The Enterprising Investor is only concerned by the lack of earnings growth over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.83 in 2011 to only an estimated $1.43 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 13.39% 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 falling 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 Altera Corporation (ALTR)?  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.

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Altera Corporation Quarterly Valuation – March 2015 $ALTR

altera-logo-v3

Altera Corporation is suitable for the Enterprising Investor, but not for the more conservative Defensive Investor, who is concerned about the short dividend history, along with the high PEmg and PB ratios. The Enterprising Investor, on the other hand, has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, Altera has grown its EPSmg (normalized earnings) from $1.46 in 2010 to only $1.69 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 8.86% over the next 7-10 years. Therefore, the model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.

Be sure to check out previous ModernGraham valuations of Altera Corporation (ALTR) for a greater perspective!

Read the full valuation on Seeking Alpha!

ALTR Chart

ALTR data by YCharts

Disclaimer: The author did not hold a position in Altera Corporation (ALTR) 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.

Altria Group Inc. Annual Valuation – 2015 $MO

220px-Altria_logo.svgBenjamin 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 – December 2014.  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 specific look at how Altria Group (MO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Altria Group, Inc., is a holding company. At December 31, 2012, Altria Group, Inc.’s direct and indirect wholly-owned subsidiaries included Philip Morris USA Inc. (PM USA), which is engaged in the manufacture and sale of cigarettes and certain smokeless products in the United States; John Middleton Co. (Middleton), which is engaged in the manufacture and sale of machine-made cigars and pipe tobacco, and is a wholly owned subsidiary of PM USA; and UST LLC (UST), which through its direct and indirect wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (USSTC) and Ste. Michelle Wine Estates Ltd. (Ste. Michelle), is engaged in the manufacture and sale of smokeless products and wine. In April 2014, the Company;s subsidiary Nu Mark LLC completed acquisition of e-vapor business of Green Smoke, Inc and its affiliates.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. 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
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $53.99
MG Value $10.16
MG Opinion Overvalued
Value Based on 3% Growth $31.64
Value Based on 0% Growth $18.55
Market Implied Growth Rate 8.12%
Net Current Asset Value (NCAV) -$12.18
PEmg 24.74
Current Ratio 0.77
PB Ratio 24.91

Balance Sheet – September 2014

Current Assets $5,662,000,000
Current Liabilities $7,367,000,000
Total Debt $12,693,000,000
Total Assets $34,082,000,000
Intangible Assets $17,339,000,000
Total Liabilities $29,788,000,000
Outstanding Shares 1,981,000,000

Earnings Per Share

2014 (estimate) $2.55
2013 $2.26
2012 $1.93
2011 $1.64
2010 $1.87
2009 $1.54
2008 $2.36
2007 $4.62
2006 $5.71
2005 $4.99
2004 $4.56

Earnings Per Share – ModernGraham

2014 (estimate) $2.18
2013 $1.95
2012 $1.82
2011 $1.98
2010 $2.50
2009 $3.16

Dividend History

Conclusion:

Altria Group is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets, and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.50 in 2010 to an estimated $2.18 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 8.12% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of Altria Group (MO) for greater perspective!

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 Altria Group (MO)?  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 Altria Group (MO) 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.

Altera Corporation Quarterly Valuation – December 2014 $ALTR

altera-logo-v3Benjamin 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 – December 2014.  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 specific look at how Altera Corporation (ALTR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Altera Corporation is a semiconductor company. The Company designs and sells high-performance, high-density programmable logic devices (PLDs), HardCopy application-specific integrated circuit (ASIC) devices, power system-on-chip devices (PowerSoCs), pre-defined design building blocks known as intellectual property (IP) cores, and associated development tools. Its PLDs, which consist of field-programmable gate arrays (FPGAs), and complex programmable logic devices (CPLDs), are semiconductor integrated circuits that are manufactured as standard chips that its customers program to perform desired logic functions within their electronic systems. With its Hardcopy devices, the Company offers its customers a migration path from a PLD to a non-programmable implementation of their designs. Its products serve a range of customers within the telecom and wireless, industrial automation, military and automotive, networking, computer, and storage and vertical markets.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. 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 - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $37.22
MG Value $22.08
MG Opinion Overvalued
Value Based on 3% Growth $24.40
Value Based on 0% Growth $14.30
Market Implied Growth Rate 6.81%
Net Current Asset Value (NCAV) $3.65
PEmg 22.12
Current Ratio 5.59
PB Ratio 3.47

Balance Sheet – September 2014

Current Assets $3,584,000,000
Current Liabilities $641,000,000
Total Debt $1,492,000,000
Total Assets $5,781,000,000
Intangible Assets $149,000,000
Total Liabilities $2,451,000,000
Outstanding Shares 310,200,000

Earnings Per Share

2014 (estimate) $1.49
2013 $1.36
2012 $1.72
2011 $2.35
2010 $2.49
2009 $0.84
2008 $1.18
2007 $0.82
2006 $0.88
2005 $0.74
2004 $0.72

Earnings Per Share – ModernGraham

2014 (estimate) $1.68
2013 $1.77
2012 $1.89
2011 $1.83
2010 $1.46
2009 $0.93

Dividend History

Conclusion:

Altera Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the short dividend history as well as the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.46 in 2010 to only an estimated $1.68 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.81% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Altera Corporation (ALTR) for greater perspective!

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 Altera Corporation (ALTR)?  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 Altera Corporation (ALTR) or in any other 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.

Altera Corporation Quarterly Stock Valuation – September 2014 $ALTR

altera-logo-v3Benjamin 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 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  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 specific look at how Altera Corporation (ALTR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Altera Corporation is a global semiconductor company. The Company designs, manufactures, and markets high-density programmable logic devices (PLDs), HardCopy ASIC devices, pre-defined design building blocks known as intellectual property (IP) cores, and associated development tools. Its PLDs, which consist of field-programmable gate arrays (FPGAs), and complex programmable logic devices (CPLDs), are semiconductor integrated circuits that are manufactured as standard chips that its customers program to perform desired logic functions within their electronic systems. With its HardCopy devices the Company offers its customers a migration path from a PLD to a non-programmable implementation of their designs. Its customers can license IP cores from the Company for implementation of standard functions in their PLD designs. In April 2013, the Company acquired TPACK, a wholly owned subsidiary of Applied Micro Circuits Corp.
ALTR Chart

ALTR data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. 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 -PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $36.48
MG Value $21.76
MG Opinion Overvalued
Value Based on 3% Growth $24.30
Value Based on 0% Growth $14.25
Market Implied Growth Rate 6.63%
Net Current Asset Value (NCAV) $3.83
PEmg 21.77
Current Ratio 5.73
PB Ratio 3.33

Balance Sheet – 6/27/2014

Current Assets $3,609,700,000
Current Liabilities $630,300,000
Total Debt $1,492,100,000
Total Assets $5,815,900,000
Intangible Assets $151,600,000
Total Liabilities $2,426,700,000
Outstanding Shares 308,960,000

Earnings Per Share

2014 (estimate) $1.47
2013 $1.36
2012 $1.72
2011 $2.35
2010 $2.49
2009 $0.84
2008 $1.18
2007 $0.82
2006 $0.88
2005 $0.74
2004 $0.72

Earnings Per Share – ModernGraham

2014 (estimate) $1.68
2013 $1.77
2012 $1.89
2011 $1.83
2010 $1.46
2009 $0.93

Dividend History
ALTR Dividend Chart

ALTR Dividend data by YCharts

Conclusion:

Altera Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the short dividend history as well as the high PEmg and PB ratios while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.46 in 2010 to an estimated $1.68 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.63% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to 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 Altera Corporation (ALTR)?  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 Altera Corporation (ALTR) or in any other 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.

Altria Group Inc. (MO) Annual Valuation

moneyCompany Profile (obtained from Google Finance): Altria Group, Inc. is a holding company. At December 31, 2012, Altria Group, Inc.’s direct and indirect wholly owned subsidiaries included Philip Morris USA Inc. (PM USA), which is engaged in the manufacture and sale of cigarettes and certain smokeless products in the United States; John Middleton Co. (Middleton), which is engaged in the manufacture and sale of machine-made cigars and pipe tobacco, and is a wholly owned subsidiary of PM USA; and UST LLC (UST), which through its direct and indirect wholly owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (USSTC) and Ste. Michelle Wine Estates Ltd. (Ste. Michelle), is engaged in the manufacture and sale of smokeless products and wine. Philip Morris Capital Corporation (PMCC), another wholly owned subsidiary of Altria Group, Inc., maintains a portfolio of leveraged and direct finance leases. In addition, Altria Group, Inc. held approximately 26.9% of the economic and voting interest of SABMiller plc (SABMiller).

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. 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
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Opinion Overvalued
Value Based on 3% Growth $30.33
Value Based on 0% Growth $17.78
Market Implied Growth Rate 4.60%
Net Current Asset Value (NCAV) -$12.21
PEmg 17.70
Current Ratio 0.91
PB Ratio 18.61

Balance Sheet – 9/30/2013 

Current Assets $7,549,000,000
Current Liabilities $8,337,000,000
Total Debt $12,892,000,000
Total Assets $35,950,000,000
Intangible Assets $17,237,000,000
Total Liabilities $31,969,000,000
Outstanding Shares 2,000,290,000

Earnings Per Share

2013 (estimate) $2.58
2012 $2.07
2011 $1.64
2010 $1.87
2009 $1.54
2008 $1.48
2007 $4.33
2006 $5.71
2005 $5.10
2004 $4.57
2003 $4.52

Earnings Per Share – ModernGraham 

2013 (estimate) $2.09
2012 $1.81
2011 $1.84
2010 $2.29
2009 $2.88
2008 $3.77

Conclusion:

Altria Group is a company that Defensive Investors and Enterprising Investors should shy away from for the near future.  The company has a poor current ratio, has not achieved sufficient growth over either the 5-year or 10-year historical period, and is trading at a high PB ratio.  Value investors seeking to follow Benjamin Graham’s methods should seek other opportunities, starting with a review of companies that pass the ModernGraham requirements.  From a valuation perspective, the company’s poor level of growth over the last 5 years does not support much of a value.  EPSmg (normalized earnings) have actually dropped from $2.88 in 2009 to an estimated $2.09 for 2013.  This indicates that any value must come from the balance sheet, rather than the earnings, but the net current asset value is also very poor for this company.  Therefore, the company would appear to be overvalued presently.

What do you think?  What value would you put on Altria Group (MO)?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Altria Group (MO) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

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