Donaldson Co Inc Valuation – Initial Coverage $DCI

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 – March 2017.  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 Donaldson Co Inc (DCI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Donaldson Company, Inc. is a manufacturer of filtration systems and replacement parts. The Company’s segments include Engine Products, Industrial Products and Corporate. The Company’s products are manufactured at approximately 44 plants around the world and through three joint ventures. The Company offers its products under the Ultra-Web, PowerCore and Donaldson brands. The Engine Products segment sells its products to original equipment manufacturers (OEMs) in the construction, mining, agriculture, aerospace, defense and truck end-markets and to independent distributors, OEM dealer networks, private label accounts and large equipment fleets. The Industrial Products segment sells to various industrial dealers, distributors, OEMs of gas-fired turbines and OEMs and end users requiring clean air. Its products include dust, fume and mist collectors, compressed air purification systems, air filtration systems for gas turbines and polytetrafluoroethylene (PTFE) membrane-based products.

DCI Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DCI – July 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,130,870,441 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.66 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 58.57% Pass
6. Moderate PEmg Ratio PEmg < 20 29.04 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.85 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 1.66 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.69 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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.61
MG Growth Estimate 1.18%
MG Value $17.47
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $23.31
MG Value based on 0% Growth $13.66
Market Implied Growth Rate 10.27%
Current Price $46.67
% of Intrinsic Value 267.13%

Donaldson Company, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, high PEmg and PB ratios. 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 Overvalued after growing its EPSmg (normalized earnings) from $1.49 in 2013 to an estimated $1.61 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 10.27% 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 Donaldson Company, Inc. revealed the company was trading above its Graham Number of $15.12.  The company pays a dividend of $0.69 per share, for a yield of 1.5%  Its PEmg (price over earnings per share – ModernGraham) was 29.04, which was above the industry average of 24.17.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.01.

Donaldson Company, 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) $0.01
Graham Number $15.12
PEmg 29.04
Current Ratio 1.66
PB Ratio 7.85
Current Dividend $0.69
Dividend Yield 1.47%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2017
Total Current Assets $1,084,000,000
Total Current Liabilities $654,900,000
Long-Term Debt $298,100,000
Total Assets $1,880,300,000
Intangible Assets $268,100,000
Total Liabilities $1,082,600,000
Shares Outstanding (Diluted Average) 134,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.76
Jul2016 $1.42
Jul2015 $1.49
Jul2014 $1.76
Jul2013 $1.64
Jul2012 $1.73
Jul2011 $1.43
Jul2010 $1.05
Jul2009 $0.84
Jul2008 $1.06
Jul2007 $0.92
Jul2006 $0.78
Jul2005 $0.64
Jul2004 $0.59
Jul2003 $0.53
Jul2002 $0.48
Jul2001 $0.42
Jul2000 $0.38
Jul1999 $0.33
Jul1998 $0.29
Jul1997 $0.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.61
Jul2016 $1.56
Jul2015 $1.62
Jul2014 $1.63
Jul2013 $1.49
Jul2012 $1.35
Jul2011 $1.13
Jul2010 $0.96
Jul2009 $0.89
Jul2008 $0.88
Jul2007 $0.75
Jul2006 $0.65
Jul2005 $0.57
Jul2004 $0.51
Jul2003 $0.46
Jul2002 $0.41
Jul2001 $0.36

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Eaton Corp PLC Valuation – March 2018 $ETN

Company Profile (excerpt from Reuters): Eaton Corporation plc (Eaton), incorporated on May 10, 2012, is a power management company. The Company provides solutions that help its customers manage electrical, hydraulic and mechanical power. Its segments include Electrical Products, Electrical Systems and Services, Hydraulics, Aerospace and Vehicle. Eaton had operations in over 60 countries and sold products to customers in more than 175 countries, as of December 31, 2016.

ETN Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ETN – 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 $34,632,054,600 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.64 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 104.87% Pass
6. Moderate PEmg Ratio PEmg < 20 15.56 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.05 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 1.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.20 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 $5.13
MG Growth Estimate 5.87%
MG Value $103.88
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $74.45
MG Value based on 0% Growth $43.64
Market Implied Growth Rate 3.53%
Current Price $79.91
% of Intrinsic Value 76.93%

Eaton Corporation, PLC Ordinary Shares 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 is only concerned with the level of debt relative to the net 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.69 in 2014 to an estimated $5.13 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 3.53% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Eaton Corporation, PLC Ordinary Shares revealed the company was trading above its Graham Number of $67.09. The company pays a dividend of $2.4 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.56, which was below the industry average of 29.29, 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 $-15.87.

Eaton Corporation, PLC Ordinary Shares performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.87
Graham Number $67.09
PEmg 15.56
Current Ratio 1.64
PB Ratio 2.05
Current Dividend $2.40
Dividend Yield 3.00%
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 $8,337,000,000
Total Current Liabilities $5,075,000,000
Long-Term Debt $7,167,000,000
Total Assets $32,623,000,000
Intangible Assets $18,833,000,000
Total Liabilities $15,370,000,000
Shares Outstanding (Diluted Average) 443,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.10
Dec2017 $6.68
Dec2016 $4.20
Dec2015 $4.22
Dec2014 $3.76
Dec2013 $3.90
Dec2012 $3.46
Dec2011 $3.93
Dec2010 $2.73
Dec2009 $1.14
Dec2008 $3.26
Dec2007 $3.31
Dec2006 $3.11
Dec2005 $2.62
Dec2004 $2.07
Dec2003 $1.28
Dec2002 $0.98
Dec2001 $0.60
Dec2000 $1.56
Dec1999 $2.09
Dec1998 $1.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.13
Dec2017 $4.95
Dec2016 $4.03
Dec2015 $3.91
Dec2014 $3.69
Dec2013 $3.45
Dec2012 $3.12
Dec2011 $2.92
Dec2010 $2.51
Dec2009 $2.50
Dec2008 $3.08
Dec2007 $2.82
Dec2006 $2.38
Dec2005 $1.85
Dec2004 $1.41
Dec2003 $1.15
Dec2002 $1.16

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
Eaton Corporation Annual Valuation – 2015 $ETN
40 Companies in the Spotlight This Week – 2/21/15
Eaton Corporation PLC Quarterly Valuation – February 2015 $ETN
30 Companies in the Spotlight This Week – 11/15/14

Other ModernGraham posts about related companies

Deere & Co Valuation – March 2018 $DE
A.O. Smith Corp Valuation – March 2018 $AOS
Parker-Hannifin Corp Valuation – March 2018 $PH
Dover Corp Valuation – March 2018 $DOV
Ingersoll-Rand PLC Valuation – February 2018 $IR
Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK

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.

Fastenal Co Valuation – March 2018 $FAST

Company Profile (excerpt from Reuters): Fastenal Company, incorporated on December 24, 1968, is engaged in wholesale distribution of industrial and construction supplies. The Company is engaged in fastener distribution, and non-fastener maintenance and supply business. As of December 31, 2016, it distributed these supplies through a network of approximately 2,500 company-owned stores. Most of its customers are in the manufacturing and non-residential construction markets. The manufacturing market includes both original equipment manufacturers (OEM) and maintenance, repair, and operations (MRO). The non-residential construction market includes general, electrical, plumbing, sheet metal and road contractors. Other users of its products include farmers, truckers, railroads, oil exploration, production and refinement companies, mining companies, federal, state, and local governmental entities, schools and certain retail trades. Geographically, its stores and customers are primarily located in North America.

FAST Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FAST – 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 $15,487,469,576 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.51 Pass
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 123.08% Pass
6. Moderate PEmg Ratio PEmg < 20 26.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.38 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 5.51 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.26 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.01
MG Growth Estimate 5.65%
MG Value $39.85
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $29.17
MG Value based on 0% Growth $17.10
Market Implied Growth Rate 9.13%
Current Price $53.85
% of Intrinsic Value 135.14%

Fastenal Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 Overvalued after growing its EPSmg (normalized earnings) from $1.46 in 2014 to an estimated $2.01 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.13% 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 Fastenal Company revealed the company was trading above its Graham Number of $19.63. The company pays a dividend of $1.28 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.76, which was below the industry average of 29.29, 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 $3.9.

Fastenal Company performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $3.90
Graham Number $19.63
PEmg 26.76
Current Ratio 5.51
PB Ratio 7.38
Current Dividend $1.28
Dividend Yield 2.38%
Number of Consecutive Years of Dividend Growth 20

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 $1,935,700,000
Total Current Liabilities $351,000,000
Long-Term Debt $412,000,000
Total Assets $2,910,500,000
Intangible Assets $0
Total Liabilities $813,600,000
Shares Outstanding (Diluted Average) 287,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.35
Dec2017 $2.01
Dec2016 $1.73
Dec2015 $1.77
Dec2014 $1.66
Dec2013 $1.51
Dec2012 $1.42
Dec2011 $1.21
Dec2010 $0.90
Dec2009 $0.62
Dec2008 $0.94
Dec2007 $0.78
Dec2006 $0.66
Dec2005 $0.55
Dec2004 $0.43
Dec2003 $0.28
Dec2002 $0.25
Dec2001 $0.23
Dec2000 $0.27
Dec1999 $0.22
Dec1998 $0.18

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.01
Dec2017 $1.81
Dec2016 $1.68
Dec2015 $1.60
Dec2014 $1.46
Dec2013 $1.29
Dec2012 $1.12
Dec2011 $0.94
Dec2010 $0.80
Dec2009 $0.74
Dec2008 $0.75
Dec2007 $0.62
Dec2006 $0.51
Dec2005 $0.40
Dec2004 $0.32
Dec2003 $0.25
Dec2002 $0.24

Recommended Reading:

Other ModernGraham posts about the company

Fastenal Company Valuation – July 2016 $FAST
9 Best Stocks For Value Investors This Week – 11/28/15
Fastenal Co Valuation – November 2015 Update $FAST
19 Best Stocks For Value Investors This Week – 8/29/15
Fastenal Company Analysis – August 2015 Update $FAST

Other ModernGraham posts about related companies

Deere & Co Valuation – March 2018 $DE
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Dover Corp Valuation – March 2018 $DOV
Ingersoll-Rand PLC Valuation – February 2018 $IR
Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK

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.

Deere & Co Valuation – March 2018 $DE

Company Profile (obtained from Marketwatch): Deere & Co. manufactures and distributes a complete line of equipment used in agriculture, construction, forestry and turf care. It also manufactures engines and other power train components. It operates its business through the following segments: Agriculture and Turf, Construction and Forestry, and Financial Services. The Agriculture and Turf segment primarily manufactures and distributes a full line of agriculture, turf equipment and related service parts, including large, medium and utility tractors; loaders; combines, corn pickers, cotton, sugarcane harvesters and related front-end equipment, sugarcane loaders; tillage, seeding and application equipment, including sprayers, nutrient management and soil preparation machinery; hay and forage equipment, including self-propelled forage harvesters and attachments, balers and mowers; turf and utility equipment, including riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements; integrated agricultural management systems technology; precision agricultural irrigation equipment, supplies; landscape, nursery products and other outdoor power products. The Construction and Forestry segment primarily manufactures and distributes machines and service parts used in construction, earthmoving, material handling and timber harvesting, including backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders; skid-steer loaders; and log skidders, feller bunchers, log loaders, log forwarders, log harvesters and related attachments. The Financial Services segment primarily finances sales and leases by dealers of new and used agriculture and turf equipment and construction & forestry equipment. This segment also provides wholesale financing to dealers of the foregoing equipment, finances retail revolving charge accounts, and operating loans and offers crop risk mitigation products and extended equipment warranties. The company was founded by John Deere in 1837 and is headquartered in Moline, IL.

DE Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DE – 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 $51,591,835,133 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.98 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 56.44% Pass
6. Moderate PEmg Ratio PEmg < 20 22.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.57 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 1.98 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.19 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.06
MG Growth Estimate -1.77%
MG Value $35.05
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $102.34
MG Value based on 0% Growth $59.99
Market Implied Growth Rate 7.06%
Current Price $159.60
% of Intrinsic Value 455.41%

Deere & Company 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 PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $8 in 2014 to an estimated $7.06 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.06% 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 Deere & Company revealed the company was trading above its Graham Number of $77.16. The company pays a dividend of $2.4 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 22.61, which was below the industry average of 29.29, 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 $-37.95.

Deere & Company scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$37.95
Graham Number $77.16
PEmg 22.61
Current Ratio 1.98
PB Ratio 5.57
Current Dividend $2.40
Dividend Yield 1.50%
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 1/1/2018
Total Current Assets $45,075,100,000
Total Current Liabilities $22,779,500,000
Long-Term Debt $26,421,800,000
Total Assets $66,577,500,000
Intangible Assets $4,771,300,000
Total Liabilities $57,324,900,000
Shares Outstanding (Diluted Average) 322,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.91
Oct2017 $6.68
Oct2016 $4.81
Oct2015 $5.77
Oct2014 $8.63
Oct2013 $9.09
Oct2012 $7.63
Oct2011 $6.63
Oct2010 $4.35
Oct2009 $2.06
Oct2008 $4.70
Oct2007 $4.00
Oct2006 $3.59
Oct2005 $2.94
Oct2004 $2.78
Oct2003 $1.32
Oct2002 $0.67
Oct2001 -$0.14
Oct2000 $1.03
Oct1999 $0.51
Oct1998 $2.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.06
Oct2017 $6.42
Oct2016 $6.59
Oct2015 $7.50
Oct2014 $8.00
Oct2013 $7.11
Oct2012 $5.77
Oct2011 $4.68
Oct2010 $3.71
Oct2009 $3.41
Oct2008 $3.93
Oct2007 $3.34
Oct2006 $2.76
Oct2005 $2.06
Oct2004 $1.46
Oct2003 $0.76
Oct2002 $0.60

Recommended Reading:

Other ModernGraham posts about the company

Deere & Company Valuation – January 2016 Update $DE
10 Undervalued Companies for the Defensive Dividend Stock Investor – December 2015
10 Low PE Stocks for the Defensive Investor – December 2015
10 Most Undervalued Companies for the Defensive Investor – November 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – November 2015

Other ModernGraham posts about related companies

A.O. Smith Corp Valuation – March 2018 $AOS
Parker-Hannifin Corp Valuation – March 2018 $PH
Dover Corp Valuation – March 2018 $DOV
Ingersoll-Rand PLC Valuation – February 2018 $IR
Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN

Disclaimer:

The author held a long position in DE but did not hold a position 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.  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.

A.O. Smith Corp Valuation – March 2018 $AOS

 

AOS Chart

AOS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AOS – 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 $11,096,333,508 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.24 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 87.83% Pass
6. Moderate PEmg Ratio PEmg < 20 58.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.80 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 2.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.41 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.11
MG Growth Estimate 0.80%
MG Value $11.20
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $16.10
MG Value based on 0% Growth $9.44
Market Implied Growth Rate 24.82%
Current Price $64.54
% of Intrinsic Value 576.03%

A. O. Smith Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years. 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 Overvalued after growing its EPSmg (normalized earnings) from $1.05 in 2014 to an estimated $1.11 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 24.82% 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 A. O. Smith Corp revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.56 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 58.14, which was above the industry average of 29.29. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.26.

A. O. Smith 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) $1.26
Graham Number $0.00
PEmg 58.14
Current Ratio 2.24
PB Ratio 6.80
Current Dividend $0.56
Dividend Yield 0.87%
Number of Consecutive Years of Dividend Growth 20

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 $1,766,800,000
Total Current Liabilities $788,500,000
Long-Term Debt $402,900,000
Total Assets $3,197,300,000
Intangible Assets $825,400,000
Total Liabilities $1,548,500,000
Shares Outstanding (Diluted Average) 173,766,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate
Dec2017 $1.70
Dec2016 $1.85
Dec2015 $1.58
Dec2014 $1.14
Dec2013 $0.92
Dec2012 $0.86
Dec2011 $1.64
Dec2010 $0.61
Dec2009 $0.59
Dec2008 $0.45
Dec2007 $0.48
Dec2006 $0.41
Dec2005 $0.26
Dec2004 $0.20
Dec2003 $0.29
Dec2002 $0.31
Dec2001 $0.10
Dec2000 $0.21
Dec1999 $0.30
Dec1998 $0.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.11
Dec2017 $1.59
Dec2016 $1.45
Dec2015 $1.24
Dec2014 $1.05
Dec2013 $0.98
Dec2012 $0.95
Dec2011 $0.92
Dec2010 $0.54
Dec2009 $0.48
Dec2008 $0.41
Dec2007 $0.37
Dec2006 $0.31
Dec2005 $0.24
Dec2004 $0.23
Dec2003 $0.25
Dec2002 $0.23

Recommended Reading:

Other ModernGraham posts about the company

A.O. Smith Corp Valuation – November 2015 Update $AOS
A.O. Smith Corporation Analysis – Initial Coverage $AOS

Other ModernGraham posts about related companies

Parker-Hannifin Corp Valuation – March 2018 $PH
Dover Corp Valuation – March 2018 $DOV
Ingersoll-Rand PLC Valuation – February 2018 $IR
Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN
Lennox International Inc Valuation – Initial Coverage $LII

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.

Parker-Hannifin Corp Valuation – March 2018 $PH

Company Profile (obtained from Marketwatch): Parker-Hannifin Corp. is a manufacturer of motion and control technologies and systems, providing engineered solutions for mobile, industrial and aerospace markets. It operates through the following segments: Diversified Industrial and Aerospace Systems. The Diversified Industrial Segment offers products to original equipment manufacturers. The Aerospace Systems Segment involves products for the commercial and military aerospace markets. The company was founded by Arthur L. Parker in 1918 and is headquartered in Cleveland, OH.

PH Chart

PH data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PH – 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 $23,356,670,374 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.49 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 62.40% Pass
6. Moderate PEmg Ratio PEmg < 20 24.72 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.34 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 1.49 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.74 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 $7.10
MG Growth Estimate 1.33%
MG Value $79.20
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $102.98
MG Value based on 0% Growth $60.37
Market Implied Growth Rate 8.11%
Current Price $175.55
% of Intrinsic Value 221.67%

Parker-Hannifin 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, 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 $6.53 in 2014 to an estimated $7.1 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.11% 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 Parker-Hannifin Corp revealed the company was trading above its Graham Number of $83.32. The company pays a dividend of $2.58 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 24.72, which was above the industry average of 24.17. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-37.93.

Parker-Hannifin Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$37.93
Graham Number $83.32
PEmg 24.72
Current Ratio 1.49
PB Ratio 4.34
Current Dividend $2.58
Dividend Yield 1.47%
Number of Consecutive Years of Dividend Growth 20

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 $5,286,359,000
Total Current Liabilities $3,537,703,000
Long-Term Debt $4,798,371,000
Total Assets $15,965,181,000
Intangible Assets $7,872,811,000
Total Liabilities $10,451,780,000
Shares Outstanding (Diluted Average) 136,195,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.81
Jun2017 $7.25
Jun2016 $5.89
Jun2015 $6.97
Jun2014 $6.87
Jun2013 $6.26
Jun2012 $7.45
Jun2011 $6.37
Jun2010 $3.40
Jun2009 $3.13
Jun2008 $5.53
Jun2007 $4.68
Jun2006 $3.71
Jun2005 $3.35
Jun2004 $1.94
Jun2003 $1.12
Jun2002 $0.75
Jun2001 $1.97
Jun2000 $2.21
Jun1999 $1.89
Jun1998 $1.90

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.10
Jun2017 $6.71
Jun2016 $6.53
Jun2015 $6.83
Jun2014 $6.53
Jun2013 $6.01
Jun2012 $5.65
Jun2011 $4.71
Jun2010 $3.95
Jun2009 $4.17
Jun2008 $4.41
Jun2007 $3.55
Jun2006 $2.72
Jun2005 $2.09
Jun2004 $1.50
Jun2003 $1.39
Jun2002 $1.60

Recommended Reading:

Other ModernGraham posts about the company

Parker Hannifin Corp Valuation – January 2016 Update $PH
Dividend Growth Stocks for the Intelligent Investor – November 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015
15 Best Stocks For Value Investors This Week – 9/12/15
Dividend Growth Stocks for the Intelligent Investor – September 2015

Other ModernGraham posts about related companies

Ingersoll-Rand PLC Valuation – February 2018 $IR
Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN
Lennox International Inc Valuation – Initial Coverage $LII
Standex Int’l Corp Valuation – Initial Coverage $SXI
Pentair PLC Valuation – March 2017 $PNR

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.

Dover Corp Valuation – March 2018 $DOV

Company Profile (obtained from Marketwatch): Dover Corp. engages in the manufacture of equipment, components, and specialty systems. It also provides supporting engineering, testing, and other similar services. It operates through the following segments: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. The Energy segment services include drilling and production; bearings and compression; and automation end markets. The Engineered Systems segment comprises of platforms the printing and identification as well as industrials; and is focused on the design, manufacture, and service of critical equipment and components. The Fluids segment services involves fluid transfer and pumps end markets. The Refrigeration & Food Equipment segment provides energy equipment and systems serving the commercial refrigeration; and food service industries. The company was founded by George L. Ohrstrom in 1947 and is headquartered in Downers Grove, IL.

DOV Chart

DOV data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DOV – 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 $15,128,959,930 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.40 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 28.21% Fail
6. Moderate PEmg Ratio PEmg < 20 20.93 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.54 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 1.40 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.29 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.68
MG Growth Estimate -0.47%
MG Value $35.39
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $67.87
MG Value based on 0% Growth $39.79
Market Implied Growth Rate 6.22%
Current Price $97.97
% of Intrinsic Value 276.85%

Dover Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the 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 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 $4.83 in 2014 to an estimated $4.68 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.22% 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 Dover Corp revealed the company was trading above its Graham Number of $55.52. The company pays a dividend of $1.82 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 20.93, which was below the industry average of 24.17, 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 $-19.38.

Dover 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) -$19.38
Graham Number $55.52
PEmg 20.93
Current Ratio 1.40
PB Ratio 3.54
Current Dividend $1.82
Dividend Yield 1.86%
Number of Consecutive Years of Dividend Growth 20

 

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 $3,207,120,000
Total Current Liabilities $2,298,193,000
Long-Term Debt $2,986,702,000
Total Assets $10,657,653,000
Intangible Assets $6,201,839,000
Total Liabilities $6,274,473,000
Shares Outstanding (Diluted Average) 158,281,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.87
Dec2017 $5.15
Dec2016 $3.25
Dec2015 $5.46
Dec2014 $4.59
Dec2013 $5.78
Dec2012 $4.41
Dec2011 $4.74
Dec2010 $3.70
Dec2009 $1.91
Dec2008 $3.12
Dec2007 $3.26
Dec2006 $2.74
Dec2005 $2.50
Dec2004 $2.02
Dec2003 $1.44
Dec2002 -$0.60
Dec2001 $1.22
Dec2000 $2.54
Dec1999 $4.41
Dec1998 $1.69

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.68
Dec2017 $4.67
Dec2016 $4.52
Dec2015 $5.10
Dec2014 $4.83
Dec2013 $4.67
Dec2012 $3.94
Dec2011 $3.58
Dec2010 $2.98
Dec2009 $2.65
Dec2008 $2.93
Dec2007 $2.68
Dec2006 $2.14
Dec2005 $1.66
Dec2004 $1.27
Dec2003 $1.20
Dec2002 $1.33

Recommended Reading:

Other ModernGraham posts about the company

Dover Corporation Valuation – July 2016 $DOV
Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
13 Best Stocks For Value Investors This Week – 12/12/15
Dover Corp Valuation – December 2015 Update $DOV

Other ModernGraham posts about related companies

Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN
Lennox International Inc Valuation – Initial Coverage $LII
Standex Int’l Corp Valuation – Initial Coverage $SXI
Pentair PLC Valuation – March 2017 $PNR
Lincoln Electric Holdings Inc Valuation – Initial Coverage $LECO

Disclaimer:

The author held a long position in DOV but did not hold a position 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.  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.

Ingersoll-Rand PLC Valuation – February 2018 $IR

Company Profile (obtained from Marketwatch): Ingersoll-Rand Plc engages in the development, manufacture and trade of air and ventilation systems. It operates through two segments: Climate and Industrial. The Climate segment provides products for heating, ventilation, and air conditioning systems. The Industrial segment offers compressed air an gas systems, power tools, material handling systems, and fluid management equipment. It distributes its products under the following brand names: Ingersoll-Rand, Trane, Thermo King, American Standard, ARO, and Club Car. The company was founded in December 2001 and is headquartered in Swords, Ireland.

IR Chart

IR data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IR – February 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 $22,190,172,467 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.27 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 268.85% Pass
6. Moderate PEmg Ratio PEmg < 20 18.82 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.15 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 1.27 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.29 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 $4.72
MG Growth Estimate 12.19%
MG Value $155.15
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $68.40
MG Value based on 0% Growth $40.10
Market Implied Growth Rate 5.16%
Current Price $88.80
% of Intrinsic Value 57.24%

Ingersoll-Rand PLC 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 $2.6 in 2014 to an estimated $4.72 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.16% 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 Ingersoll-Rand PLC revealed the company was trading above its Graham Number of $56.98. The company pays a dividend of $1.7 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 18.82, which was below the industry average of 24.17, 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 $-19.4.

Ingersoll-Rand PLC receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.40
Graham Number $56.98
PEmg 18.82
Current Ratio 1.27
PB Ratio 3.15
Current Dividend $1.70
Dividend Yield 1.91%
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 12/1/2017
Total Current Assets $6,119,100,000
Total Current Liabilities $4,828,000,000
Long-Term Debt $2,957,000,000
Total Assets $18,173,300,000
Intangible Assets $9,678,600,000
Total Liabilities $11,033,000,000
Shares Outstanding (Diluted Average) 253,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.05
Dec2017 $5.05
Dec2016 $5.65
Dec2015 $2.48
Dec2014 $3.40
Dec2013 $2.07
Dec2012 $3.28
Dec2011 $1.01
Dec2010 $1.89
Dec2009 $1.37
Dec2008 -$8.73
Dec2007 $13.43
Dec2006 $3.20
Dec2005 $3.09
Dec2004 $3.47
Dec2003 $1.87
Dec2002 -$0.52
Dec2001 $0.74
Dec2000 $2.06
Dec1999 $1.38
Dec1998 $1.54

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.72
Dec2017 $4.28
Dec2016 $3.72
Dec2015 $2.65
Dec2014 $2.60
Dec2013 $2.11
Dec2012 $1.34
Dec2011 $0.85
Dec2010 $1.25
Dec2009 $1.45
Dec2008 $1.95
Dec2007 $6.54
Dec2006 $2.80
Dec2005 $2.31
Dec2004 $1.79
Dec2003 $1.00
Dec2002 $0.72

Recommended Reading:

Other ModernGraham posts about the company

34 Companies in the Spotlight This Week – 2/7/15
Ingersoll-Rand Inc. Annual Valuation – 2015 $IR
14 Companies in the Spotlight This Week – 1/18/14
Ingersoll-Rand PLC (IR) Annual Valuation

Other ModernGraham posts about related companies

Briggs & Stratton Corp Valuation – Initial Coverage $BGG
Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN
Lennox International Inc Valuation – Initial Coverage $LII
Standex Int’l Corp Valuation – Initial Coverage $SXI
Pentair PLC Valuation – March 2017 $PNR
Lincoln Electric Holdings Inc Valuation – Initial Coverage $LECO

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.

Briggs & Stratton Corp Valuation – Initial Coverage $BGG

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 Undervalued Stocks for the Enterprising Investor – August 2017.  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 Briggs & Stratton Corp (BGG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Briggs & Stratton Corporation is a producer of gasoline engines for outdoor power equipment. The Company designs, manufactures, markets, sells and services the various products for original equipment manufacturers (OEMs) around the world. It also markets and sells related service parts and accessories for its engines. Its subsidiary is a marketer of pressure washers, and it is a designer, manufacturer and marketer of power generation, lawn and garden, turf care and job site products through its Simplicity, Snapper, Snapper Pro, Ferris, PowerBoss, Allmand, Billy Goat, Murray, Branco and Victa brands. It operates in over 100 countries on six continents. It operates through two segments: Engines and Products. Its Engines segment sells engines around the world, primarily to OEMs of lawn and garden equipment and other gasoline engine-powered equipment. Its Products segment designs, manufactures and markets a range of outdoor power equipment, job site products and related accessories.

BGG Chart

BGG data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BGG – September 2017

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 $901,386,001 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.09 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 79.46% Pass
6. Moderate PEmg Ratio PEmg < 20 18.71 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.57 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 2.09 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.62 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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.11
MG Growth Estimate 15.00%
MG Value $42.81
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $16.12
MG Value based on 0% Growth $9.45
Market Implied Growth Rate 5.10%
Current Price $20.80
% of Intrinsic Value 48.58%

Briggs & Stratton Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  small size, insufficient earnings stability 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 $0.23 in 2014 to an estimated $1.11 for 2018.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.1% 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 Briggs & Stratton Corporation revealed the company was trading above its Graham Number of $20.39.  The company pays a dividend of $0.56 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 18.71, which was below the industry average of 24.17, 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 $-4.79.

Briggs & Stratton Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.79
Graham Number $20.39
PEmg 18.71
Current Ratio 2.09
PB Ratio 1.57
Current Dividend $0.56
Dividend Yield 2.67%
Number of Consecutive Years of Dividend Growth 3

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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 6/1/2017
Total Current Assets $689,441,000
Total Current Liabilities $330,378,000
Long-Term Debt $221,793,000
Total Assets $1,450,979,000
Intangible Assets $271,317,000
Total Liabilities $891,645,000
Shares Outstanding (Diluted Average) 42,239,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.41
Jun2017 $1.31
Jun2016 $0.60
Jun2015 $1.00
Jun2014 $0.59
Jun2013 -$0.73
Jun2012 $0.57
Jun2011 $0.48
Jun2010 $0.73
Jun2009 $0.64
Jun2008 $0.46
Jun2007 $0.13
Jun2006 $1.98
Jun2005 $2.32
Jun2004 $2.72
Jun2003 $1.74
Jun2002 $1.18
Jun2001 $1.11
Jun2000 $2.99
Jun1999 $2.26
Jun1998 $1.43

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.11
Jun2017 $0.83
Jun2016 $0.53
Jun2015 $0.45
Jun2014 $0.23
Jun2013 $0.14
Jun2012 $0.58
Jun2011 $0.55
Jun2010 $0.66
Jun2009 $0.78
Jun2008 $1.07
Jun2007 $1.51
Jun2006 $2.13
Jun2005 $2.08
Jun2004 $1.95
Jun2003 $1.66
Jun2002 $1.68

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Albany International Corp Valuation – Initial Coverage $AIN
Terex Corporation Valuation – Initial Coverage $TEX
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Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN
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Standex Int’l Corp Valuation – Initial Coverage $SXI
Pentair PLC Valuation – March 2017 $PNR
Lincoln Electric Holdings Inc Valuation – Initial Coverage $LECO
Lydall Inc Valuation – Initial Coverage $LDL

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.

Albany International Corp Valuation – Initial Coverage $AIN

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 Undervalued Stocks for the Enterprising Investor – August 2017.  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 Albany International Corp (AIN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Albany International Corp. is focused on textiles and materials processing business. The Company operates through two segments: Machine Clothing and Albany Engineered Composites. The Company’s Machine Clothing segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, nonwovens, fiber cement and various other industrial applications. The Machine Clothing segment also supplies customized, consumable fabrics used in the manufacturing process in the pulp, corrugator, nonwovens, fiber cement, building products, and tannery and textile industries. Its Albany Engineered Composites segment includes Albany Safran Composites, LLC (ASC), in which its customer SAFRAN Group owns interest and provides engineered composite structures based on its technology to customers in the aerospace and defense industries.

AIN Chart

AIN data by YCharts

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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. 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.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AIN – August 2017

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 $1,644,153,897 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.47 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -290.04% Fail
6. Moderate PEmg Ratio PEmg < 20 35.19 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.06 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 2.47 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.48 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 $1.45
MG Growth Estimate 13.94%
MG Value $52.82
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $21.05
MG Value based on 0% Growth $12.34
Market Implied Growth Rate 13.35%
Current Price $51.10
% of Intrinsic Value 96.75%

Albany International Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  small size, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.75 in 2013 to an estimated $1.45 for 2017.  This level of demonstrated earnings growth supports the market’s implied estimate of 13.35% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Albany International Corp. revealed the company was trading above its Graham Number of $21.83.  The company pays a dividend of $0.68 per share, for a yield of 1.3%  Its PEmg (price over earnings per share – ModernGraham) was 35.19, which was above the industry average of 24.17.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.28.

Albany International 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) -$8.28
Graham Number $21.83
PEmg 35.19
Current Ratio 2.47
PB Ratio 3.06
Current Dividend $0.68
Dividend Yield 1.33%
Number of Consecutive Years of Dividend Growth 6

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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 6/1/2017
Total Current Assets $503,447,000
Total Current Liabilities $204,180,000
Long-Term Debt $444,030,000
Total Assets $1,308,268,000
Intangible Assets $227,244,000
Total Liabilities $770,208,000
Shares Outstanding (Diluted Average) 32,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.34
Dec2016 $1.64
Dec2015 $1.79
Dec2014 $1.30
Dec2013 $0.55
Dec2012 $0.97
Dec2011 $1.11
Dec2010 $1.21
Dec2009 -$1.09
Dec2008 -$2.63
Dec2007 $0.60
Dec2006 $1.92
Dec2005 $2.22
Dec2004 $0.31
Dec2003 $1.61
Dec2002 $1.50
Dec2001 $1.03
Dec2000 $1.24
Dec1999 $0.99
Dec1998 $1.01
Dec1997 $1.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.45
Dec2016 $1.42
Dec2015 $1.26
Dec2014 $1.00
Dec2013 $0.75
Dec2012 $0.54
Dec2011 $0.16
Dec2010 -$0.21
Dec2009 -$0.54
Dec2008 -$0.02
Dec2007 $1.30
Dec2006 $1.61
Dec2005 $1.41
Dec2004 $1.05
Dec2003 $1.37
Dec2002 $1.22
Dec2001 $1.11

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Terex Corporation Valuation – Initial Coverage $TEX
Donaldson Co Inc Valuation – Initial Coverage $DCI
Stanley Black & Decker Inc Valuation – April 2017 $SWK
Lindsay Corp Valuation – Initial Coverage $LNN
Lennox International Inc Valuation – Initial Coverage $LII
Standex Int’l Corp Valuation – Initial Coverage $SXI
Pentair PLC Valuation – March 2017 $PNR
Lincoln Electric Holdings Inc Valuation – Initial Coverage $LECO
Lydall Inc Valuation – Initial Coverage $LDL
Regal Beloit Corp Valuation – February 2017 $RBC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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