Huntington Ingalls Industries Inc Valuation – February 2019 $HII

Company Profile (excerpt from Reuters): Huntington Ingalls Industries, Inc., incorporated on August 4, 2010, is a military shipbuilding company and a provider of professional services to partners in government and industry. The Company’s business consists of the design, construction, repair and maintenance of nuclear-powered ships and non-nuclear ships for the United States Navy and coastal defense surface ships for the United States Coast Guard, as well as the refueling and overhaul and inactivation of nuclear-powered ships for the United States Navy. The Company operates through three segments: Ingalls Shipbuilding (Ingalls), Newport News Shipbuilding (Newport News) and Technical Solutions. The Company’s Ingalls segment includes its non-nuclear ship design, construction, repair and maintenance businesses. The Company’s Newport News includes all of its nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses. The Company’s Technical Solutions segment provides a range of professional services, including fleet support, integrated missions solutions, and nuclear and environmental and oil and gas services, to the governmental, energy, and oil and gas markets. The Company conducts majority of its business with the United States Government, principally the Department of Defense (DoD).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HII – February 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,109,897,923 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.14 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 6282.54% Pass
6. Moderate PEmg Ratio PEmg < 20 17.17 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.16 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 1.14 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.62 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 $12.66
MG Growth Estimate 15.00%
MG Value $487.38
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $183.56
MG Value based on 0% Growth $107.60
Market Implied Growth Rate 4.34%
Current Price $217.42
% of Intrinsic Value 44.61%

Huntington Ingalls Industries Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the 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 $4.16 in 2014 to an estimated $12.66 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.34% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Huntington Ingalls Industries Inc revealed the company was trading above its Graham Number of $124.28. The company pays a dividend of $2.52 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 17.17, which was below the industry average of 53.93, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-58.08.

Huntington Ingalls Industries 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) -$58.08
Graham Number $124.28
PEmg 17.17
Current Ratio 1.14
PB Ratio 5.16
Current Dividend $2.52
Dividend Yield 1.16%
Number of Consecutive Years of Dividend Growth 6

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $1,859,000,000
Total Current Liabilities $1,631,000,000
Long-Term Debt $1,282,000,000
Total Assets $6,199,000,000
Intangible Assets $1,697,000,000
Total Liabilities $4,374,000,000
Shares Outstanding (Diluted Average) 43,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.61
Dec2017 $10.46
Dec2016 $12.14
Dec2015 $8.36
Dec2014 $6.86
Dec2013 $5.18
Dec2012 $2.91
Dec2011 -$2.05
Dec2010 $2.68

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $12.66
Dec2017 $9.66
Dec2016 $8.53
Dec2015 $5.90
Dec2014 $4.16
Dec2013 $2.45
Dec2012 $0.96
Dec2011 $0.03
Dec2010 $0.89

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

L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB
KLX Inc Valuation – August 2018 $KLXI
Kaman Corp Valuation – August 2018 $KAMN
Raytheon Co Valuation – June 2018 $RTN

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.

Raytheon Co Valuation – March 2019 #RTN

Company Profile (excerpt from Reuters): Raytheon Company, incorporated on December 17, 1953, is a technology company, which specializes in defense and other government markets. The Company develops integrated products, services and solutions in various markets, including sensing; effects; command, control, communications, computers, cyber and intelligence; mission support, and cybersecurity. The Company operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS), and Forcepoint. The Company serves both domestic and international customers, primarily as a prime contractor or subcontractor on a range of defense and related programs for government customers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of RTN – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $50,836,887,301 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.46 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 80.90% Pass
6. Moderate PEmg Ratio PEmg < 20 19.17 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.47 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 1.46 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.24 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 $9.40
MG Growth Estimate 6.50%
MG Value $202.10
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $136.26
MG Value based on 0% Growth $79.88
Market Implied Growth Rate 5.33%
Current Price $180.12
% of Intrinsic Value 89.12%

Raytheon 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 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 Fairly Valued after growing its EPSmg (normalized earnings) from $6.56 in 2015 to an estimated $9.4 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.33% 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 Raytheon Company revealed the company was trading above its Graham Number of $102.6. The company pays a dividend of $3.47 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 19.17, which was below the industry average of 51.79, 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 $-29.

Raytheon 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) -$29.00
Graham Number $102.60
PEmg 19.17
Current Ratio 1.46
PB Ratio 4.47
Current Dividend $3.47
Dividend Yield 1.93%
Number of Consecutive Years of Dividend Growth 14

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $12,136,000,000
Total Current Liabilities $8,288,000,000
Long-Term Debt $4,755,000,000
Total Assets $31,864,000,000
Intangible Assets $15,486,000,000
Total Liabilities $20,392,000,000
Shares Outstanding (Diluted Average) 284,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.50
Dec2018 $10.15
Dec2017 $6.95
Dec2016 $7.55
Dec2015 $6.91
Dec2014 $7.18
Dec2013 $6.16
Dec2012 $5.65
Dec2011 $5.28
Dec2010 $4.88
Dec2009 $4.89
Dec2008 $3.92
Dec2007 $5.79
Dec2006 $2.85
Dec2005 $1.92
Dec2004 $0.94
Dec2003 $0.88
Dec2002 -$1.59
Dec2001 -$2.12
Dec2000 $0.41
Dec1999 $1.17

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.40
Dec2018 $8.15
Dec2017 $7.08
Dec2016 $6.99
Dec2015 $6.56
Dec2014 $6.20
Dec2013 $5.59
Dec2012 $5.18
Dec2011 $4.95
Dec2010 $4.68
Dec2009 $4.34
Dec2008 $3.74
Dec2007 $3.26
Dec2006 $1.66
Dec2005 $0.71
Dec2004 -$0.03
Dec2003 -$0.42

Recommended Reading:

Other ModernGraham posts about the company

Raytheon Co Valuation – June 2018 $RTN
Raytheon Company Valuation – April 2017 $RTN
Raytheon Company Valuation – August 2016 $RTN
Raytheon Co Valuation – February 2016 $RTN
10 Best Stocks For Value Investors This Week – 10/31/15

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – March 2019 #TDG
Northrop Grumman Corp Valuation – March 2019 #NOC
Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB

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.

General Dynamics Corp Valuation – March 2019 #GD

Company Profile (excerpt from Reuters): General Dynamics Corporation, incorporated on February 21, 1952, is a global aerospace and defense company. The Company offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions, and shipbuilding and ship repair. The Company operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems.

GD Chart

GD data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GD – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $48,068,656,138 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 153.85% Pass
6. Moderate PEmg Ratio PEmg < 20 15.88 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.21 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 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.32 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 $10.48
MG Growth Estimate 8.33%
MG Value $263.73
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $152.03
MG Value based on 0% Growth $89.12
Market Implied Growth Rate 3.69%
Current Price $166.49
% of Intrinsic Value 63.13%

General Dynamics Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the 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 $6.74 in 2015 to an estimated $10.48 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.69% 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 General Dynamics Corporation revealed the company was trading above its Graham Number of $102.99. The company pays a dividend of $3.63 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.88, which was below the industry average of 51.79, 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 $-52.25.

General Dynamics Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$52.25
Graham Number $102.99
PEmg 15.88
Current Ratio 1.23
PB Ratio 4.21
Current Dividend $3.63
Dividend Yield 2.18%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $18,189,000,000
Total Current Liabilities $14,739,000,000
Long-Term Debt $11,444,000,000
Total Assets $45,408,000,000
Intangible Assets $22,179,000,000
Total Liabilities $33,676,000,000
Shares Outstanding (Diluted Average) 296,406,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.60
Dec2018 $11.18
Dec2017 $9.56
Dec2016 $8.29
Dec2015 $9.29
Dec2014 $7.42
Dec2013 $6.67
Dec2012 -$0.94
Dec2011 $6.87
Dec2010 $6.81
Dec2009 $6.17
Dec2008 $6.17
Dec2007 $5.08
Dec2006 $4.56
Dec2005 $3.61
Dec2004 $3.05
Dec2003 $2.52
Dec2002 $2.26
Dec2001 $2.33
Dec2000 $2.24
Dec1999 $2.18

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.48
Dec2018 $9.67
Dec2017 $8.69
Dec2016 $7.55
Dec2015 $6.74
Dec2014 $5.43
Dec2013 $4.67
Dec2012 $4.11
Dec2011 $6.50
Dec2010 $6.13
Dec2009 $5.57
Dec2008 $5.01
Dec2007 $4.21
Dec2006 $3.58
Dec2005 $2.98
Dec2004 $2.60
Dec2003 $2.35

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – September 2018
5 Companies for Enterprising Investors Near 52 Week Lows – July 2018
General Dynamics Corp Valuation – June 2018 $GD
General Dynamics Corp Valuation – March 2017 $GD
General Dynamics Corporation Valuation – January 2016 Update $GD

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – March 2019 #TDG
Northrop Grumman Corp Valuation – March 2019 #NOC
Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB

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.

TransDigm Group Inc Valuation – March 2019 #TDG

Company Profile (excerpt from Reuters): TransDigm Group Incorporated, incorporated on July 8, 2003, is a global designer, producer and supplier of engineered aircraft components for commercial and military aircraft in service. Through its subsidiary, Skandia Inc., the Company provides seating foam, foam fabrication, flammability testing and acoustic solutions for the business jet market. The Company operates through three segments: Power & Control, Airframe and Non-aviation.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TDG – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,267,803,131 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.13 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 249.49% Pass
6. Moderate PEmg Ratio PEmg < 20 32.92 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -14.85 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 4.13 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.20 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $13.36
MG Growth Estimate 15.00%
MG Value $514.39
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $193.73
MG Value based on 0% Growth $113.57
Market Implied Growth Rate 12.21%
Current Price $439.87
% of Intrinsic Value 85.51%

TransDigm Group Incorporated does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the 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 dividends. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $4.94 in 2015 to an estimated $13.36 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 12.21% 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 TransDigm Group Incorporated revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 32.92, which was below the industry average of 51.79, 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 $-180.03.

TransDigm Group Incorporated 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) -$180.03
Graham Number $0.00
PEmg 32.92
Current Ratio 4.13
PB Ratio -14.85
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,926,618,000
Total Current Liabilities $951,266,000
Long-Term Debt $12,507,616,000
Total Assets $12,389,278,000
Intangible Assets $8,001,467,000
Total Liabilities $14,056,171,000
Shares Outstanding (Diluted Average) 56,266,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $16.67
Sep2018 $16.20
Sep2017 $7.88
Sep2016 $10.39
Sep2015 $7.84
Sep2014 $3.16
Sep2013 $2.39
Sep2012 $5.97
Sep2011 $3.17
Sep2010 $2.52
Sep2009 $3.10
Sep2008 $2.65
Sep2007 $1.83
Sep2006 $0.53
Sep2005 $0.75
Sep2004 $0.29
Sep2003 -$10.92
Sep2002 $221.95

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $13.36
Sep2018 $10.84
Sep2017 $7.55
Sep2016 $6.90
Sep2015 $4.94
Sep2014 $3.48
Sep2013 $3.57
Sep2012 $3.93
Sep2011 $2.82
Sep2010 $2.48
Sep2009 $2.23
Sep2008 $1.60
Sep2007 $0.21
Sep2006 $13.78
Sep2005 $27.74
Sep2004 $41.57
Sep2003 $55.55

Recommended Reading:

Other ModernGraham posts about the company

TransDigm Group Inc Valuation – June 2018 $TDG
TransDigm Group Inc Valuation – Initial Coverage $TDG

Other ModernGraham posts about related companies

Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB
KLX Inc Valuation – August 2018 $KLXI
Kaman Corp Valuation – August 2018 $KAMN

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.

Northrop Grumman Corp Valuation – March 2019 #NOC

Company Profile (excerpt from Reuters): Northrop Grumman Corporation, incorporated on August 4, 2010, is a global security company. The Company provides products, systems and solutions in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); strike, and logistics and modernization. The Company’s segments include Aerospace Systems, Mission Systems and Technology Services. The Company participates in a range of defense and government programs in the United States and abroad. The Company also conducts business with foreign, state and local governments, as well as commercial customers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NOC – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $47,326,350,403 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.17 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 138.28% Pass
6. Moderate PEmg Ratio PEmg < 20 17.02 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.88 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 1.17 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.87 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 $16.38
MG Growth Estimate 11.49%
MG Value $515.91
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $237.57
MG Value based on 0% Growth $139.26
Market Implied Growth Rate 4.26%
Current Price $278.82
% of Intrinsic Value 54.04%

Northrop Grumman Corporation 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 $9.28 in 2015 to an estimated $16.38 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.26% 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 Northrop Grumman Corporation revealed the company was trading above its Graham Number of $139.21. The company pays a dividend of $4.7 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 17.02, which was below the industry average of 51.79, 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 $-114.5.

Northrop Grumman Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$114.50
Graham Number $139.21
PEmg 17.02
Current Ratio 1.17
PB Ratio 5.88
Current Dividend $4.70
Dividend Yield 1.69%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $9,680,000,000
Total Current Liabilities $8,274,000,000
Long-Term Debt $13,883,000,000
Total Assets $37,653,000,000
Intangible Assets $20,044,000,000
Total Liabilities $29,466,000,000
Shares Outstanding (Diluted Average) 172,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.95
Dec2018 $18.49
Dec2017 $16.34
Dec2016 $11.32
Dec2015 $10.39
Dec2014 $9.75
Dec2013 $8.35
Dec2012 $7.81
Dec2011 $7.52
Dec2010 $6.82
Dec2009 $5.21
Dec2008 -$3.77
Dec2007 $5.12
Dec2006 $4.37
Dec2005 $3.85
Dec2004 $2.97
Dec2003 $2.09
Dec2002 $1.84
Dec2001 $2.37
Dec2000 $4.29
Dec1999 $3.35

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $16.38
Dec2018 $14.82
Dec2017 $12.40
Dec2016 $10.13
Dec2015 $9.28
Dec2014 $8.50
Dec2013 $7.63
Dec2012 $6.42
Dec2011 $5.21
Dec2010 $3.88
Dec2009 $2.59
Dec2008 $1.69
Dec2007 $4.18
Dec2006 $3.48
Dec2005 $2.90
Dec2004 $2.52
Dec2003 $2.46

Recommended Reading:

Other ModernGraham posts about the company

Northrop Grumman Corp Valuation – May 2018 $NOC
Northrop Grumman Corp Valuation – February 2017 $NOC
Northrop Grumman Corporation Valuation – November 2015 Update $NOC
30 Companies in the Spotlight This Week – 11/15/14
Northrop Grumman Corporation Annual Valuation – 2014 $NOC

Other ModernGraham posts about related companies

Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB
KLX Inc Valuation – August 2018 $KLXI
Kaman Corp Valuation – August 2018 $KAMN

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.

Northrop Grumman Corporation Quarterly Valuation – July 2014 $NOC

northrop_grumman_logoBenjamin 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 Enterprising Investor with High Dividend Yields.  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 Northrop Grumman (NOC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Northrop Grumman Corporation (Northrop Grumman) provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. As of December 31, 2011, the Company operated in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. The Company conducts most of its business with the United States Government, principally the Department of Defense (DoD) and intelligence community. It also conducts business with local, state, and foreign Governments and domestic and international commercial customers. Effective as of March 31, 2011, the company completed the spin-off of Huntington Ingalls Industries, Inc. (HII). HII operates the Company’s former shipbuilding business. In September 2012, it acquired M5 Network Security Pty Ltd. In February 2014, Northrop Grumman Corp completed the acquisition of Qantas Defence Services Pty Limited.
NOC Chart

NOC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  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 – FAIL
  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 - PASS
  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 – PASS

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 – 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 - PASS

Valuation Summary

Key Data:

Recent Price $123.56
MG Value $311.26
MG Opinion Undervalued
Value Based on 3% Growth $117.23
Value Based on 0% Growth $68.72
Market Implied Growth Rate 3.39%
Net Current Asset Value (NCAV) -$32.00
PEmg 15.28
Current Ratio 1.55
PB Ratio 2.52

Balance Sheet – 6/30/2014

Current Assets $8,390,000,000
Current Liabilities $5,414,000,000
Total Debt $5,927,000,000
Total Assets $25,351,000,000
Intangible Assets $12,468,000,000
Total Liabilities $15,083,000,000
Outstanding Shares 209,130,000

Earnings Per Share

2014 (estimate) $8.57
2013 $8.35
2012 $7.81
2011 $7.41
2010 $6.77
2009 $4.87
2008 -$3.83
2007 $5.16
2006 $4.44
2005 $3.81
2004 $2.99

Earnings Per Share – ModernGraham

2014 (estimate) $8.08
2013 $7.58
2012 $6.33
2011 $5.08
2010 $3.77
2009 $2.48

Dividend History

NOC Dividend Chart

NOC Dividend data by YCharts

Conclusion:

Northrop Grumman qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor has concerns regarding the low current ratio and the lack of earnings stability over the last ten years, but the Enterprising Investor’s only concern is the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Lockheed Martin (LMT) and ModernGraham’s valuation of Raytheon Corp (RTN).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.77 in 2010 to an estimated $8.08 for 2014.  This low level of demonstrated growth outpaces the market’s implied estimate of 3.39% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Northrop Grumman (NOC)?  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 Northrop Grumman (NOC) 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.

Glance at the Dow – March 2014


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As one of the features in each month’s issue of ModernGraham Stocks & Screens, I take a look at the Dow Jones Industrial Average, listing out each individual component in an easy to read table, and calculate a value for the index that is based on the ModernGraham valuation model’s estimates for intrinsic values for each component.  “Glance at the Dow” will be included in a regular post on the blog on the second Wednesday of each month, and will continue to be included in each month’s ModernGraham Stocks & Screens, which is released on the fourth Wednesday of every month and includes screens of all the companies reviewed by ModernGraham.  I hope this is useful to all my subscribers, as another tool for evaluating Mr. Market’s current prices.

Dow Jones Industrial Average Chart

Dow Jones Industrial Average data by YCharts

Dow Jones Industrial Average data by YCharts

At the time of writing, the Dow Jones Industrial Average (DJIA) was at 16,351.25. The ModernGraham Valuation of the DJIA was 18,156.27. As a result, the DJIA was trading at 90.06% of its estimated value. This figure is within the ModernGraham margin of error, and therefore it appears the DJIA is presently fairly valued.  To see the individual valuation articles, please click on the company name in the table below.

Ticker Investor Type Latest Valuation Date ModernGraham Valuation Current Price Price as a percent of Value Price/EPSmg
AXP American Express Company E 1/23/2014 $115.45 $93.20 80.73% 23.07
BA The Boeing Company E 2/17/2014 $133.72 $125.67 93.98% 24.50
CAT Caterpillar Inc. D 1/29/2014 $161.33 $96.84 60.03% 15.35
CSCO Cisco Systems, Inc. D 2/1/2014 $31.26 $21.61 69.13% 13.26
CVX Chevron Corporation D 2/25/2014 $248.34 $114.51 46.11% 9.89
DD E I Du Pont De Nemours And Co E 2/6/2014 $45.79 $66.01 144.16% 21.93
DIS The Walt Disney Company S 11/19/2013 $71.18 $81.05 113.87% 26.93
GE General Electric Company D 3/1/2014 $3.77 $25.90 687.00% 19.47
GS Goldman Sachs Group Inc S 11/6/2013 $23.03 $169.89 737.69% 12.29
HD The Home Depot, Inc. S 11/6/2013 $68.76 $81.29 118.22% 28.32
IBM International Business Machines Corp. S 11/8/2013 $381.67 $186.76 48.93% 13.67
INTC Intel Corporation D 2/18/2014 $76.82 $24.73 32.19% 12.37
JNJ Johnson & Johnson E 2/25/2014 $39.99 $93.49 233.78% 21.95
JPM JPMorgan Chase & Co. D 2/23/2014 $137.57 $58.19 42.30% 13.20
KO The Coca-Cola Company S 3/2/2014 $47.57 $38.80 81.56% 19.80
MCD McDonald’s Corporation S 11/11/2013 $142.46 $98.78 69.34% 18.96
MMM 3M Co E 1/21/2014 $100.49 $132.51 131.86% 21.51
MRK Merck & Co., Inc. S 11/12/2013 $0.00 $56.69 N/A 27.39
MSFT Microsoft Corporation D 2/9/2014 $49.37 $38.02 77.01% 15.46
NKE Nike Inc E 2/10/2014 $61.49 $78.80 128.15% 30.54
PFE Pfizer Inc. E 11/13/2013 $16.12 $32.42 201.12% 23.66
PG The Procter & Gamble Company S 2/11/2014 $44.92 $78.95 175.76% 28.00
T AT&T Inc. S 10/28/2013 $12.00 $32.23 268.58% 17.14
TRV Travelers Companies Inc D 2/14/2014 $96.30 $83.58 86.79% 12.22
UNH UnitedHealth Group Inc. D 2/15/2014 $141.46 $77.78 54.98% 15.71
UTX United Technologies Corporation S 11/15/2013 $89.99 $115.64 128.50% 20.47
V Visa Inc E 2/16/2014 $251.97 $227.18 90.16% 34.74
VZ Verizon Communications Inc. S 3/4/2014 $13.83 $46.70 337.67% 26.09
WMT Wal-Mart Stores, Inc. S 11/19/2013 $101.49 $74.92 73.82% 15.74
XOM Exxon Mobil Corporation D 3/3/2014 $119.08 $94.01 78.95% 12.02

Disclaimer:  The author held a long position in DIS and HD at the time of publication.

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