H&R Block Inc Valuation – January 2019 $HRB

Company Profile (excerpt from Reuters): H&R Block, Inc. (H&R Block), incorporated on July 27, 1955, through its subsidiaries, provides tax preparation and other services. The Company provides assisted income tax return preparation, digital do-it-yourself (DIY) tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States, Canada, Australia and their respective territories. Assisted income tax return preparation and related services are provided by tax professionals through a system of retail offices operated directly by the Company or its franchisees. It offers tax support, planning, and business accounting and advisory services to its clients. The Company offers a range of online tax services, including preparation of federal and state income tax returns, review of tax returns by a tax professional, access to tax tips, advice and tax-related news, use of calculators for tax planning, error checking and electronic filing.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HRB – January 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,230,687,756 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.04 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 80.99% Pass
6. Moderate PEmg Ratio PEmg < 20 12.39 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -166.97 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 2.04 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.28 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 $2.05
MG Growth Estimate 4.87%
MG Value $37.46
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $29.78
MG Value based on 0% Growth $17.46
Market Implied Growth Rate 1.95%
Current Price $25.45
% of Intrinsic Value 67.94%

H & R Block Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.55 in 2015 to an estimated $2.05 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.95% 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 H & R Block Inc revealed the company was trading above its Graham Number of $8.61. The company pays a dividend of $0.96 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.39, which was below the industry average of 18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-6.68.

H & R Block Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$6.68
Graham Number $8.61
PEmg 12.39
Current Ratio 2.04
PB Ratio -166.97
Current Dividend $0.96
Dividend Yield 3.77%
Number of Consecutive Years of Dividend Growth 2

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 10/1/2018
Total Current Assets $891,002,000
Total Current Liabilities $435,721,000
Long-Term Debt $1,491,328,000
Total Assets $2,233,296,000
Intangible Assets $871,715,000
Total Liabilities $2,264,621,000
Shares Outstanding (Diluted Average) 205,520,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.75
Apr2018 $2.91
Apr2017 $1.91
Apr2016 $1.49
Apr2015 $1.71
Apr2014 $1.72
Apr2013 $1.58
Apr2012 $0.89
Apr2011 $1.31
Apr2010 $1.43
Apr2009 $1.45
Apr2008 -$0.95
Apr2007 -$1.34
Apr2006 $1.47
Apr2005 $1.85
Apr2004 $1.92
Apr2003 $1.30
Apr2002 $1.17
Apr2001 $0.77
Apr2000 $0.64
Apr1999 $0.54

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.05
Apr2018 $2.12
Apr2017 $1.71
Apr2016 $1.57
Apr2015 $1.55
Apr2014 $1.44
Apr2013 $1.31
Apr2012 $1.06
Apr2011 $0.89
Apr2010 $0.59
Apr2009 $0.28
Apr2008 -$0.01
Apr2007 $0.66
Apr2006 $1.62
Apr2005 $1.60
Apr2004 $1.37
Apr2003 $1.02

Recommended Reading:

Other ModernGraham posts about the company

10 Best Dividend Paying Stocks for the Enterprising Investor – September 2018
5 Undervalued Companies for Value Investors with a Low Beta – May 2018
10 Best Dividend Paying Stocks for the Enterprising Investor – May 2018
H&R Block Inc Valuation – March 2018 $HRB
H&R Block Inc Valuation – June 2016 $HRB

Other ModernGraham posts about related companies

State Street Corp Valuation – January 2019 $STT
Morgan Stanley Valuation – January 2019 $MS
MSCI Inc Valuation – January 2019 $MSCI
BlackRock Inc Valuation – January 2019 $BLK
Ameriprise Financial Inc Valuation – January 2019 $AMP
Invesco Ltd Valuation – January 2019 $IVZ
Capital One Financial Corp Valuation – January 2019 $COF
Total System Services Inc Valuation – December 2018 $TSS
Goldman Sachs Group Inc Valuation – November 2018 $GS
KKR & Co Inc Valuation – September 2018 $KKR

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.

H&R Block Inc Valuation – March 2018 $HRB

Company Profile (excerpt from Reuters): H&R Block, Inc. (H&R Block), incorporated on July 27, 1955, through its subsidiaries, provides tax preparation and other services. The Company provides assisted income tax return preparation, digital do-it-yourself (DIY) tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States, Canada, Australia and their respective territories. Assisted income tax return preparation and related services are provided by tax professionals through a system of retail offices operated directly by the Company or its franchisees. It offers tax support, planning, and business accounting and advisory services to its clients. The Company offers a range of online tax services, including preparation of federal and state income tax returns, review of tax returns by a tax professional, access to tax tips, advice and tax-related news, use of calculators for tax planning, error checking and electronic filing.

HRB Chart

HRB data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HRB – 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 $5,454,607,868 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.93 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 43.44% Pass
6. Moderate PEmg Ratio PEmg < 20 12.92 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -7.81 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 1.93 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.70 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 $2.02
MG Growth Estimate 6.00%
MG Value $41.42
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $29.29
MG Value based on 0% Growth $17.17
Market Implied Growth Rate 2.21%
Current Price $26.09
% of Intrinsic Value 62.99%

H & R Block 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 PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.44 in 2014 to an estimated $2.02 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.21% 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 above the price.

At the time of valuation, further research into H & R Block Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.88 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.92, which was below the industry average of 25.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.45.

H & R Block Inc performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.45
Graham Number $0.00
PEmg 12.92
Current Ratio 1.93
PB Ratio -7.81
Current Dividend $0.88
Dividend Yield 3.37%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $1,284,141,000
Total Current Liabilities $666,528,000
Long-Term Debt $2,284,231,000
Total Assets $2,561,300,000
Intangible Assets $895,782,000
Total Liabilities $3,259,369,000
Shares Outstanding (Diluted Average) 209,080,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.61
Apr2017 $1.91
Apr2016 $1.49
Apr2015 $1.71
Apr2014 $1.72
Apr2013 $1.58
Apr2012 $0.89
Apr2011 $1.31
Apr2010 $1.43
Apr2009 $1.45
Apr2008 -$0.95
Apr2007 -$1.34
Apr2006 $1.47
Apr2005 $1.85
Apr2004 $1.92
Apr2003 $1.30
Apr2002 $1.17
Apr2001 $0.77
Apr2000 $0.64
Apr1999 $0.54
Apr1998 $0.91

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.02
Apr2017 $1.71
Apr2016 $1.57
Apr2015 $1.55
Apr2014 $1.44
Apr2013 $1.31
Apr2012 $1.06
Apr2011 $0.89
Apr2010 $0.59
Apr2009 $0.28
Apr2008 -$0.01
Apr2007 $0.66
Apr2006 $1.62
Apr2005 $1.60
Apr2004 $1.37
Apr2003 $1.02
Apr2002 $0.85

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
H&R Block Inc. Annual Valuation – 2015 $HRB
30 Companies in the Spotlight This Week – 11/15/14
H&R Block Inc. Quarterly Valuation – November 2014 $HRB
20 Companies in the Spotlight This Week – 8/16/14

Other ModernGraham posts about related companies

Morgan Stanley Valuation – March 2018 $MS
BlackRock Inc Valuation – March 2018 $BLK
Ameriprise Financial Inc Valuation – March 2018 $AMP
Navient Corp Valuation – March 2018 $NAVI
Invesco Ltd Valuation – March 2018 $IVZ
Capital One Financial Corp Valuation – March 2018 $COF
Total System Services Inc Valuation – February 2018 $TSS
Visa Inc Valuation – February 2018 $V
Goldman Sachs Group Inc Valuation – February 2018 $GS
American Express Co. Valuation – February 2018 $AXP

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.

H&R Block Inc Valuation – June 2016 $HRB

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how H&R Block Inc (HRB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): H&R Block, Inc. (H&R Block) is a holding company. The Company, through its subsidiaries, provides tax preparation and other services. The Company provides assisted income tax return preparation, digital do-it-yourself (DIY) tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States, and its territories, Canada and Australia. The Company offers a range of online tax services, from tax advice to complete professional and DIY tax return preparation and electronic filing, through its Website at www.hrblock.com. Services available at this Website allow clients to prepare their federal and state income tax returns using online tax program, access tax tips, advice and tax-related news, and use calculators for tax planning. The Company develops and markets DIY desktop income tax preparation software. It develops and offers applications for mobile devices, which provide tax and related services to clients.

[level-free]

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

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

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

Downloadable PDF version of this valuation:

ModernGraham Valuation of HRB – June 2016

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,157,509,891 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.18 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 151.55% Pass
6. Moderate PEmg Ratio PEmg < 20 13.94 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 247.20 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 1.18 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.22 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

HRB value chart June 2016

EPSmg $1.63
MG Growth Estimate 3.66%
MG Value $25.86
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $23.69
MG Value based on 0% Growth $13.89
Market Implied Growth Rate 2.72%
Current Price $22.77
% of Intrinsic Value 88.06%

H & R Block 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 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 $1.31 in 2013 to an estimated $1.63 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 2.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

H & R Block Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

HRB charts June 2016

Net Current Asset Value (NCAV) -$6.43
Graham Number $1.97
PEmg 13.94
Current Ratio 1.18
PB Ratio 247.20
Current Dividend $0.80
Dividend Yield 3.51%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $1,222,298,000
Total Current Liabilities $1,039,605,000
Long-Term Debt $1,501,925,000
Total Assets $2,857,775,000
Intangible Assets $904,642,000
Total Liabilities $2,834,672,000
Shares Outstanding (Diluted Average) 250,818,000

Earnings Per Share History

Next Fiscal Year Estimate $1.68
Apr2016 $1.49
Apr2015 $1.71
Apr2014 $1.72
Apr2013 $1.58
Apr2012 $0.89
Apr2011 $1.31
Apr2010 $1.43
Apr2009 $1.45
Apr2008 -$0.94
Apr2007 -$1.33
Apr2006 $1.47
Apr2005 $1.89
Apr2004 $1.93
Apr2003 $1.58
Apr2002 $1.16
Apr2001 $0.76
Apr2000 $0.64
Apr1999 $0.54
Apr1998 $0.91
Apr1997 $0.11

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.63
Apr2016 $1.57
Apr2015 $1.55
Apr2014 $1.44
Apr2013 $1.31
Apr2012 $1.06
Apr2011 $0.89
Apr2010 $0.60
Apr2009 $0.29
Apr2008 $0.01
Apr2007 $0.69
Apr2006 $1.67
Apr2005 $1.66
Apr2004 $1.44
Apr2003 $1.11
Apr2002 $0.85
Apr2001 $0.66

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
H&R Block Inc. Annual Valuation – 2015 $HRB
30 Companies in the Spotlight This Week – 11/15/14
H&R Block Inc. Quarterly Valuation – November 2014 $HRB
20 Companies in the Spotlight This Week – 8/16/14

Other ModernGraham posts about related companies

Visa Inc Valuation – June 2016 $V
Legg Mason Inc Valuation – June 2016 $LM
Morgan Stanley Valuation – June 2016 $MS
BlackRock Inc Valuation – June 2016 $BLK
Goldman Sachs Group Inc Valuation – June 2016 $GS
Ameriprise Financial Inc Valuation – June 2016 $AMP
American Express Company Valuation – May 2016 $AXP
T.Rowe Price Group Inc Stock Valuation – February 2016 $TROW
Moody’s Corporation Stock Valuation – February 2016 $MCO
KKR & Co LP Stock Valuation – February 2016 $KKR

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.

H&R Block Inc. Annual Valuation – 2015 $HRB

logo-hrbBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – February 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how H&R Block Inc. (HRB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): H&R Block, Inc. (H&R Block) through its subsidiaries provides tax preparation and banking services. The Company’s Tax Services segment provides assisted income tax return preparation, digital tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States and its territories, Canada and Australia. This segment also offers financial services through H&R Block Bank (HRB Bank). In addition to the Company’s Tax Services segment, the Company separately reports corporate operations which include net interest margin and gains or losses relating to mortgage loans held for investment, real estate owned and residual interests in securitizations, along with interest expense on borrowings, other corporate expenses and eliminations of intercompany activities. Through ownership of HRB Bank, the Company is a savings and loans holding company (SLHC).

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  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 - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

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

Valuation Summary

Key Data:

Recent Price $35.15
MG Value $44.54
MG Opinion Fairly Valued
Value Based on 3% Growth $21.95
Value Based on 0% Growth $12.87
Market Implied Growth Rate 7.36%
Net Current Asset Value (NCAV) -$1.44
PEmg 23.22
Current Ratio 1.35
PB Ratio 7.81

Balance Sheet – December 2014

Current Assets $1,457,000,000
Current Liabilities $1,076,000,000
Total Debt $506,000,000
Total Assets $3,091,000,000
Intangible Assets $878,000,000
Total Liabilities $1,853,000,000
Outstanding Shares 275,100,000

Earnings Per Share

2015 (estimate) $1.60
2014 $1.72
2013 $1.58
2012 $0.89
2011 $1.31
2010 $1.43
2009 $1.45
2008 -$0.95
2007 -$1.34
2006 $1.47
2005 $1.85

Earnings Per Share – ModernGraham

2015 (estimate) $1.51
2014 $1.44
2013 $1.31
2012 $1.06
2011 $0.89
2010 $0.59

Dividend History

Conclusion:

H&R Block Inc. is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, the insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.89 in 2011 to an estimated $1.51 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 7.36% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of H&R Block Inc. (HRB) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on H&R Block Inc. (HRB)?  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 H&R Block Inc. (HRB) 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.

H&R Block Inc. Quarterly Valuation – November 2014 $HRB

logo-hrbBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how H&R Block Inc. (HRB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): H&R Block, Inc. (H&R Block) through its subsidiaries provides tax preparation and banking services. The Company’s Tax Services segment provides assisted income tax return preparation, digital tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States and its territories, Canada and Australia. This segment also offers financial services through H&R Block Bank (HRB Bank). In addition to the Company’s Tax Services segment, the Company separately reports corporate operations which include net interest margin and gains or losses relating to mortgage loans held for investment, real estate owned and residual interests in securitizations, along with interest expense on borrowings, other corporate expenses and eliminations of intercompany activities. Through ownership of HRB Bank, the Company is a savings and loans holding company (SLHC).

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  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 - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

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

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

Valuation Summary

Key Data:

Recent Price $32.94
MG Value $52.04
MG Opinion Undervalued
Value Based on 3% Growth $23.26
Value Based on 0% Growth $13.63
Market Implied Growth Rate 6.02%
Net Current Asset Value (NCAV) -$0.74
PEmg 20.54
Current Ratio 1.36
PB Ratio 6.47

Balance Sheet – September 2014

Current Assets $2,292,000,000
Current Liabilities $1,684,000,000
Total Debt $506,000,000
Total Assets $3,891,000,000
Intangible Assets $827,000,000
Total Liabilities $2,494,000,000
Outstanding Shares 274,600,000

Earnings Per Share

2015 (estimate) $1.87
2014 $1.72
2013 $1.58
2012 $0.89
2011 $1.31
2010 $1.43
2009 $1.45
2008 -$0.95
2007 -$1.34
2006 $1.47
2005 $1.85

Earnings Per Share – ModernGraham

2015 (estimate) $1.60
2014 $1.44
2013 $1.31
2012 $1.06
2011 $0.89
2010 $0.59

Dividend History

Conclusion:

H&R Block is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by the low current ratio.  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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.89 in 2011 to an estimated $1.60 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 6.02% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of H&R Block Inc. (HRB) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on H&R Block Inc. (HRB)?  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 H&R Block Inc. (HRB) 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.

H&R Block Inc. Quarterly Valuation – August 2014 $HRB

logo-hrbBenjamin 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 Near 52 Week Lows.  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 H&R Block Inc. (HRB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): H&R Block, Inc. (H&R Block) through its subsidiaries provides tax preparation and banking services. The Company’s Tax Services segment provides assisted income tax return preparation, digital tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States and its territories, Canada and Australia. This segment also offers financial services through H&R Block Bank (HRB Bank). In addition to the Company’s Tax Services segment, the Company separately reports corporate operations which include net interest margin and gains or losses relating to mortgage loans held for investment, real estate owned and residual interests in securitizations, along with interest expense on borrowings, other corporate expenses and eliminations of intercompany activities. Through ownership of HRB Bank, the Company is a savings and loans holding company (SLHC).
HRB Chart

HRB data by YCharts

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

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

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

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

Valuation Summary

Key Data:

Recent Price $33.35
MG Value $17.88
MG Opinion Overvalued
Value Based on 3% Growth $22.67
Value Based on 0% Growth $13.29
Market Implied Growth Rate 6.42%
Net Current Asset Value (NCAV) -$0.08
PEmg 21.33
Current Ratio 1.35
PB Ratio 5.88

Balance Sheet – 4/30/2014

Current Assets $3,114,000,000
Current Liabilities $2,313,100,000
Total Debt $505,800,000
Total Assets $4,693,500,000
Intangible Assets $791,700,000
Total Liabilities $3,137,000,000
Outstanding Shares 274,230,000

Earnings Per Share

2014 $1.81
2013 $1.69
2012 $1.16
2011 $1.35
2010 $1.46
2009 $1.53
2008 $1.39
2007 $1.15
2006 $1.47
2005 $1.89

Earnings Per Share – ModernGraham

2014 $1.56
2013 $1.44
2012 $1.34
2011 $1.41
2010 $1.42
2009 $1.43

Dividend History

HRB Dividend Chart

HRB Dividend data by YCharts

Conclusion:

H&R Block qualifies  for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio, the lack of sufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor’s only issue is with the low current ratio.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Intuit Inc. (INTU).  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to only $1.56 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 6.42% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on H&R Block Inc. (HRB)?  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 H&R Block Inc. (HRB) 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.

Valuation: H&R Block, Inc. (HRB)

Company Review: H&R Block, Inc. (HRB)

Company Profile: H&R Block Inc. (obtained via Google Finance)

H&R Block, Inc. (H&R Block) is a financial services company with subsidiaries providing tax, investment, mortgage, and accounting and business consulting services and products. The Company’s Tax Services segment provides income tax return preparation and other services and products related to tax return preparation to the general public in the United States, Canada and Australia. H&R Block’s Business Services segment is a national accounting, tax and business consulting firm primarily serving mid-sized businesses under the RSM McGladrey name. Its Consumer Financial Services segment offers brokerage services, along with investment planning and related financial advice through H&R Block Financial Advisors and full-service banking through H&R Block Bank. The Company’s mortgage operations offer a range of home mortgage services through Option One Mortgage Corporation and H&R Block Mortgage Corporation. H&R Block serves its clients’ financial needs through the delivery of a variety of tax and financial services. On April 19, 2007, H&R Block entered into an agreement to sell Option One Mortgage Corporation (OOMC).

Business and Management Review

1) Is the business simple and understandable?

H&R Block is a firm that is divided into three business segment. The Tax Services segment which engages in providing tax return preparation and related services and products in the United States and its territories, Canada and Australia. This division’s revenues include fees earned for services performed at Company-owned retail tax offices, royalties from franchise retail tax offices, sales of Peace of Mind (POM) guarantees, sales of tax preparation and other software, fees from online tax preparation, and participation in refund anticipation loans (RALs) and Instant Money Advance Loans (IMALs). The second segment of HRB is the Business Services that offers middle-market companies accounting, tax and business consulting services, wealth management and capital markets services. Segment revenues for the Business Services constituted 23.2% of its consolidated revenues of continuing operations during fiscal year 2007 at comparison of the Tax Services division which had revenues that constituted 66.8% of its consolidated revenues of continuing operations during the fiscal year ended April 30, 2007 (fiscal 2007). Lastly, the Consumer Financial Services sector deals with the offering of brokerage services, along with investment planning and related financial advice through H&R Block Financial Advisors, Inc. (HRBFA) and full-service banking through HRB Bank. HRBFA and HRB Bank, the Company’s Block-branded businesses, are focused on retail tax client loyalty and retention by offering expanded financial services. Its revenues constituted 9.7% of its consolidated revenues of continuing operations during fiscal 2007.

2) Does the business have a consistent operating history?

This company has grown rapidly from their very beginnings. From its humble start to now been the world largest tax preparation firm with over 19 million customers worldwide, its main contribution to their success has been the development of highly innovative tax services to adjust to their customers’ needs.

3) Does the system have favorable long term prospects?

Hence this company suffered a third quarter losses due mainly to the slow start to the tax season which was delayed by the change to federal tax laws with the Alternative Minimum Tax; HRB was able to shrink their losses by not counting a $26.3 million pretax charge for costs of staff reductions and executive departures. Moreover, H&R block has not been the exception to the subprime collapse. This company saw a 3.5 percent decline in the number of clients coming to its retail tax preparation office during the third quarter, but their overall tax revenue was up 5.4 percent from a year ago thanks to higher fees. Nonetheless, the current financial market in the U.S. and the adjusted last quarter loss will not have a direct impact on this company future profitability as they highly market their products as the biggest firm in the tax personal service industry. Additionally, compared to its industry peers, this stock has been one of the worst performers over the past five years, but we have to keep in mind that the historic returns are not necessarily a predictor of future performance. Persistent strength or weakness, however, may very well say something about the structure of an industry or quality of a company’s management. Lastly over the long haul, this company has posted results that are about average for its industry, though its ROA over the most recent trailing 12 months was very low. Note that the company has had very strong profit margins, another key profitability measure.

4) Is management rationale?

Management has intended to improve the company’s financial performance by deferring liabilities that may had had worsen the current firm’s situation. This situation was mainly driven by the lost on discontinue operations which included its Option One Mortgage Corporation. Moreover, the bad loans and repurchase defaulted loans from investors, as well as impairment charges to the value of the remaining loans and other charges tied to the closing of most of Option One’s operations were factors for HBR last quarter’s loss. However, management knows that for the company to generate decent returns for investors in the future, it will probably only have to realize moderate growth in earnings or a higher valuation by the market. Overall, the management has been rationale in their decisions.

5) Is management candid with its shareholders?

H&R Block contains good amount of investor information within its website. The company keeps investors posted of any activities by including a list of events and a webcast replay system where investors can listen to important corporate news.

6) Does management resist the institutional imperative?

We believe that H&R Block management resist institutional imperative.

Financial and Value Review

Defensive

1) Size of firm

The firm does have market cap greater than two billion dollar, therefore this test fails. “Pass”.

2) Strong financial condition

HRB current ratio is lower than 2, so this test fails. “Fail”.

3) Earnings stability

The company does not have positive net income for the previews ten years, as a result this test fails. “Fail”.

4) Dividend record

HRB has paid dividends for the past 10 years. “Pass”.

5) Earnings growth

H&R Block does not have a 1/3 increase in its EPS for the past 10 years. “Fail”.

6) Price to earnings analysis

This test fails as they have a PE higher than 20. “Fail”.

7) Price to book analysis

The company posses a PB ratio higher than 2.5 and a PB*PE ratio higher than 50. Both of these tests fail. “Fail”/”Fail”.

Conclusion

With as score of 2/8 HRB does not pass the Defensive investor Test.

Enterprising:
1) Strong financial condition

HRB posses a current ratio lower than 1.5, so this test fails. However its debt to NCA is lower than 1.1, thus passing on the other test. “Fail”/”Pass”

2) Earnings stability

They don’t have positive net income for the past 5 years. “Fail”

3) Dividend record

Currently pays dividends. “Pass”.

4) Earnings growth

Does not possess earnings greater than 5 years ago. “Fail”

5) Price

This test fails as price is higher than 150% net tangible assets. “Fail”

Conclusion:

As this company only passes two of the six tests, we do not believe HRB is suitable for enterprising investors.

Valuation:

We find the Fair value of AMD to be $18.65.

Opinion:

Since the company is trading at $17.24 we believe that the stock is been undervalued by the market, but we do not find this company appropriate for neither Enterprise nor Defensive Investors.

Neither of us held a position in H&R Block Inc. at the time of publication. Also, please read our disclaimer and Our Methods.

CME Group Inc Valuation – March 2019 #CME

Company Profile (excerpt from Reuters): CME Group Inc., incorporated on August 2, 2001, through its exchanges, provides products across all asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The Company’s segment primarily consists of the Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX) and Commodity Exchange, Inc. (COMEX) exchanges. The Company provides electronic trading around the globe on its CME Globex platform. The Company also offers clearing and settlement services across asset classes for exchange-traded and over-the-counter derivatives through its clearinghouses CME Clearing and CME Clearing Europe. It also provides hosting, connectivity and customer support for electronic trading through its co-location services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CME – 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 $63,440,275,956 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.01 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 121.84% Pass
6. Moderate PEmg Ratio PEmg < 20 25.32 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.41 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 1.01 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.23 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 $7.00
MG Growth Estimate 15.00%
MG Value $269.65
Opinion Undervalued
MG Grade D+
MG Value based on 3% Growth $101.56
MG Value based on 0% Growth $59.53
Market Implied Growth Rate 8.41%
Current Price $177.31
% of Intrinsic Value 65.75%

CME Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg 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 $3.43 in 2015 to an estimated $7 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.41% 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 CME Group Inc revealed the company was trading above its Graham Number of $104.74. The company pays a dividend of $2.8 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 25.32, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-27.32.

CME Group Inc 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) -$27.32
Graham Number $104.74
PEmg 25.32
Current Ratio 1.01
PB Ratio 2.41
Current Dividend $2.80
Dividend Yield 1.58%
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 12/1/2018
Total Current Assets $41,886,700,000
Total Current Liabilities $41,272,600,000
Long-Term Debt $3,826,800,000
Total Assets $77,475,700,000
Intangible Assets $33,480,700,000
Total Liabilities $51,510,400,000
Shares Outstanding (Diluted Average) 352,227,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.73
Dec2018 $5.71
Dec2017 $11.94
Dec2016 $4.53
Dec2015 $3.69
Dec2014 $3.35
Dec2013 $2.92
Dec2012 $2.70
Dec2011 $5.43
Dec2010 $2.86
Dec2009 $2.48
Dec2008 $2.43
Dec2007 $2.99
Dec2006 $2.32
Dec2005 $1.76
Dec2004 $1.28
Dec2003 $0.72
Dec2002 $0.63
Dec2001 $0.51
Dec2000 -$0.04

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.00
Dec2018 $6.71
Dec2017 $6.57
Dec2016 $3.73
Dec2015 $3.43
Dec2014 $3.35
Dec2013 $3.33
Dec2012 $3.41
Dec2011 $3.59
Dec2010 $2.65
Dec2009 $2.50
Dec2008 $2.39
Dec2007 $2.18
Dec2006 $1.64
Dec2005 $1.19
Dec2004 $0.81
Dec2003 $0.50

Recommended Reading:

Other ModernGraham posts about the company

CME Group Inc Valuation – May 2018 $CME
CME Group Inc Valuation – February 2017 $CME
CME Group Inc. Analysis – October 2015 Update $CME
14 Companies in the Spotlight This Week – 10/11/14
CME Group Inc. Annual Stock Valuation – 2014 $CME

Other ModernGraham posts about related companies

Northern Trust Corp Valuation – March 2019 #NTRS
Affiliated Managers Group Inc Valuation – February 2019 $AMG
Bank of New York Mellon Corp Valuation – February 2019 $BK
Western Union Co Valuation – February 2019 $WU
Raymond James Financial Valuation – February 2019 $RJF
Nasdaq Inc Valuation – February 2019 $NDAQ
E*Trade Financial Corp Valuation – January 2019 $ETFC
Marsh & McLennan Companies Inc Valuation – January 2019 $MMC
Intercontinental Exchange Inc Valuation – January 2019 $ICE
H&R Block Inc Valuation – January 2019 $HRB

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.

Northern Trust Corp Valuation – March 2019 #NTRS

Company Profile (excerpt from Reuters): Northern Trust Corporation, incorporated on August 23, 1971, is a financial holding company. The Company provides asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals around the world. The Company’s segments include Corporate & Institutional Services (C&IS), Wealth Management, and Treasury and Other. The Company conducts its business through various subsidiaries, including The Northern Trust Company (Bank). The Asset Management business, through the Company’s subsidiaries, supports the C&IS and Wealth Management segments by providing a range of asset management and related services, and other products to customers around the world.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NTRS – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $20,238,028,921 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 121.45% Pass
5. Moderate PEmg Ratio PEmg < 20 16.36 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.95 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.66
MG Growth Estimate 10.34%
MG Value $165.23
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $82.12
MG Value based on 0% Growth $48.14
Market Implied Growth Rate 3.93%
Current Price $92.66
% of Intrinsic Value 56.08%

Northern Trust Corporation qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.35 in 2015 to an estimated $5.66 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.93% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Northern Trust Corporation revealed the company was trading above its Graham Number of $78.3. The company pays a dividend of $1.94 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.36, which was below the industry average of 21.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

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

Stage 3: Information for Further Research

Graham Number $78.30
PEmg 16.36
PB Ratio 1.95
Dividend Yield 2.09%
TTM Dividend $1.94
Number of Consecutive Years of Dividend Growth 7

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $11,303,000,000
Total Assets $132,212,500,000
Intangible Assets $669,300,000
Total Liabilities $121,704,200,000
Shares Outstanding (Diluted Average) 221,469,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.20
Dec2018 $6.64
Dec2017 $4.92
Dec2016 $4.32
Dec2015 $3.99
Dec2014 $3.32
Dec2013 $2.99
Dec2012 $2.81
Dec2011 $2.47
Dec2010 $2.74
Dec2009 $3.16
Dec2008 $3.47
Dec2007 $3.24
Dec2006 $3.00
Dec2005 $2.64
Dec2004 $2.27
Dec2003 $1.80
Dec2002 $1.97
Dec2001 $2.11
Dec2000 $2.08
Dec1999 $1.74

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.66
Dec2018 $5.14
Dec2017 $4.23
Dec2016 $3.75
Dec2015 $3.35
Dec2014 $2.98
Dec2013 $2.82
Dec2012 $2.80
Dec2011 $2.86
Dec2010 $3.08
Dec2009 $3.20
Dec2008 $3.12
Dec2007 $2.83
Dec2006 $2.53
Dec2005 $2.25
Dec2004 $2.05
Dec2003 $1.94

Recommended Reading:

Other ModernGraham posts about the company

Northern Trust Corp Valuation – April 2018 $NTRS
7 Best Stocks For Value Investors This Week – 7/30/16
Northern Trust Corp Valuation – July 2016 $NTRS
18 Best Stocks For Value Investors This Week – 1/30/16
Northern Trust Corp Valuation – January 2016 Update $NTRS

Other ModernGraham posts about related companies

Affiliated Managers Group Inc Valuation – February 2019 $AMG
Bank of New York Mellon Corp Valuation – February 2019 $BK
Western Union Co Valuation – February 2019 $WU
Raymond James Financial Valuation – February 2019 $RJF
Nasdaq Inc Valuation – February 2019 $NDAQ
E*Trade Financial Corp Valuation – January 2019 $ETFC
Marsh & McLennan Companies Inc Valuation – January 2019 $MMC
Intercontinental Exchange Inc Valuation – January 2019 $ICE
H&R Block Inc Valuation – January 2019 $HRB
State Street Corp Valuation – January 2019 $STT

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.

Affiliated Managers Group Inc Valuation – February 2019 $AMG

Company Profile (excerpt from Reuters): Affiliated Managers Group, Inc., incorporated on December 29, 1993, is an asset management company with equity investments in boutique investment management firms (Affiliates). The Company is focused on investing around the globe in investment management firms that manage active return-oriented strategies, including traditional, alternative and wealth management firms. The Company operates through three business segments, which represent its principal distribution channels: Institutional, Mutual Fund and High Net Worth. The equity method investments in the Institutional distribution channel are made in relationships with public and private client entities, including foundations, endowments, sovereign wealth funds and retirement plans for corporations and municipalities. The equity method investments in the Mutual Fund distribution channel are made in advisory or sub-advisory relationships with active return-oriented mutual funds, Undertakings for Collective Investment in Transferable Securities (UCITS) and other retail products. The equity method investments in the High Net Worth distribution channel are made in relationships with high net worth and ultra-high net worth individuals, families, trusts, foundations, endowments and retirement plans.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AMG – 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 $5,732,676,828 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.45 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 224.67% Pass
6. Moderate PEmg Ratio PEmg < 20 11.23 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.40 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 1.45 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.40 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $9.81
MG Growth Estimate 5.82%
MG Value $197.46
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $142.18
MG Value based on 0% Growth $83.35
Market Implied Growth Rate 1.37%
Current Price $110.14
% of Intrinsic Value 55.78%

Affiliated Managers Group, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $7.06 in 2015 to an estimated $9.81 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.37% 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 Affiliated Managers Group, Inc. revealed the company was trading below its Graham Number of $140.26. The company pays a dividend of $1.2 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 11.23, which was below the industry average of 20.29, 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 $-56.9.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$56.90
Graham Number $140.26
PEmg 11.23
Current Ratio 1.45
PB Ratio 1.40
Current Dividend $1.20
Dividend Yield 1.09%
Number of Consecutive Years of Dividend Growth 2

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,085,400,000
Total Current Liabilities $746,600,000
Long-Term Debt $1,829,600,000
Total Assets $8,219,100,000
Intangible Assets $3,943,300,000
Total Liabilities $4,084,200,000
Shares Outstanding (Diluted Average) 52,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.32
Dec2018 $4.52
Dec2017 $12.03
Dec2016 $8.57
Dec2015 $9.17
Dec2014 $7.70
Dec2013 $6.55
Dec2012 $3.28
Dec2011 $3.11
Dec2010 $2.81
Dec2009 $1.38
Dec2008 -$0.03
Dec2007 $4.55
Dec2006 $3.74
Dec2005 $2.81
Dec2004 $2.02
Dec2003 $1.05
Dec2002 $1.65
Dec2001 $1.47
Dec2000 $1.66
Dec1999 $2.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.81
Dec2018 $8.16
Dec2017 $9.59
Dec2016 $7.93
Dec2015 $7.06
Dec2014 $5.57
Dec2013 $4.15
Dec2012 $2.67
Dec2011 $2.36
Dec2010 $2.15
Dec2009 $2.05
Dec2008 $2.46
Dec2007 $3.42
Dec2006 $2.65
Dec2005 $2.00
Dec2004 $1.59
Dec2003 $1.45

Recommended Reading:

Other ModernGraham posts about the company

Affiliated Managers Group Inc Valuation – May 2018 $AMG
Affiliated Managers Group Inc Valuation – January 2017 $AMG
Affiliated Managers Group Analysis – Initial Coverage $AMG

Other ModernGraham posts about related companies

Raymond James Financial Valuation – February 2019 $RJF
Nasdaq Inc Valuation – February 2019 $NDAQ
E*Trade Financial Corp Valuation – January 2019 $ETFC
Marsh & McLennan Companies Inc Valuation – January 2019 $MMC
Intercontinental Exchange Inc Valuation – January 2019 $ICE
H&R Block Inc Valuation – January 2019 $HRB
State Street Corp Valuation – January 2019 $STT
Morgan Stanley Valuation – January 2019 $MS
MSCI Inc Valuation – January 2019 $MSCI
BlackRock Inc Valuation – January 2019 $BLK

Disclaimer:

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

Back To Top