Caterpillar Inc Valuation – April 2019 #CAT

Company Profile (excerpt from Reuters): Caterpillar Inc. (Caterpillar), incorporated on March 12, 1986, is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The Company operates through segments, including Construction Industries, Resource Industries, Energy & Transportation, Financial Products segment and All Other operating segments. The Company’s products are sold primarily under the brands Caterpillar, CAT, design versions of CAT and Caterpillar, EMD, FG Wilson, MaK, MWM, Perkins, Progress Rail, SEM and Solar Turbines. As of December 31, 2016, the Company’s machines were distributed principally through an organization of dealers (dealer network), 49 located in the United States and 123 located outside the United States, serving 190 countries.

Downloadable PDF version of this valuation:

ModernGraham Valuation of CAT – April 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 $80,783,215,831 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.37 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 5.64% Fail
6. Moderate PEmg Ratio PEmg < 20 21.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.84 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 1.37 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.36 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.47
MG Growth Estimate 3.62%
MG Value $101.81
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $93.75
MG Value based on 0% Growth $54.96
Market Implied Growth Rate 6.60%
Current Price $140.36
% of Intrinsic Value 137.86%

Caterpillar Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.21 in 2015 to an estimated $6.47 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.6% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Caterpillar Inc. revealed the company was trading above its Graham Number of $72.74. The company pays a dividend of $3.28 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.71, which was below the industry average of 26.97, 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 $-44.06.

Caterpillar 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) -$44.06
Graham Number $72.74
PEmg 21.71
Current Ratio 1.37
PB Ratio 5.84
Current Dividend $3.28
Dividend Yield 2.34%
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 $38,603,000,000
Total Current Liabilities $28,218,000,000
Long-Term Debt $24,544,000,000
Total Assets $78,509,000,000
Intangible Assets $8,114,000,000
Total Liabilities $64,429,000,000
Shares Outstanding (Diluted Average) 586,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.64
Dec2018 $10.26
Dec2017 $1.26
Dec2016 -$0.11
Dec2015 $4.18
Dec2014 $3.90
Dec2013 $5.75
Dec2012 $8.48
Dec2011 $7.40
Dec2010 $4.15
Dec2009 $1.43
Dec2008 $5.66
Dec2007 $5.37
Dec2006 $5.17
Dec2005 $4.04
Dec2004 $2.88
Dec2003 $1.56
Dec2002 $1.15
Dec2001 $1.16
Dec2000 $1.51
Dec1999 $1.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.47
Dec2018 $4.55
Dec2017 $2.13
Dec2016 $3.19
Dec2015 $5.21
Dec2014 $5.79
Dec2013 $6.31
Dec2012 $6.20
Dec2011 $4.97
Dec2010 $3.96
Dec2009 $4.02
Dec2008 $5.08
Dec2007 $4.46
Dec2006 $3.66
Dec2005 $2.66
Dec2004 $1.86
Dec2003 $1.35

Recommended Reading:

Other ModernGraham posts about the company

5 Overvalued Dow Components – April 2019
5 Overvalued Dow Components – January 2019
Caterpillar Inc Valuation – November 2018 $CAT
5 Overvalued Dow Components – June 2018
5 Overvalued Dow Components – February 2018

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Disclaimer:

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

Wells Fargo & Co Valuation – April 2019 #WFC

Company Profile (excerpt from Reuters): Wells Fargo & Company, incorporated on January 24, 1929, is a bank holding company. The Company is a diversified financial services company. The Company has three operating segments: Community Banking, Wholesale Banking, and Wealth and Investment Management. The Company provides retail, commercial and corporate banking services through banking locations and offices, the Internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia and in other countries. The Company provides other financial services through its subsidiaries engaged in various businesses, principally: wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency and brokerage services, computer and data processing services, trust services, investment advisory services, mortgage-backed securities servicing and venture capital investment. The Company has its administrative facilities at various locations, including Phoenix, Arizona; San Francisco, California; San Jose, California; Greenwood Village, Colorado; Littleton, Colorado; Rochester, Minnesota; St. Louis, Missouri; Las Vegas, Nevada; Portland, Oregon, and Austin, Texas. The Company offers approximately 13,000 automated teller machines (ATMs) and over 6,000 retail banking stores coast to coast.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WFC – April 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 $220,466,305,698 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 55.90% Pass
5. Moderate PEmg Ratio PEmg < 20 11.21 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.16 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 $4.33
MG Growth Estimate 1.75%
MG Value $52.06
Opinion Fairly Valued
MG Grade A-
MG Value based on 3% Growth $62.85
MG Value based on 0% Growth $36.84
Market Implied Growth Rate 1.36%
Current Price $48.61
% of Intrinsic Value 93.38%

Wells Fargo & Co 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.88 in 2015 to an estimated $4.33 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 1.36% 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.

At the time of valuation, further research into Wells Fargo & Co revealed the company was trading below its Graham Number of $63.18. The company pays a dividend of $1.64 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 11.21, which was below the industry average of 15.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Wells Fargo & Co fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $63.18
PEmg 11.21
PB Ratio 1.16
Dividend Yield 3.37%
TTM Dividend $1.64
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
Long-Term Debt & Capital Lease Obligation $229,044,000,000
Total Assets $1,895,883,000,000
Intangible Assets $43,055,000,000
Total Liabilities $1,698,817,000,000
Shares Outstanding (Diluted Average) 4,698,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.70
Dec2018 $4.28
Dec2017 $4.10
Dec2016 $3.99
Dec2015 $4.12
Dec2014 $4.10
Dec2013 $3.89
Dec2012 $3.36
Dec2011 $2.82
Dec2010 $2.21
Dec2009 $1.75
Dec2008 $0.70
Dec2007 $2.38
Dec2006 $2.47
Dec2005 $2.25
Dec2004 $2.05
Dec2003 $1.83
Dec2002 $1.58
Dec2001 $0.99
Dec2000 $1.16
Dec1999 $1.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.33
Dec2018 $4.14
Dec2017 $4.06
Dec2016 $3.99
Dec2015 $3.88
Dec2014 $3.60
Dec2013 $3.17
Dec2012 $2.59
Dec2011 $2.13
Dec2010 $1.83
Dec2009 $1.73
Dec2008 $1.80
Dec2007 $2.30
Dec2006 $2.18
Dec2005 $1.94
Dec2004 $1.69
Dec2003 $1.46

Recommended Reading:

Other ModernGraham posts about the company

Wells Fargo & Co Valuation – June 2018 $WFC
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2018
Wells Fargo & Co Valuation – August 2017 $WFC
10 Undervalued Companies for the Defensive Dividend Stock Investor – January 2017
10 Undervalued Companies for the Defensive Dividend Stock Investor – December 2016

Other ModernGraham posts about related companies

Comerica Inc Valuation – March 2019 #CMA
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M&T Bank Corp Valuation – February 2019 $MTB
Bank of America Corp Valuation – January 2019 $BAC
Fifth Third Bancorp Valuation – January 2019 $FITB
Zions Bancorp Valuation – January 2019 $ZION
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Disclaimer:

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

Illinois Tool Works Inc Valuation – April 2019 #ITW

Company Profile (excerpt from Reuters): Illinois Tool Works Inc., incorporated on June 19, 1961, is a manufacturer of a range of industrial products and equipment. The Company operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products, and Specialty Products. As of December 31, 2016, the Company had 85 divisions in 57 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ITW – April 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 $48,387,279,394 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.63 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 52.27% Pass
6. Moderate PEmg Ratio PEmg < 20 22.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 15.06 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.70 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 $6.67
MG Growth Estimate 3.23%
MG Value $99.71
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $96.68
MG Value based on 0% Growth $56.67
Market Implied Growth Rate 6.85%
Current Price $148.01
% of Intrinsic Value 148.43%

Illinois Tool Works Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor 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 Overvalued after growing its EPSmg (normalized earnings) from $5.49 in 2015 to an estimated $6.67 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.85% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Illinois Tool Works Inc. revealed the company was trading above its Graham Number of $41.22. The company pays a dividend of $3.56 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.2, which was below the industry average of 24.48, 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 $-17.6.

Illinois Tool Works Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.60
Graham Number $41.22
PEmg 22.20
Current Ratio 1.63
PB Ratio 15.06
Current Dividend $3.56
Dividend Yield 2.41%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $5,778,000,000
Total Current Liabilities $3,542,000,000
Long-Term Debt $6,029,000,000
Total Assets $14,870,000,000
Intangible Assets $5,717,000,000
Total Liabilities $11,612,000,000
Shares Outstanding (Diluted Average) 331,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.70
Dec2018 $7.60
Dec2017 $4.86
Dec2016 $5.70
Dec2015 $5.13
Dec2014 $7.28
Dec2013 $3.74
Dec2012 $6.06
Dec2011 $4.19
Dec2010 $2.99
Dec2009 $1.89
Dec2008 $2.91
Dec2007 $3.36
Dec2006 $3.01
Dec2005 $1.30
Dec2004 $1.10
Dec2003 $1.66
Dec2002 $1.16
Dec2001 $1.32
Dec2000 $1.58
Dec1999 $1.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.67
Dec2018 $6.14
Dec2017 $5.39
Dec2016 $5.63
Dec2015 $5.49
Dec2014 $5.39
Dec2013 $4.23
Dec2012 $4.18
Dec2011 $3.18
Dec2010 $2.73
Dec2009 $2.57
Dec2008 $2.71
Dec2007 $2.44
Dec2006 $1.87
Dec2005 $1.30
Dec2004 $1.32
Dec2003 $1.43

Recommended Reading:

Other ModernGraham posts about the company

Illinois Tool Works Inc Valuation – June 2018 $ITW
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Illinois Tool Works Inc Valuation – August 2017 $ITW
9 Best Stocks For Value Investors This Week – 7/8/16
Illinois Tool Works Inc Valuation – July 2016 $ITW

Other ModernGraham posts about related companies

Ingersoll-Rand PLC Valuation – January 2019 $IR
General Electric Co Valuation – November 2018 $GE
3M Co Valuation – November 2018 $MMM
ITT Inc Valuation – July 2018 $ITT
Illinois Tool Works Inc Valuation – June 2018 $ITW
Honeywell International Inc Valuation – June 2018 $HON
General Electric Co Valuation – February 2018 $GE
3M Company Valuation – February 2018 $MMM
Raven Industries Inc Valuation – September 2017 $RAVN
Illinois Tool Works Inc Valuation – August 2017 $ITW

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.

Honeywell International Inc Valuation – March 2019 #HON

Company Profile (excerpt from Reuters): Honeywell International Inc., incorporated on November 24, 1999, is a technology and manufacturing company. The Company operates through four segments: Aerospace, Home and Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HON – 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 $115,752,559,066 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.29 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 111.25% Pass
6. Moderate PEmg Ratio PEmg < 20 23.99 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.44 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 1.29 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.79 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.63
MG Growth Estimate 4.55%
MG Value $116.54
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $96.07
MG Value based on 0% Growth $56.32
Market Implied Growth Rate 7.74%
Current Price $158.92
% of Intrinsic Value 136.37%

Honeywell International 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 and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.08 in 2015 to an estimated $6.63 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Honeywell International Inc. revealed the company was trading above its Graham Number of $66.13. The company pays a dividend of $3.06 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 23.99, which was below the industry average of 25.04, 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 $-20.23.

Honeywell International 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) -$20.23
Graham Number $66.13
PEmg 23.99
Current Ratio 1.29
PB Ratio 6.44
Current Dividend $3.06
Dividend Yield 1.92%
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 $24,362,000,000
Total Current Liabilities $18,924,000,000
Long-Term Debt $9,756,000,000
Total Assets $57,773,000,000
Intangible Assets $19,685,000,000
Total Liabilities $39,415,000,000
Shares Outstanding (Diluted Average) 744,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.80
Dec2018 $8.98
Dec2017 $2.00
Dec2016 $6.21
Dec2015 $6.04
Dec2014 $5.33
Dec2013 $4.92
Dec2012 $3.69
Dec2011 $2.61
Dec2010 $2.59
Dec2009 $2.05
Dec2008 $3.76
Dec2007 $3.16
Dec2006 $2.52
Dec2005 $1.92
Dec2004 $1.45
Dec2003 $1.52
Dec2002 -$0.31
Dec2001 -$0.12
Dec2000 $2.05
Dec1999 $1.90

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.63
Dec2018 $5.93
Dec2017 $4.57
Dec2016 $5.65
Dec2015 $5.08
Dec2014 $4.35
Dec2013 $3.63
Dec2012 $2.97
Dec2011 $2.68
Dec2010 $2.75
Dec2009 $2.78
Dec2008 $2.95
Dec2007 $2.40
Dec2006 $1.82
Dec2005 $1.28
Dec2004 $0.95
Dec2003 $0.80

Recommended Reading:

Other ModernGraham posts about the company

Honeywell International Inc Valuation – June 2018 $HON
Honeywell International Inc Valuation – July 2017 $HON
Honeywell International Inc Valuation – February 2016 $HON
7 Best Stocks For Value Investors This Week – 10/24/15
Honeywell International Inc. Valuation – October 2015 Update $HON

Other ModernGraham posts about related companies

Ingersoll-Rand PLC Valuation – January 2019 $IR
General Electric Co Valuation – November 2018 $GE
3M Co Valuation – November 2018 $MMM
ITT Inc Valuation – July 2018 $ITT
Illinois Tool Works Inc Valuation – June 2018 $ITW
Honeywell International Inc Valuation – June 2018 $HON
General Electric Co Valuation – February 2018 $GE
3M Company Valuation – February 2018 $MMM
Raven Industries Inc Valuation – September 2017 $RAVN
Illinois Tool Works Inc Valuation – August 2017 $ITW

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.

Chipotle Mexican Grill Inc Valuation – March 2019 #CMG

Company Profile (excerpt from Reuters): Chipotle Mexican Grill, Inc. (Chipotle), incorporated on January 30, 1998, together with its subsidiaries, operates Chipotle Mexican Grill restaurants. The Company’s Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. As of December 31, 2016, the Company managed its operations and restaurants based on 11 regions. As of December 31, 2016, the Company operated 2,198 Chipotle restaurants throughout the United States, as well as 29 international Chipotle restaurants, and it also had 23 restaurants in operation in other non-Chipotle concepts. As of December 31, 2016, 29 of its restaurants were located outside of the United States, with 17 in Canada, six in the United Kingdom, five in France and one in Frankfurt, Germany. The Company sells gift cards, which do not have an expiration date.

CMG Chart

CMG data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CMG – 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 $18,600,677,500 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.81 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 11.30% Fail
6. Moderate PEmg Ratio PEmg < 20 87.26 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.05 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 1.81 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.71
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $111.83
MG Value based on 0% Growth $65.56
Market Implied Growth Rate 39.38%
Current Price $672.98
% of Intrinsic Value N/A

Chipotle Mexican Grill, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years, 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $12.51 in 2015 to an estimated $7.71 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 39.38% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chipotle Mexican Grill, Inc. revealed the company was trading above its Graham Number of $113.79. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 87.26, which was above the industry average of 33.53. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.34.

Chipotle Mexican Grill, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.34
Graham Number $113.79
PEmg 87.26
Current Ratio 1.81
PB Ratio 13.05
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 $814,794,000
Total Current Liabilities $449,990,000
Long-Term Debt $0
Total Assets $2,265,518,000
Intangible Assets $21,939,000
Total Liabilities $824,179,000
Shares Outstanding (Diluted Average) 27,947,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.06
Dec2018 $6.31
Dec2017 $6.17
Dec2016 $0.77
Dec2015 $15.10
Dec2014 $14.13
Dec2013 $10.47
Dec2012 $8.75
Dec2011 $6.76
Dec2010 $5.64
Dec2009 $3.95
Dec2008 $2.36
Dec2007 $2.13
Dec2006 $1.28
Dec2005 $1.43
Dec2004 $0.24
Dec2003 -$0.34
Dec2002 -$0.87
Dec2001 -$1.49

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.71
Dec2018 $6.86
Dec2017 $7.86
Dec2016 $9.09
Dec2015 $12.51
Dec2014 $10.53
Dec2013 $8.19
Dec2012 $6.53
Dec2011 $5.00
Dec2010 $3.77
Dec2009 $2.64
Dec2008 $1.82
Dec2007 $1.35
Dec2006 $0.75
Dec2005 $0.26
Dec2004 -$0.38
Dec2003 -$0.64

Recommended Reading:

Other ModernGraham posts about the company

Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Chipotle Mexican Grill Inc Valuation – March 2017 $CMG
Chipotle Mexican Grill Inc Valuation – August 2016 $CMG
Chipotle Mexican Grill Inc Stock Valuation – February 2016 $CMG
Chipotle Mexican Group Inc Valuation – November 2015 Update $CMG

Other ModernGraham posts about related companies

Darden Restaurants Inc Valuation – March 2019 #DRI
Yum Brands Inc Valuation – February 2019 $YUM
Starbucks Corporation Valuation – January 2019 $SBUX
McDonald’s Corp Valuation – November 2018 $MCD
Sonic Corp Valuation – August 2018 $SONC
Jack in the Box Inc Valuation – July 2018 $JACK
Chuy’s Holdings Inc Valuation – July 2018 $CHUY
Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Darden Restaurants Inc Valuation – May 2018 $DRI
Yum Brands Inc Valuation – April 2018 $YUM

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.

Willis Towers Watson PLC Valuation – March 2019 #WLTW

Company Profile (excerpt from Reuters): Willis Towers Watson Public Limited Company (Willis Towers Watson), incorporated on September 24, 2009, is a holding company. The Company operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services, and Towers Watson Talent and Rewards.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WLTW – 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 $22,553,439,896 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.07 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 513.26% Pass
6. Moderate PEmg Ratio PEmg < 20 26.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.31 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 1.07 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.92 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.52
MG Growth Estimate 12.25%
MG Value $215.04
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $94.50
MG Value based on 0% Growth $55.40
Market Implied Growth Rate 9.15%
Current Price $174.70
% of Intrinsic Value 81.24%

Willis Towers Watson PLC does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.59 in 2015 to an estimated $6.52 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 9.15% 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 Willis Towers Watson PLC revealed the company was trading above its Graham Number of $134.56. The company pays a dividend of $2.4 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 26.81, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-45.41.

Willis Towers Watson PLC 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) -$45.41
Graham Number $134.56
PEmg 26.81
Current Ratio 1.07
PB Ratio 2.31
Current Dividend $2.40
Dividend Yield 1.37%
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 $16,420,000,000
Total Current Liabilities $15,301,000,000
Long-Term Debt $4,389,000,000
Total Assets $32,385,000,000
Intangible Assets $13,783,000,000
Total Liabilities $22,414,000,000
Shares Outstanding (Diluted Average) 132,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.53
Dec2018 $5.27
Dec2017 $4.18
Dec2016 $3.04
Dec2015 $5.41
Dec2014 $5.32
Dec2013 $5.37
Dec2012 -$6.83
Dec2011 $3.05
Dec2010 $7.05
Dec2009 $6.86
Dec2008 $5.43
Dec2007 $7.36
Dec2006 $7.52
Dec2005 $4.56
Dec2004 $6.41
Dec2003 $5.75
Dec2002 $3.39
Dec2001 $0.03
Dec2000 $0.19

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.52
Dec2018 $4.56
Dec2017 $4.35
Dec2016 $3.78
Dec2015 $3.59
Dec2014 $2.71
Dec2013 $1.97
Dec2012 $1.22
Dec2011 $5.48
Dec2010 $6.75
Dec2009 $6.51
Dec2008 $6.31
Dec2007 $6.61
Dec2006 $6.00
Dec2005 $4.83
Dec2004 $4.36
Dec2003 $2.85

Recommended Reading:

Other ModernGraham posts about the company

Willis Towers Watson PLC Valuation – Initial Coverage June 2018 $WLTW

Other ModernGraham posts about related companies

Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN
S&P Global Inc Valuation – March 2019 #SPGI
Equifax Inc Valuation – March 2019 #EFX
CME Group Inc Valuation – March 2019 #CME
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

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.

Alliant Energy Corp Valuation – March 2019 #LNT

Company Profile (excerpt from Reuters): Alliant Energy Corporation (Alliant Energy), incorporated on April 22, 1981, operates as a utility holding company. The Company’s segments include Utility and Non-regulated, Parent and Other. The Utility segment includes the operations of Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), which serve retail customers in Iowa and Wisconsin. The Utility segment includes utility electric operations, utility gas operations and utility other, which includes steam operations and the unallocated portions of the utility business. The Company’s Non-regulated, Parent and Other segment includes the operations of Alliant Energy Resources, LLC (Resources) and its subsidiaries; Alliant Energy Corporate Services, Inc. (Corporate Services); the Alliant Energy parent company, and any Alliant Energy parent company consolidating adjustments. As of December 31, 2016, the Company was focused on providing regulated electric and natural gas service to approximately 960,000 electric and approximately 410,000 natural gas customers in the Midwest through its two public utility subsidiaries, IPL and WPL.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LNT – 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 $11,189,931,660 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.48 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 55.77% Pass
6. Moderate PEmg Ratio PEmg < 20 23.05 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.33 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.48 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -6.11 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 $2.06
MG Growth Estimate 3.94%
MG Value $33.68
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $29.81
MG Value based on 0% Growth $17.48
Market Implied Growth Rate 7.28%
Current Price $47.40
% of Intrinsic Value 140.75%

Alliant Energy 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 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 Overvalued after growing its EPSmg (normalized earnings) from $1.63 in 2015 to an estimated $2.06 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.28% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Alliant Energy Corporation revealed the company was trading above its Graham Number of $31.22. The company pays a dividend of $1.34 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.05, which was below the industry average of 23.71, 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 $-41.81.

Alliant Energy Corporation 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) -$41.81
Graham Number $31.22
PEmg 23.05
Current Ratio 0.48
PB Ratio 2.33
Current Dividend $1.34
Dividend Yield 2.83%
Number of Consecutive Years of Dividend Growth 15

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $785,100,000
Total Current Liabilities $1,644,100,000
Long-Term Debt $5,246,300,000
Total Assets $15,426,000,000
Intangible Assets $0
Total Liabilities $10,640,300,000
Shares Outstanding (Diluted Average) 235,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.23
Dec2018 $2.19
Dec2017 $1.99
Dec2016 $1.64
Dec2015 $1.68
Dec2014 $1.73
Dec2013 $1.62
Dec2012 $1.45
Dec2011 $1.37
Dec2010 $1.30
Dec2009 $0.51
Dec2008 $1.31
Dec2007 $1.89
Dec2006 $1.35
Dec2005 -$0.04
Dec2004 $0.64
Dec2003 $0.91
Dec2002 $0.59
Dec2001 $1.07
Dec2000 $2.52
Dec1999 $1.26

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.06
Dec2018 $1.93
Dec2017 $1.78
Dec2016 $1.65
Dec2015 $1.63
Dec2014 $1.57
Dec2013 $1.40
Dec2012 $1.26
Dec2011 $1.20
Dec2010 $1.17
Dec2009 $1.07
Dec2008 $1.25
Dec2007 $1.13
Dec2006 $0.73
Dec2005 $0.49
Dec2004 $0.88
Dec2003 $1.09

Recommended Reading:

Other ModernGraham posts about the company

Alliant Energy Corp Valuation – June 2018 $LNT
Alliant Energy Corp Valuation – Initial Coverage $LNT

Other ModernGraham posts about related companies

Consolidated Edison Inc Valuation – March 2019 #ED
Duke Energy Corp Valuation – March 2019 #DUK
Sempra Energy Valuation – March 2019 #SRE
Ameren Corp Valuation – March 2019 #AEE
NextEra Energy Inc Valuation – February 2019 $NEE
Dominion Energy Inc Valuation – February 2019 $D
Exelon Corp Valuation – January 2019 $EXC
NRG Energy Inc Valuation – January 2019 $NRG
DTE Energy Co Valuation – January 2019 $DTE
AES Corp Valuation – January 2019 $AES

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.

Dollar Tree Inc Valuation – March 2019 #DLTR

Company Profile (excerpt from Reuters): Dollar Tree, Inc., incorporated on February 22, 2008, is an operator of discount variety stores. As of January 28, 2017, the Company operated 14,334 stores in 48 states and the District of Columbia, and five Canadian provinces. The Company’s segments include Dollar Tree and Family Dollar. The Dollar Tree segment is the operator of discount variety stores offering merchandise at a fixed price. The Family Dollar segment operates a chain of general merchandise retail discount stores providing consumers with a selection of merchandise in neighborhood stores. The Company’s stores operate under the names of Dollar Tree, Family Dollar and Dollar Tree Canada. As of January 28, 2017, the Dollar Tree segment included 6,360 stores operating under the Dollar Tree and Dollar Tree Canada brands, 11 distribution centers in the United States and two in Canada and a Store Support Center in Chesapeake, Virginia. The Family Dollar segment consists of its operations under the Family Dollar brand, 11 distribution centers and a Store Support Center in Matthews, North Carolina. As of January 28, 2017, the Company offered 7,100 items in its stores. The Company offers a range of everyday basic products, and supplements these basic, everyday items with seasonal, closeout and promotional merchandise.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DLTR – 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 $24,548,986,071 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.22 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 220.13% Pass
6. Moderate PEmg Ratio PEmg < 20 23.23 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.10 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 2.22 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.93 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 $4.44
MG Growth Estimate 10.62%
MG Value $132.06
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $64.38
MG Value based on 0% Growth $37.74
Market Implied Growth Rate 7.37%
Current Price $103.16
% of Intrinsic Value 78.11%

Dollar Tree, Inc. 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 $2.6 in 2015 to an estimated $4.44 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 7.37% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Dollar Tree, Inc. revealed the company was trading above its Graham Number of $53.48. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 23.23, which was below the industry average of 27.69, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.58.

Dollar Tree, 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) -$16.58
Graham Number $53.48
PEmg 23.23
Current Ratio 2.22
PB Ratio 3.10
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 10/1/2018
Total Current Assets $4,749,500,000
Total Current Liabilities $2,135,700,000
Long-Term Debt $5,043,800,000
Total Assets $16,649,300,000
Intangible Assets $8,442,800,000
Total Liabilities $8,706,200,000
Shares Outstanding (Diluted Average) 238,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.20
Jan2018 $7.21
Jan2017 $3.78
Jan2016 $1.26
Jan2015 $2.90
Jan2014 $2.72
Jan2013 $2.68
Jan2012 $2.01
Jan2011 $1.55
Jan2010 $1.19
Jan2009 $0.84
Jan2008 $0.70
Jan2007 $0.62
Jan2006 $0.53
Jan2005 $0.53
Jan2004 $0.51
Dec2002 $0.45
Dec2001 $0.36
Dec2000 $0.36
Dec1999 $0.31
Dec1998 $0.24

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.44
Jan2018 $4.23
Jan2017 $2.72
Jan2016 $2.23
Jan2015 $2.60
Jan2014 $2.31
Jan2013 $1.95
Jan2012 $1.48
Jan2011 $1.14
Jan2010 $0.88
Jan2009 $0.70
Jan2008 $0.61
Jan2007 $0.55
Jan2006 $0.51
Jan2005 $0.47
Jan2004 $0.43
Dec2002 $0.38

Recommended Reading:

Other ModernGraham posts about the company

Dollar Tree Inc Valuation – May 2018 $DLTR
Dollar Tree Inc Valuation – February 2017 $DLTR
Dollar Tree Stores Inc. Valuation – October 2015 Update $DLTR
5 Undervalued Companies with a Low Beta – October 2015
The Best Companies of the Retail Industry – August 2015

Other ModernGraham posts about related companies

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

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.

Constellation Brands Inc Valuation – March 2019 #STZ

Company Profile (excerpt from Reuters): Constellation Brands, Inc., incorporated on December 4, 1972, is an international beverage alcohol company. The Company is a producer and marketer of beer, wine and spirits with operations in the United States, Canada, Mexico, New Zealand and Italy. The Company’s segments include Beer, Wine and Spirits, and Corporate Operations and Other. The Company’s wine portfolio is complemented by select spirits brands and other select beverage alcohol products. It is a multi-category supplier (beer, wine and spirits) of beverage alcohol in the United States.

STZ Chart

STZ data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of STZ – 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 $31,587,195,102 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.08 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 514.04% Pass
6. Moderate PEmg Ratio PEmg < 20 16.86 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.81 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 1.08 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 42.79 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 $9.84
MG Growth Estimate 15.00%
MG Value $378.81
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $142.67
MG Value based on 0% Growth $83.63
Market Implied Growth Rate 4.18%
Current Price $165.91
% of Intrinsic Value 43.80%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.88 in 2015 to an estimated $9.84 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.18% 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 Constellation Brands, Inc. Class A revealed the company was trading above its Graham Number of $110.32. The company pays a dividend of $2.08 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 16.86, which was below the industry average of 22.75, 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 $-65.35.

Constellation Brands, Inc. Class A receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$65.35
Graham Number $110.32
PEmg 16.86
Current Ratio 1.08
PB Ratio 2.81
Current Dividend $2.08
Dividend Yield 1.25%
Number of Consecutive Years of Dividend Growth 3

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $3,638,500,000
Total Current Liabilities $3,363,400,000
Long-Term Debt $11,772,500,000
Total Assets $27,890,400,000
Intangible Assets $11,369,600,000
Total Liabilities $16,370,400,000
Shares Outstanding (Diluted Average) 194,820,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.86
Feb2018 $11.55
Feb2017 $7.52
Feb2016 $5.18
Feb2015 $4.17
Feb2014 $9.83
Feb2013 $2.04
Feb2012 $2.13
Feb2011 $2.62
Feb2010 $0.45
Feb2009 -$1.40
Feb2008 -$2.83
Feb2007 $1.38
Feb2006 $1.36
Feb2005 $1.19
Feb2004 $1.03
Feb2003 $1.10
Feb2002 $0.78
Feb2001 $0.65
Feb2000 $0.53
Feb1999 $0.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.84
Feb2018 $8.10
Feb2017 $6.17
Feb2016 $5.22
Feb2015 $4.88
Feb2014 $4.63
Feb2013 $1.74
Feb2012 $1.12
Feb2011 $0.43
Feb2010 -$0.51
Feb2009 -$0.68
Feb2008 -$0.08
Feb2007 $1.27
Feb2006 $1.17
Feb2005 $1.04
Feb2004 $0.91
Feb2003 $0.79

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Disclaimer:

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

Alliance Data Systems Corp Valuation – March 2019 #ADS

Company Profile (excerpt from Reuters): Alliance Data Systems Corporation, incorporated on February 23, 1995, is a provider of data-driven marketing and loyalty solutions serving consumer-based businesses in a range of industries. The Company offers a portfolio of integrated outsourced marketing solutions, including customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services, and private label and co-brand retail credit card programs. The Company operates through three segments: LoyaltyOne, which provides coalition and short-term loyalty programs through the Company’s Canadian AIR MILES Reward Program and BrandLoyalty Group B.V. (BrandLoyalty); Epsilon, which provides end-to-end, integrated direct marketing solutions, and Card Services, which provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services for the Company’s private label and co-brand retail credit card programs. Its client base is diversified across a range of end-markets, including financial services, specialty retail, grocery and drugstore chains, petroleum retail, automotive, hospitality and travel, telecommunications, insurance and healthcare.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ADS – 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 $9,070,607,376 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.15 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 232.37% Pass
6. Moderate PEmg Ratio PEmg < 20 10.89 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.97 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.15 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.80 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $15.71
MG Growth Estimate 15.00%
MG Value $604.68
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $227.74
MG Value based on 0% Growth $133.50
Market Implied Growth Rate 1.19%
Current Price $171.03
% of Intrinsic Value 28.28%

Alliance Data Systems Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. 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 $7.77 in 2015 to an estimated $15.71 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.19% 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 Alliance Data Systems Corporation revealed the company was trading above its Graham Number of $138.66. The company pays a dividend of $2.28 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 10.89, which was below the industry average of 32.74, 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 $-61.7.

Alliance Data Systems Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$61.70
Graham Number $138.66
PEmg 10.89
Current Ratio 2.15
PB Ratio 3.97
Current Dividend $2.28
Dividend Yield 1.33%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $24,711,700,000
Total Current Liabilities $11,484,000,000
Long-Term Debt $10,527,500,000
Total Assets $30,387,700,000
Intangible Assets $4,380,700,000
Total Liabilities $28,055,600,000
Shares Outstanding (Diluted Average) 54,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $19.96
Dec2018 $17.49
Dec2017 $14.10
Dec2016 $7.34
Dec2015 $8.85
Dec2014 $7.87
Dec2013 $7.42
Dec2012 $6.58
Dec2011 $5.45
Dec2010 $3.48
Dec2009 $2.49
Dec2008 $2.80
Dec2007 $2.03
Dec2006 $2.32
Dec2005 $1.64
Dec2004 $1.22
Dec2003 $0.84
Dec2002 $0.31
Dec2001 -$0.21
Dec2000 -$0.60
Dec1999 -$0.70

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $15.71
Dec2018 $12.76
Dec2017 $9.97
Dec2016 $7.81
Dec2015 $7.77
Dec2014 $6.88
Dec2013 $5.95
Dec2012 $4.86
Dec2011 $3.75
Dec2010 $2.81
Dec2009 $2.40
Dec2008 $2.24
Dec2007 $1.84
Dec2006 $1.59
Dec2005 $1.07
Dec2004 $0.62
Dec2003 $0.19

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Stocks for the Enterprising Investor – January 2019
Most Undervalued Stocks of the S&P 500 – August 2018
5 Undervalued Stocks for Value Investors with a High Beta – July 2018
Alliance Data Systems Corp Valuation – May 2018 $ADS
14 Best Stocks for Value Investors This Week – 2/11/17

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Disclaimer:

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

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