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United Parcel Service Inc Valuation – March 2019 #UPS

Company Profile (excerpt from Reuters): United Parcel Service, Inc. (UPS), incorporated on July 15, 1999, is a package delivery company. The Company is a provider of global supply chain management solutions. The Company operates through three segments: U.S. Domestic Package operations, International Package operations, and Supply Chain & Freight operations. As of December 31, 2016, the Company delivered packages in over 220 countries and territories. WorldShip, a desktop shipping application of UPS, provides middle-market and customers with shipping capabilities. Customers can create custom labels, set up shipment alerts, create and upload customs documentation, track and export shipments, create reports and integrate with their enterprise resource planning and accounting systems to streamline shipping with real-time connectivity. UPS marketplace shipping, which integrates www.ups.com with eBay, Amazon, Etsy and BigCommerce, allows marketplace sellers to ship their orders through www.ups.com or WorldShip. UPS marketplace shipping provides shipment processing, multiple payment options (including PayPal), order and shipment history and automatic tracking updates. The Company serves the global market for logistics services, which include transportation, distribution, contract logistics, ground freight, ocean freight, air freight, customs brokerage, insurance and financing.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of UPS – 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 $74,248,106,732 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.15 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 130.38% Pass
6. Moderate PEmg Ratio PEmg < 20 18.08 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 30.56 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 1.15 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.20 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.90
MG Growth Estimate 7.42%
MG Value $137.71
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $85.54
MG Value based on 0% Growth $50.14
Market Implied Growth Rate 4.79%
Current Price $106.68
% of Intrinsic Value 77.47%

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.95 in 2015 to an estimated $5.9 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 4.79% 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 United Parcel Service, Inc. revealed the company was trading above its Graham Number of $24.06. The company pays a dividend of $3.64 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 18.08, which was below the industry average of 18.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-35.37.

United Parcel Service, 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) -$35.37
Graham Number $24.06
PEmg 18.08
Current Ratio 1.15
PB Ratio 30.56
Current Dividend $3.64
Dividend Yield 3.41%
Number of Consecutive Years of Dividend Growth 9

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 $16,210,000,000
Total Current Liabilities $14,087,000,000
Long-Term Debt $19,537,000,000
Total Assets $50,016,000,000
Intangible Assets $5,887,000,000
Total Liabilities $46,979,000,000
Shares Outstanding (Diluted Average) 870,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.31
Dec2018 $5.51
Dec2017 $5.61
Dec2016 $3.86
Dec2015 $5.35
Dec2014 $3.28
Dec2013 $4.61
Dec2012 $0.83
Dec2011 $3.84
Dec2010 $3.33
Dec2009 $2.14
Dec2008 $2.94
Dec2007 $0.36
Dec2006 $3.86
Dec2005 $3.47
Dec2004 $2.93
Dec2003 $2.55
Dec2002 $2.81
Dec2001 $2.10
Dec2000 $2.50
Dec1999 $0.77

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.90
Dec2018 $5.04
Dec2017 $4.71
Dec2016 $4.04
Dec2015 $3.95
Dec2014 $3.22
Dec2013 $3.11
Dec2012 $2.45
Dec2011 $3.01
Dec2010 $2.57
Dec2009 $2.32
Dec2008 $2.51
Dec2007 $2.40
Dec2006 $3.33
Dec2005 $2.96
Dec2004 $2.67
Dec2003 $2.40

Recommended Reading:

Other ModernGraham posts about the company

United Parcel Service Inc Valuation – May 2018 $UPS
United Parcel Service Inc Valuation – February 2017 $UPS
United Parcel Service Inc. Valuation – October 2015 Update $UPS
27 Companies in the Spotlight This Week – 11/8/14
United Parcel Service Inc. Annual Valuation – 2014 $UPS

Other ModernGraham posts about related companies

JB Hunt Transport Services Inc Valuation – February 2019 $JBHT
C.H. Robinson Worldwide Inc Valuation – February 2019 $CHRW
FedEx Corporation Valuation – January 2019 $FDX
Expeditors International of Washington Inc Valuation – January 2019 $EXPD
Kirby Corp Valuation – September 2018 $KEX
Knight-Swift Transportation Holdings Inc Valuation – August 2018 $KNX
Saia Inc Valuation – July 2018 $SAIA
Ryder System Inc Valuation – June 2018 $R
United Parcel Service Inc Valuation – May 2018 $UPS
JB Hunt Transport Services Inc Valuation – May 2018 $JBHT

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.

United Parcel Service Inc Valuation – May 2018 $UPS

Company Profile (excerpt from Reuters): United Parcel Service, Inc. (UPS), incorporated on July 15, 1999, is a package delivery company. The Company is a provider of global supply chain management solutions. The Company operates through three segments: U.S. Domestic Package operations, International Package operations, and Supply Chain & Freight operations. As of December 31, 2016, the Company delivered packages in over 220 countries and territories. WorldShip, a desktop shipping application of UPS, provides middle-market and customers with shipping capabilities. Customers can create custom labels, set up shipment alerts, create and upload customs documentation, track and export shipments, create reports and integrate with their enterprise resource planning and accounting systems to streamline shipping with real-time connectivity. UPS marketplace shipping, which integrates www.ups.com with eBay, Amazon, Etsy and BigCommerce, allows marketplace sellers to ship their orders through www.ups.com or WorldShip. UPS marketplace shipping provides shipment processing, multiple payment options (including PayPal), order and shipment history and automatic tracking updates. The Company serves the global market for logistics services, which include transportation, distribution, contract logistics, ground freight, ocean freight, air freight, customs brokerage, insurance and financing.

UPS Chart

UPS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of UPS – May 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 $100,432,797,598 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.22 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 78.63% Pass
6. Moderate PEmg Ratio PEmg < 20 20.66 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 74.69 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 1.22 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.26 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.59
MG Growth Estimate 11.00%
MG Value $170.32
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $80.99
MG Value based on 0% Growth $47.48
Market Implied Growth Rate 6.08%
Current Price $115.38
% of Intrinsic Value 67.74%

United Parcel Service, 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 Undervalued after growing its EPSmg (normalized earnings) from $3.22 in 2014 to an estimated $5.59 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.08% 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 United Parcel Service, Inc. revealed the company was trading above its Graham Number of $13.68. The company pays a dividend of $3.32 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.66, which was below the industry average of 171.35, 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 $-33.91.

United Parcel Service, 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) -$33.91
Graham Number $13.68
PEmg 20.66
Current Ratio 1.22
PB Ratio 74.69
Current Dividend $3.32
Dividend Yield 2.88%
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 3/1/2018
Total Current Assets $13,620,000,000
Total Current Liabilities $11,149,000,000
Long-Term Debt $20,409,000,000
Total Assets $44,464,000,000
Intangible Assets $5,918,000,000
Total Liabilities $43,120,000,000
Shares Outstanding (Diluted Average) 870,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.15
Dec2017 $5.61
Dec2016 $3.87
Dec2015 $5.35
Dec2014 $3.28
Dec2013 $4.61
Dec2012 $0.83
Dec2011 $3.84
Dec2010 $3.33
Dec2009 $2.14
Dec2008 $2.94
Dec2007 $0.36
Dec2006 $3.86
Dec2005 $3.47
Dec2004 $2.93
Dec2003 $2.55
Dec2002 $2.81
Dec2001 $2.10
Dec2000 $2.50
Dec1999 $0.77
Dec1998 $1.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.59
Dec2017 $4.72
Dec2016 $4.04
Dec2015 $3.95
Dec2014 $3.22
Dec2013 $3.11
Dec2012 $2.45
Dec2011 $3.01
Dec2010 $2.57
Dec2009 $2.32
Dec2008 $2.51
Dec2007 $2.40
Dec2006 $3.33
Dec2005 $2.96
Dec2004 $2.67
Dec2003 $2.40
Dec2002 $2.20

Recommended Reading:

Other ModernGraham posts about the company

United Parcel Service Inc Valuation – February 2017 $UPS
United Parcel Service Inc. Valuation – October 2015 Update $UPS
27 Companies in the Spotlight This Week – 11/8/14
United Parcel Service Inc. Annual Valuation – 2014 $UPS
19 Companies in the Spotlight This Week – 7/26/14

Other ModernGraham posts about related companies

JB Hunt Transport Services Inc Valuation – May 2018 $JBHT
C.H. Robinson Worldwide Inc Valuation – April 2018 $CHRW
FedEx Corp Valuation – April 2018 $FDX
Expeditors International of Washington Inc Valuation – March 2018 $EXPD
TFI International Inc Valuation – Initial Coverage $TSE:TFII
Landstar System Inc Valuation – Initial Coverage $LSTR
Kirby Corporation Valuation – Initial Coverage $KEX
Knight Transportation Valuation – Initial Coverage $KNX
United Parcel Service Inc Valuation – February 2017 $UPS
SPS Commerce Inc Valuation – Initial Coverage $SPSC

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.

United Parcel Service Inc Valuation – February 2017 $UPS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how United Parcel Service Inc (UPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Parcel Service, Inc. (UPS) is a package delivery company. The Company is a provider of global supply chain management solutions. It delivers packages each business day in over 220 countries and territories. The Company operates in three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight. The Company offers a spectrum of the United States domestic guaranteed ground and air package transportation services. The Company’s International Package segment includes the small package operations in Europe, Asia, Canada and Latin America, the Indian sub-continent, the Middle East and Africa. UPS offers a selection of guaranteed day and time-definite international shipping services. The Supply Chain & Freight segment consists of the Company’s forwarding and logistics services, truckload freight brokerage, UPS Freight and its financial offerings through UPS Capital. UPS offers a portfolio of guaranteed and non-guaranteed global air freight services.

UPS Chart

UPS data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of UPS – February 2017

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

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $94,445,121,391 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 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 78.48% Pass
6. Moderate PEmg Ratio PEmg < 20 22.47 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 219.18 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 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.08 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.78
MG Growth Estimate 8.02%
MG Value $117.21
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $69.26
MG Value based on 0% Growth $40.60
Market Implied Growth Rate 6.99%
Current Price $107.34
% of Intrinsic Value 91.58%

United Parcel Service, 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.11 in 2013 to an estimated $4.78 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 6.99% 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 United Parcel Service, Inc. revealed the company was trading above its Graham Number of $8.02. The company pays a dividend of $3.12 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.47, which was above the industry average of 22.36. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.35.

United Parcel Service, 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) -$30.35
Graham Number $8.02
PEmg 22.47
Current Ratio 1.13
PB Ratio 219.18
Current Dividend $3.12
Dividend Yield 2.91%
Number of Consecutive Years of Dividend Growth 8

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Useful Links:

 

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $13,388,000,000
Total Current Liabilities $11,855,000,000
Long-Term Debt $12,394,000,000
Total Assets $40,401,000,000
Intangible Assets $0
Total Liabilities $39,972,000,000
Shares Outstanding (Diluted Average) 876,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.79
Dec2016 $3.87
Dec2015 $5.35
Dec2014 $3.28
Dec2013 $4.61
Dec2012 $0.83
Dec2011 $3.84
Dec2010 $3.33
Dec2009 $2.14
Dec2008 $2.94
Dec2007 $0.36
Dec2006 $3.86
Dec2005 $3.47
Dec2004 $2.93
Dec2003 $2.55
Dec2002 $2.81
Dec2001 $2.10
Dec2000 $2.50
Dec1999 $0.77
Dec1998 $1.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.78
Dec2016 $4.04
Dec2015 $3.95
Dec2014 $3.22
Dec2013 $3.11
Dec2012 $2.45
Dec2011 $3.01
Dec2010 $2.57
Dec2009 $2.32
Dec2008 $2.51
Dec2007 $2.40
Dec2006 $3.33
Dec2005 $2.96
Dec2004 $2.67
Dec2003 $2.40
Dec2002 $2.20
Dec2001 $1.73

Recommended Reading:

Other ModernGraham posts about the company

United Parcel Service Inc. Valuation – October 2015 Update $UPS
27 Companies in the Spotlight This Week – 11/8/14
United Parcel Service Inc. Annual Valuation – 2014 $UPS
19 Companies in the Spotlight This Week – 7/26/14
United Parcel Service Quarterly Valuation – July 2014 $UPS

Other ModernGraham posts about related companies

J B Hunt Transport Services Inc Valuation – Initial Coverage $JBHT
Celadon Group Inc Valuation – Initial Coverage $CGI
Saia Inc Valuation – Initial Coverage $SAIA
C.H. Robinson Worldwide Inc Valuation – August 2016 $CHRW
FedEx Corp Valuation – July 2016 $FDX
Ryder System Inc Valuation – July 2016 $R
Expeditors International of Washington Valuation – June 2016 $EXPD
Expeditors International of Washington Valuation – January 2016 Update $EXPD
FedEx Corp Valuation – November 2015 Update $FDX
United Parcel Service Inc. Valuation – October 2015 Update $UPS

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.

United Parcel Service Inc. Valuation – October 2015 Update $UPS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how United Parcel Service Inc. (UPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Parcel Service, Inc. is a package delivery company. The Company is a provider of global supply chain management solutions. It delivers packages in over 220 countries and territories. It also provides control and visibility of customers’ inventories and supply chains via its UPS technology platform. The Company offers transportation, distribution, forwarding, ground freight, ocean freight, air freight, brokerage and financing services. It operates in three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. Its WorldShip is a desktop shipping application that provides middle market and large customers with shipping capabilities. Customers can create custom labels, set up shipment alerts, create and upload customs documentation, track and export shipments, create reports and integrate with their enterprise resource planning and accounting systems. UPS marketplace shipping allows marketplace sellers to ship their orders via www.ups.com or WorldShip.

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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.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of UPS – October 2015

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $92,451,081,739 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 80.73% Pass
6. Moderate PEmg Ratio PEmg < 20 26.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 47.79 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.86 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

UPS value Chart October 2015

EPSmg $3.85
MG Growth Estimate 4.16%
MG Value $64.68
Opinion Overvalued
MG Value based on 3% Growth $55.78
MG Value based on 0% Growth $32.70
Market Implied Growth Rate 9.09%
Current Price $102.64
% of Intrinsic Value 158.70%

United Parcel Service Inc. does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio 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, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.01 in 2011 to an estimated $3.85 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 9.09% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on United Parcel Service Inc. (UPS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

UPS Charts October 2015

Net Current Asset Value (NCAV) -$23.71
Graham Number $15.74
PEmg 26.68
Current Ratio 1.34
PB Ratio 47.79
Dividend Yield 2.73%
Number of Consecutive Years of Dividend Growth 6

 

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Useful Links:

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

Most Recent Balance Sheet Figures

Total Current Assets $13,768,000,000
Total Current Liabilities $10,303,000,000
Long-Term Debt $9,900,000,000
Total Assets $37,251,000,000
Intangible Assets $3,092,000,000
Total Liabilities $35,301,000,000
Shares Outstanding (Diluted Average) 908,000,000

Earnings Per Share History

Next Fiscal Year Estimate $5.05
Dec14 $3.28
Dec13 $4.61
Dec12 $0.83
Dec11 $3.84
Dec10 $3.33
Dec09 $2.14
Dec08 $2.94
Dec07 $0.36
Dec06 $3.86
Dec05 $3.47
Dec04 $2.93
Dec03 $2.55
Dec02 $2.81
Dec01 $2.10
Dec00 $2.50
Dec99 $0.77
Dec98 $1.57

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.85
Dec14 $3.22
Dec13 $3.11
Dec12 $2.45
Dec11 $3.01
Dec10 $2.57
Dec09 $2.32
Dec08 $2.51
Dec07 $2.40
Dec06 $3.33
Dec05 $2.96
Dec04 $2.67
Dec03 $2.40
Dec02 $2.20
Dec01 $1.73
Dec00 $1.35
Dec99 $0.68

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 11/8/14
United Parcel Service Inc. Annual Valuation – 2014 $UPS
19 Companies in the Spotlight This Week – 7/26/14
United Parcel Service Quarterly Valuation – July 2014 $UPS
16 Companies in the Spotlight This Week – 4/26/14

Other ModernGraham posts about related companies

Expeditors International of Washington Analysis – October 2015 Update $EXPD
FedEx Corporation Analysis – August 2015 Update $FDX
C.H. Robinson Worldwide Inc. Analysis – 2015 Update $CHRW
Expeditors International of Washington Analysis – June 2015 Update $EXPD
FedEx Corporation Quarterly Valuation – March 2015 $FDX
Expeditors International of Washington Quarterly Valuation – March 2015 $EXPD
Ryder System Inc. Annual Valuation – 2015 $R
FedEx Corporation Quarterly Valuation – December 2014 $FDX
Expeditors International of Washington Quarterly Valuation – December 2014 $EXPD
United Parcel Service Inc. Annual Valuation – 2014 $UPS

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.

United Parcel Service Inc. Annual Valuation – 2014 $UPS

200px-United_Parcel_Service_logo.svg

After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the high PEmg and PB ratios, while the Enterprising Investor has concerns with the high level of debt relative to the net current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $2.57 in 2010 to an estimated $3.77 for 2014. This level of demonstrated growth is fairly strong, but does not support the market’s implied estimate of 9.39%. Based on the demonstrated growth, and lessened by a margin of safety, the ModernGraham valuation model estimates a more conservative growth over the next 7-10 years to be around 7%. As a result, the company appears to be significantly overvalued at the present time.

Be sure to check out previous ModernGraham valuations of United Parcel Service Inc. for more perspective!

Read the full valuation on Seeking Alpha!

UPS Chart

UPS data by YCharts

United Parcel Service Quarterly Valuation – July 2014 $UPS

200px-United_Parcel_Service_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies to Research for the Enterprising Investor.  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 United Parcel Service (UPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Parcel Service, Inc. (UPS) is a package delivery company. The Company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries and territories. During the year ended December 31, 2012, it delivered an average of 16.3 million pieces per day worldwide, or a total of 4.1 billion packages. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. The Company has three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. In February 2012, it acquired Kiala S.A. In February 2014, United Parcel Service acquired Polar Speed Distribution Ltd.
UPS Chart

UPS data by YCharts

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

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – 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 - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – 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 $104.34
MG Value $84.54
MG Opinion Overvalued
Value Based on 3% Growth $55.43
Value Based on 0% Growth $32.49
Market Implied Growth Rate 9.40%
NCAV -$17.65
PEmg 27.30
Current Ratio 1.59
PB Ratio 15.35

Balance Sheet – 3/31/2014

Current Assets $14,620,000,000
Current Liabilities $9,193,000,000
Total Debt $9,860,000,000
Total Assets $37,085,000,000
Intangible Assets $3,004,000,000
Total Liabilities $30,838,000,000
Outstanding Shares 919,000,000

Earnings Per Share

2014 (estimate) $5.05
2013 $4.61
2012 $0.83
2011 $3.84
2010 $3.48
2009 $2.16
2008 $2.94
2007 $0.36
2006 $3.86
2005 $3.47
2004 $2.93

Earnings Per Share – ModernGraham

2014 (estimate) $3.82
2013 $3.13
2012 $2.48
2011 $3.06
2010 $2.63
2009 $2.32

Dividend History

UPS Dividend Chart

UPS Dividend data by YCharts

Conclusion:

United Parcel Service is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio and the high PEmg and PB ratios.  The Enterprising Investor’s only initial concern is with the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of FedEx Corporation (FDX).  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.63 in 2010 to only an estimated $3.82 for 2014. This low level of demonstrated growth does not support the market’s implied estimate of 9.40% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of United Parcel Service (UPS) for more 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 United Parcel Service (UPS)?  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 United Parcel Service (UPS) 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.

United Parcel Service Inc. (UPS) Quarterly Valuation – April 2014

200px-United_Parcel_Service_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Enterprising Investor.  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 United Parcel Service (UPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Parcel Service, Inc. (UPS) is a package delivery company. The Company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries and territories. During the year ended December 31, 2012, it delivered an average of 16.3 million pieces per day worldwide, or a total of 4.1 billion packages. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. The Company has three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. In February 2012, it acquired Kiala S.A. In February 2014, United Parcel Service acquired Polar Speed Distribution Ltd.

UPS Chart

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

Valuation Summary

Key Data:

MG Value $59.52
MG Opinion Overvalued
Value Based on 3% Growth $45.44
Value Based on 0% Growth $26.64
Market Implied Growth Rate 11.53%
NCAV -$17.72
PEmg 31.56
Current Ratio 1.88
PB Ratio 14.10

Balance Sheet – 12/31/2013

Current Assets $13,387,000,000
Current Liabilities $7,131,000,000
Total Debt $10,824,000,000
Total Assets $36,212,000,000
Intangible Assets $2,965,000,000
Total Liabilities $29,738,000,000
Outstanding Shares 923,000,000

Earnings Per Share

2013 $4.61
2012 $0.83
2011 $3.84
2010 $3.48
2009 $2.16
2008 $2.94
2007 $0.36
2006 $3.86
2005 $3.47
2004 $2.93
2003 $2.55

Earnings Per Share – ModernGraham

2013 $3.13
2012 $2.48
2011 $3.06
2010 $2.63
2009 $2.32
2008 $2.51

Dividend History

UPS Dividend Chart

UPS Dividend data by YCharts

Conclusion:

United Parcel Service qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios, and the insufficient earnings growth over the ten year period.  The Enterprising Investor’s only concern is the high level of debt relative to the current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to its competitors through a review of ModernGraham’s valuation of Fedex Corp (FDX) and a review of 5 Outstanding Dow Components.  From a valuation side of things, the company appears to be overvalued after having grown its EPSmg (normalized earnings) from $2.32 in 2009 to only $3.13 for 2013.  This low level of growth does not support the market’s implied estimate of 11.53% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is below the market 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 United Parcel Service (UPS)?  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.

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

Disclaimer:  The author did not hold a position in United Parcel Service (UPS) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

United Parcel Service (UPS) Quarterly Valuation

money

The package delivery industry is a sector of the economy that will likely not have any fundamental changes to it in the foreseeable future.  Yes, it’s possible that at some point drones will replace humans as a delivery method, but the industry would still revolve around the delivery of packages.  So it stands to reason that the industry may be a good addition to an investor’s portfolio as stability over the long-term is likely.  But narrowing the investment to a given carrier requires fundamental analysis of the possibilities based on historical performance.  By using a ModernGraham analysis, one can maintain a systematic analysis across companies and even industries to easily compare one potential investment’s risk level and opportunity for value against another potential investment.  What follows is a specific look at how United Parcel Service fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Parcel Service, Inc. (UPS) is a package delivery company. The Company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries and territories. During the year ended December 31, 2012, it delivered an average of 16.3 million pieces per day worldwide, or a total of 4.1 billion packages. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. The Company has three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. In February 2012, it acquired Kiala S.A.

Defensive and Enterprising Investor Tests:

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

Valuation Summary

Key Data:

MG Value $59.52
MG Opinion Overvalued
Value Based on 3% Growth $45.44
Value Based on 0% Growth $26.64
Market Implied Growth Rate 11.12%
NCAV -$21.61
PEmg 30.74
Current Ratio 1.76
PB Ratio 24.57

Balance Sheet – 9/30/2013 

Current Assets $13,758,000,000
Current Liabilities $7,821,000,000
Total Debt $10,897,000,000
Total Assets $37,476,000,000
Intangible Assets $2,951,000,000
Total Liabilities $33,834,000,000
Outstanding Shares 929,000,000

Earnings Per Share

2013 (estimate) $4.61
2012 $0.83
2011 $3.84
2010 $3.48
2009 $2.16
2008 $2.94
2007 $0.36
2006 $3.86
2005 $3.47
2004 $2.93
2003 $2.55

Earnings Per Share – ModernGraham 

2013 (estimate) $3.13
2012 $2.48
2011 $3.06
2010 $2.63
2009 $2.32
2008 $2.51

Conclusion:

United Parcel Service intrigues the Enterprising Investor, but it would be much more interesting if there was stronger growth.  As it stands, the company is not suitable for the Defensive Investor because of its lack of sufficient earnings growth over the ten year period, its low current ratio, and its high PEmg and PB ratios.  The Enterprising Investor is interested, and should feel comfortable proceeding with further research into the company, beginning with a review of ModernGraham’s valuation of Fedex Corporation (FDX).  From a valuation perspective, the company has only grown its EPSmg (normalized earnings) from $2.52 in 2008 to an estimated $3.13 for 2013.  This level of growth is a little disappointing, and the ModernGraham valuation model does not return a value supportive of the market’s current price.  As a result, the company would appear to be overvalued at the present time.

What do you think?  What value would you put on United Parcel Service (UPS)?  Should the company be suitable only for Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

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

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

Photo Credit:  Andrew Magill

Home Depot Inc Valuation – April 2019 #HD

Company Profile (excerpt from Reuters): The Home Depot, Inc. (The Home Depot), incorporated on June 29, 1978, is a home improvement retailer. The Company sells an assortment of building materials, home improvement products, and lawn and garden products, and provides various services. The Home Depot stores averaged approximately 104,000 square feet of enclosed space, with over 24,000 additional square feet of outside garden area, as of January 29, 2017. The Home Depot stores serve three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. The Company had approximately 2,278 stores located throughout the United States, including the Commonwealth of Puerto Rico and the territories of the United States Virgin Islands and Guam, Canada and Mexico, as of January 29, 2017.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HD – 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 $223,054,839,544 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 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 257.09% Pass
6. Moderate PEmg Ratio PEmg < 20 23.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -120.72 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 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 14.79 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 $8.51
MG Growth Estimate 14.05%
MG Value $311.32
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $123.35
MG Value based on 0% Growth $72.31
Market Implied Growth Rate 7.63%
Current Price $202.06
% of Intrinsic Value 64.90%

Home Depot 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 Undervalued after growing its EPSmg (normalized earnings) from $4.39 in 2016 to an estimated $8.51 for 2020. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.63% 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 Home Depot Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $4.12 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 23.75, which was above the industry average of 21.52. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.38.

Home Depot 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) -$24.38
Graham Number $0.00
PEmg 23.75
Current Ratio 1.11
PB Ratio -120.72
Current Dividend $4.12
Dividend Yield 2.04%
Number of Consecutive Years of Dividend Growth 9

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 1/1/2019
Total Current Assets $18,529,000,000
Total Current Liabilities $16,716,000,000
Long-Term Debt $26,807,000,000
Total Assets $44,003,000,000
Intangible Assets $2,252,000,000
Total Liabilities $45,881,000,000
Shares Outstanding (Diluted Average) 1,122,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.69
Jan2019 $9.73
Jan2018 $7.29
Jan2017 $6.45
Jan2016 $5.46
Jan2015 $4.71
Jan2014 $3.76
Jan2013 $3.00
Jan2012 $2.47
Jan2011 $2.01
Jan2010 $1.57
Jan2009 $1.34
Jan2008 $2.37
Jan2007 $2.79
Jan2006 $2.72
Jan2005 $2.26
Jan2004 $1.88
Jan2003 $1.56
Jan2002 $1.29
Jan2001 $1.10
Jan2000 $1.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.51
Jan2019 $7.52
Jan2018 $6.12
Jan2017 $5.25
Jan2016 $4.39
Jan2015 $3.64
Jan2014 $2.92
Jan2013 $2.36
Jan2012 $2.01
Jan2011 $1.86
Jan2010 $1.91
Jan2009 $2.15
Jan2008 $2.50
Jan2007 $2.46
Jan2006 $2.18
Jan2005 $1.81
Jan2004 $1.51

Recommended Reading:

Other ModernGraham posts about the company

Home Depot Inc Valuation – November 2018 $HD
Home Depot Inc Valuation – February 2018 $HD
Home Depot Inc Valuation – February 2017 $HD
Home Depot Inc. Valuation – November 2015 Update $HD
30 Companies in the Spotlight This Week – 11/15/14

Other ModernGraham posts about related companies

Lowe’s Companies Inc Valuation – March 2019 #LOW
Quanta Services Inc Valuation – March 2019 #PWR
Mohawk Industries Inc Valuation – March 2019 #MHK
Jacobs Engineering Group Inc Valuation – March 2019 #JEC
Masco Corp Valuation – February 2019 $MAS
D.R. Horton Inc Valuation – February 2019 $DHI
Martin Marietta Materials Inc Valuation – February 2019 $MLM
Fluor Corp Valuation – February 2019 $FLR
Lennar Corp Valuation – February 2019 $LEN
Vulcan Materials Co Valuation – February 2019 $VMC

Disclaimer:

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

Coca-Cola Co Valuation – April 2019 #KO

Company Profile (excerpt from Reuters): The Coca-Cola Company, incorporated on September 5, 1919, is a beverage company. The Company owns or licenses and markets non-alcoholic beverage brands, primarily sparkling beverages and a range of still beverages, such as waters, flavored waters and enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, sports drinks, dairy and energy drinks. The Company’s segments include Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Bottling Investments, and Corporate. The Company owns and markets a range of non-alcoholic sparkling beverage brands, including Coca-Cola, Diet Coke, Fanta and Sprite. As of December 31, 2016, the Company owned or licensed and marketed over 500 non-alcoholic beverage brands. The Company markets, manufactures and sells beverage concentrates, which are referred to as beverage bases, and syrups, including fountain syrups (concentrate business or concentrate operations), and finished sparkling and still beverages (finished product business or finished product operations). The Company makes its beverage products available to consumers across the world through its network of Company-owned or -controlled bottling and distribution operations, as well as bottling partners, distributors, wholesalers and retailers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of KO – 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 $198,666,736,888 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.05 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 -39.21% Fail
6. Moderate PEmg Ratio PEmg < 20 31.87 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.50 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 1.05 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 17.98 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.46
MG Growth Estimate -2.50%
MG Value $5.11
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $21.14
MG Value based on 0% Growth $12.39
Market Implied Growth Rate 11.69%
Current Price $46.47
% of Intrinsic Value 909.65%

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

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.75 in 2015 to an estimated $1.46 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.69% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into The Coca-Cola Co revealed the company was trading above its Graham Number of $13.61. The company pays a dividend of $1.56 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 31.87, which was above the industry average of 27.84. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.79.

The Coca-Cola Co receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.79
Graham Number $13.61
PEmg 31.87
Current Ratio 1.05
PB Ratio 10.50
Current Dividend $1.56
Dividend Yield 3.36%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $30,634,000,000
Total Current Liabilities $29,223,000,000
Long-Term Debt $25,364,000,000
Total Assets $83,216,000,000
Intangible Assets $17,270,000,000
Total Liabilities $64,158,000,000
Shares Outstanding (Diluted Average) 4,305,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.07
Dec2018 $1.50
Dec2017 $0.29
Dec2016 $1.49
Dec2015 $1.67
Dec2014 $1.60
Dec2013 $1.90
Dec2012 $1.97
Dec2011 $1.85
Dec2010 $2.53
Dec2009 $1.47
Dec2008 $1.25
Dec2007 $1.29
Dec2006 $1.08
Dec2005 $1.02
Dec2004 $1.00
Dec2003 $0.89
Dec2002 $0.62
Dec2001 $0.80
Dec2000 $0.44
Dec1999 $0.49

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.46
Dec2018 $1.20
Dec2017 $1.17
Dec2016 $1.65
Dec2015 $1.75
Dec2014 $1.85
Dec2013 $1.96
Dec2012 $1.93
Dec2011 $1.84
Dec2010 $1.73
Dec2009 $1.29
Dec2008 $1.18
Dec2007 $1.11
Dec2006 $0.99
Dec2005 $0.92
Dec2004 $0.83
Dec2003 $0.71

Recommended Reading:

Other ModernGraham posts about the company

5 Overvalued Dow Components – January 2019
Coca-Cola Co Valuation – November 2018 $KO
10 Most Overvalued Stocks of the S&P 500 – July 2018
5 Overvalued Dow Components – June 2018
5 Overvalued Dow Components – February 2018

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Tyson Foods Inc Valuation – March 2019 #TSN
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Kraft Heinz Co Valuation – March 2019 #KHC
Sysco Corp Valuation – March 2019 $SYY
General Mills Inc Valuation – February 2019 $GIS
McCormick & Co Valuation – February 2019 $MKC
Archer-Daniels Midland Co Valuation – February 2019 $ADM

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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