American Express Company (AXP) Quarterly Valuation – April 2014

200px-American_Express_logo.svgIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to widdle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 American Express fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Express Company (American Express) is a global service company. Its principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses worldwide. The Company operates in four segments: U.S. Card Services, International Card Services, Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). Corporate functions and auxiliary businesses, including the Company’s Enterprise Growth Group, publishing business and other company operations, are included in Corporate & Other. American Express and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (TRS), are bank holding companies. During 2011, American Express completed the integration of Accertify Inc. Effective March 20, 2014, American Express Co acquired an undisclosed minority stake in Ezetap Mobile Solutions Pvt Ltd.

AXP Chart

AXP data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. 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
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $140.89
MG Opinion Undervalued
Value Based on 3% Growth $67.15
Value Based on 0% Growth $39.37
Market Implied Growth Rate 5.11%
PEmg 18.71
PB Ratio 4.73

Balance Sheet – 12/31/2013

Total Debt $55,330,000,000
Total Assets $153,375,000,000
Intangible Assets $0
Total Liabilities $133,879,000,000
Outstanding Shares 1,064,000,000

Earnings Per Share

2014 (estimate) $5.35
2013 $4.88
2012 $3.89
2011 $4.09
2010 $3.35
2009 $1.54
2008 $2.48
2007 $3.39
2006 $3.01
2005 $2.56
2004 $2.74

Earnings Per Share – ModernGraham 

2014 (estimate) $4.63
2013 $4.03
2012 $3.43
2011 $3.12
2010 $2.68
2009 $2.42

Dividend History

AXP Dividend Chart

AXP Dividend data by YCharts

Conclusion:

American Express is a great company for Enterprising Investors to look at in more detail, but it does not quite qualify for the Defensive Investor because its PB ratio is too high.  That said, the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to competitors through a review of ModernGraham’s valuation of Visa (V) and ModernGraham’s valuation of Capital One Financial (COF).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.68 in 2010 to an estimated $4.63 for 2014.  This solid level of demonstrated growth surpasses the market’s implied estimate of 5.11% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above 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 American Express Company (AXP)?  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 American Express Company (AXP) 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.

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

American Express (AXP) Quarterly Valuation

moneyCompany Profile (obtained from Google Finance): American Express Company (American Express) is a global service company. The Company’s range of products and services includes Charge and credit card products, Expense management products and services, Consumer and business travel services, Stored value products, such as travelers cheques and other prepaid products, Network services, merchant acquisition and processing, servicing and settlement, and point-of-sale, marketing and information products and services for merchants, and fee services, including market and trend analyses and related consulting services, fraud prevention services, and the design of customized customer loyalty and rewards programs. It operates in four segments: U.S. Card Services, International Card Services, Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). American Express and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (TRS), are bank holding companies.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass all 6 of the following tests: Score = 4/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. 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
  5. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $115.45
MG Opinion Fairly Valued
Value Based on 3% Growth $58.65
Value Based on 0% Growth $34.38
Market Implied Growth Rate 7.02%
PEmg 22.53
PB Ratio 5.08

Balance Sheet – 9/30/2013 

Total Debt $52,529,000,000
Total Assets $150,103,000,000
Intangible Assets $0
Total Liabilities $130,887,000,000
Outstanding Shares 1,071,000,000

Earnings Per Share

2013 $4.92
2012 $3.89
2011 $4.09
2010 $3.35
2009 $1.54
2008 $2.48
2007 $3.39
2006 $3.01
2005 $2.56
2004 $2.74
2003 $2.31

Earnings Per Share – ModernGraham 

2013 $4.04
2012 $3.43
2011 $3.12
2010 $2.68
2009 $2.42
2008 $2.86

Conclusion:

Since I rated American Express as undervalued last October, it has risen over 13% to now priced by the market within the margin of safety.  The company is suitable for the Enterprising Investor but not the Defensive Investor, because it currently trades at high PEmg and PB ratios.  As a result, Enterprising Investors wishing to follow Benjamin Graham’s methods should feel comfortable proceeding with further research to determine if American Express would be good for their individual portfolio, beginning with a review of a competitor through looking at the ModernGraham valuation of Capital One Financial (COF).  As for a valuation, though the company missed most analyst’s forecasts for Q4 2013 earnings, it actually did better than the ModernGraham valuation model expected (I believe it is important to be very conservative when estimating future results, as it is better to have an estimate of intrinsic value which is too low than to have an estimate that is too high), and the valuation has improved slightly since the last review.  EPSmg (normalized earnings) grew from $2.42 in 2009 to $4.04 in 2013, a level of growth that supports the market’s implied estimate of 7.02%, and the company currently appears to be fairly valued.

What do you think?  What value would you put on American Express (AXP)?  Is the company 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 the new issue of ModernGraham Stocks & Screens, which was released this week?  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 American Express (AXP) 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

Valuation: American Express (AXP)

 

Company Profile (obtained from Google Finance): American Express Company (American Express) is a global service company. Its principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses worldwide. The Company operates in four segments: U.S. Card Services, International Card Services, Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). Corporate functions and auxiliary businesses, including the Company’s Enterprise Growth Group, publishing business and other company operations, are included in Corporate & Other. American Express and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (TRS), are bank holding companies. During 2011, American Express completed the integration of Accertify Inc. During 2011, it acquired a controlling interest in Loyalty Partner, which is a marketing services company operating in Germany, Poland and India.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. 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
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass all 3 of the following tests: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

Last Updated 10/23/2013
MG Value $115
MG Opinion Undervalued
Value Based on 3% Growth $59
Value Based on 0% Growth $34
Market Implied Growth Rate 5.74%
Net Current Asset Value (NCAV) -$122.60
PEmg 19.98
PB Ratio 4.59

Key Data:

Balance Sheet – 6/30/2013

Total Debt $52,675,000,000
Total Assets $151,933,000,000
Total Liabilities $132,899,000,000
Outstanding Shares 1,084,000,000

Earnings Per Share – Diluted

2013 (estimate) $4.89
2012 $3.89
2011 $4.09
2010 $3.35
2009 $1.54
2008 $2.48
2007 $3.39
2006 $3.01
2005 $2.56
2004 $2.74
2003 $2.31

Earnings Per Share – Modern Graham

2013 (estimate) $4.03
2012 $3.43
2011 $3.12
2010 $2.68
2009 $2.42
2008 $2.86

Conclusion:

American Express should intrigue an enterprising investor, and may warrant further investigation.  It appears that it may be undervalued, especially if the current growth trends continue.

What do you think?  Do you agree or disagree?  Will American Express continue to grow at a rate above 5%, which the market is suggesting?

Valuation: American Express Company (AXP)

Over the next few weeks, I hope to do an individual valuation of each of the components of the Dow Jones Industrial Average.  For a brief overview of the Dow, please see our Glance at the Dow – a snapshot of the valuations on March 10.  When I have completed the individual valuations, I will put together another overview. 

Company Profile:  American Express Company (AXP) (obtained via Google Finance)

American Express Company (American Express) is a global payments and travel company. The Company’s principal products and services are charge and credit payment card products, and travel-related services offered to consumers and businesses around the world. During the year ended December 31, 2007, the Company realigned its reportable operating segments into two: the Global Consumer Group and the Global Business-to-Business Group. Accordingly, U.S. Card Services and International Card Services were aligned within the Global Consumer Group, and Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS) were aligned within the Global Business-to-Business Group. In February 2008, the Company announced that it has completed the sale of its international banking subsidiary, American Express Bank Ltd. (AEB), to Standard Chartered PLC.

 Business and Management Review 

1) Is the business simple and understandable?

American Express is essentially in the banking industry.  The company focuses on helping traveler’s while they are away from their home banks.  This involves credit card processing, traveler’s checks, etc.  The business plan itself is fairly simple.

 2) Does the business have a consistent operating history?

Originally American Express was a shipping and delivering company.  Long ago when the US Postal Service was still being established, AXP was founded to help deliver goods.  After a time, the company was one of the best in the business.  Since the main customers were banks, the management slowly transitioned the company to tailor more to the banks.  The company began introducing products specific to banks (such as money orders in 1882), and began closing its delivery businesses.  Since then, the company has remained true to its strategy of creating and selling financial products.  Financially, the company has paid a dividend and had a positive net income for more than 10 years.

 3) Does the business have favorable long term prospects?It is easy to reason that AXP will have a prominent role in the future economy.  As travel becomes easier and more popular, some of the products may be used more.  However, the company also faces significant competition from the major banks and credit card companies.  To a lesser extent, AXP may be threatened by the emerging technologies of the web and businesses such as Paypal. 4) Is management rational?

Kenneth Chenault is the Chairman and CEO of American Express Company, a role he has held since April 2001.  Over that time, the company has grown its revenues, and it appears he has a rational approach to the company’s future.  However, it is the view of the writer that Mr. Chenault’s salary may be a little high.

 5) Is management candid with its shareholders?

The company has the standard investor relations page, with earnings reports, webcasts, etc.  However, we would like to see more information about the management of the company.

  Financial and Value Review 

Defensive:

1) Size of firm

The market cap of American Express Company is $56.59 billion.  Pass.

 2) Strong financial condition

The company’s current ratio (actually we used the total assets and total liabilities instead since this is a financial institution and does not easily lend itself to current ratio use) is about 1.09, below the 2.0 requirement.  Fail.

 3) Earnings stability

The company has had a consistently positive net income for over 10 years.  Pass.

 4) Dividend record

AXP has consistently paid a dividend for over 10 years.  Pass.

 5) Earnings growth

Earnings have grown more than 1/3 over the last 10 years.  Pass.

 6) Price to earnings analysis

With a PE ratio (using our Methods) of 17.44, the requirement of under 20 is met.   Pass.

 7) Price to assets analysis

The Price to Book ratio for AXP is 5.13, higher than our 2.5 limit.  The multiple of PE to PB is higher than our requirement of 50.  Fail.

 Overall

Having passed only 5 of the required 7 tests for the defensive investor following Benjamin Graham’s value investing strategy, we believe American Express Company would not be suitable for the defensive investor.

  Enterprising:

1) Strong financial condition

The company’s current ratio (see defensive investor section on current ratio) is below 1.5.  Fail.

 2) Earnings stability

The company has achieved a positive net income for over 5 years.  Pass.

 3) Dividend record

The company currently pays a dividend.  Pass.

 4) Earnings growth

Earnings are greater today than they were 5 years ago.  Pass.

 

5) Price

The price is not less than 150% of the net tangible assets.  Fail. 

Overall

Having passed only 3 of the required 5 tests for the enterprising investor, we feel that American Express Company would not be suitable for the enterprising investor following Benjamin Graham’s intelligent investor guidelines.

 Valuation:

Our valuation model finds a fair value to be around $88.  

Opinion:

Since the company is currently trading at about $49, we feel it is undervalued and may be a suitable investment for the defensive or enterprising investor.

 What is your opinion?  Do you agree or disagree?  How do you feel about American Express?  Please let us know by leaving a comment.None of the staff of ModernGraham.com held a position in AXP at the time of publication.  Also, please read our disclaimer and Our Methods.

 

Goldman Sachs Group Inc Valuation – April 2019 #GS

Company Profile (excerpt from Reuters): The Goldman Sachs Group, Inc., incorporated on July 21, 1998, is an investment banking, securities and investment management company that provides a range of financial services to corporations, financial institutions, governments and individuals. The Company operates in four business segments: Investment Banking, Institutional Client Services, Investing & Lending, and Investment Management. As of December 2016, it had offices in over 30 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GS – 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 $74,225,517,968 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 62.01% Pass
5. Moderate PEmg Ratio PEmg < 20 11.71 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.86 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 $17.28
MG Growth Estimate 3.68%
MG Value $274.01
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $250.54
MG Value based on 0% Growth $146.87
Market Implied Growth Rate 1.61%
Current Price $202.38
% of Intrinsic Value 73.86%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $13.88 in 2015 to an estimated $17.28 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.61% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Goldman Sachs Group Inc revealed the company was trading below its Graham Number of $287.24. The company pays a dividend of $3.15 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.71, which was below the industry average of 21.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Goldman Sachs Group Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $287.24
PEmg 11.71
PB Ratio 0.86
Dividend Yield 1.56%
TTM Dividend $3.15
Number of Consecutive Years of Dividend Growth 7

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $245,582,000,000
Total Assets $931,796,000,000
Intangible Assets $4,082,000,000
Total Liabilities $841,611,000,000
Shares Outstanding (Diluted Average) 383,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.27
Dec2018 $25.27
Dec2017 $9.01
Dec2016 $16.29
Dec2015 $12.14
Dec2014 $17.07
Dec2013 $15.46
Dec2012 $14.13
Dec2011 $4.51
Dec2010 $13.18
Dec2009 $22.13
Nov2008 $4.47
Nov2007 $24.73
Nov2006 $19.69
Nov2005 $11.21
Nov2004 $8.92
Nov2003 $5.87
Nov2002 $4.03
Nov2001 $4.26
Nov2000 $6.00
Nov1999 $5.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $17.28
Dec2018 $16.84
Dec2017 $13.08
Dec2016 $15.08
Dec2015 $13.88
Dec2014 $14.12
Dec2013 $13.06
Dec2012 $11.80
Dec2011 $11.69
Dec2010 $15.80
Dec2009 $16.89
Nov2008 $14.11
Nov2007 $17.32
Nov2006 $12.39
Nov2005 $8.11
Nov2004 $6.31
Nov2003 $5.05

Recommended Reading:

Other ModernGraham posts about the company

Goldman Sachs Group Inc Valuation – November 2018 $GS
Goldman Sachs Group Inc Valuation – February 2018 $GS
Goldman Sachs Group Inc Valuation – June 2016 $GS
10 Low PE Stocks for the Enterprising Investor – June 2016
Stocks Trading Below Their Graham Number – May 2016

Other ModernGraham posts about related companies

American Express Co Valuation – April 2019 #AXP
Broadridge Financial Solutions Inc Valuation – April 2019 #BR
T.Rowe Price Group Inc Valuation – March 2019 #TROW
Moody’s Corp Valuation – March 2019 #MCO
Charles Schwab Corp Valuation – March 2019 #SCHW
Willis Towers Watson PLC Valuation – March 2019 #WLTW
Paypal Holdings Inc Valuation – March 2019 #PYPL
Synchrony Financial Valuation – March 2019 #SYF
CBRE Group Inc Valuation – March 2019 #CBRE
Franklin Resources Inc Valuation – March 2019 #BEN

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.

Discover Financial Services Valuation – March 2019 $DFS

Company Profile (excerpt from Reuters): Discover Financial Services (DFS), incorporated on July 25, 1960, is a direct banking and payment services company. The Company is a bank holding company, as well as a financial holding company. The Company operates through two segments: Direct Banking and Payment Services. It provides direct banking products and services, and payment services through its subsidiaries. It offers its customers credit card loans, private student loans, personal loans, home equity loans and deposit products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DFS – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,591,292,141 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 122.38% Pass
5. Moderate PEmg Ratio PEmg < 20 10.13 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.17 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 $7.09
MG Growth Estimate 6.82%
MG Value $156.93
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $102.80
MG Value based on 0% Growth $60.26
Market Implied Growth Rate 0.82%
Current Price $71.84
% of Intrinsic Value 45.78%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.87 in 2015 to an estimated $7.09 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Discover Financial Services revealed the company was trading below its Graham Number of $77.91. The company pays a dividend of $1.5 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.13, which was below the industry average of 31.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Discover Financial Services fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Graham Number $77.91
PEmg 10.13
PB Ratio 2.17
Dividend Yield 2.09%
TTM Dividend $1.50
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 $27,228,000,000
Total Assets $109,553,000,000
Intangible Assets $416,000,000
Total Liabilities $98,423,000,000
Shares Outstanding (Diluted Average) 336,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.45
Dec2018 $7.79
Dec2017 $5.42
Dec2016 $5.77
Dec2015 $5.13
Dec2014 $4.90
Dec2013 $4.96
Nov2012 $4.46
Nov2011 $4.06
Nov2010 $1.22
Nov2009 $2.38
Nov2008 $1.92
Nov2007 $1.23
Nov2006 $1.89
Nov2005 $1.21
Nov2004 $0.00
Nov2003 $1.36

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.09
Dec2018 $6.21
Dec2017 $5.36
Dec2016 $5.23
Dec2015 $4.87
Dec2014 $4.47
Dec2013 $3.98
Nov2012 $3.26
Nov2011 $2.49
Nov2010 $1.72
Nov2009 $1.88
Nov2008 $1.51
Nov2007 $1.25
Nov2006 $1.13
Nov2005 $0.68
Nov2004 $0.36
Nov2003 $0.45

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – June 2018
Discover Financial Services Valuation – May 2018 $DFS
10 Low PE Stock Picks for the Defensive Investor – August 2017
10 Low PE Stock Picks for the Defensive Investor – February 2017
12 Best Stocks for Value Investors This Week – 2/4/17

Other ModernGraham posts about related companies

Mastercard Inc Valuation – January 2019 $MA
Visa Inc Valuation – November 2018 $V
American Express Co Valuation – November 2018 $AXP
Mastercard Inc Valuation – March 2018 $MA
Discover Financial Services Valuation – January 2017 $DFS
Discover Financial Services Valuation – August 2016 $DFS
Mastercard Inc Valuation – July 2016 $MA
Discover Financial Services Valuation – February 2016 $DFS
Mastercard Inc Valuation – January 2016 Update $MA
Discover Financial Services Inc. Valuation – November 2015 Update $DFS

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.

Mastercard Inc Valuation – January 2019 $MA

Company Profile (excerpt from Reuters): MasterCard Incorporated, incorporated on May 9, 2001, is a technology company that connects consumers, financial institutions, merchants, governments and businesses across the world, enabling them to use electronic forms of payment. The Company operates through Payment Solutions segment. The Company allows user to make payments by creating a range of payment solutions and services using its brands, which include MasterCard, Maestro and Cirrus.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MA – January 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $209,285,375,529 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.55 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 236.17% Pass
6. Moderate PEmg Ratio PEmg < 20 46.00 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 36.43 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 1.55 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.09 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 $4.40
MG Growth Estimate 12.00%
MG Value $143.06
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $63.82
MG Value based on 0% Growth $37.41
Market Implied Growth Rate 18.75%
Current Price $202.44
% of Intrinsic Value 141.51%

Mastercard Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.45 in 2014 to an estimated $4.4 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.75% 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 Mastercard Inc revealed the company was trading above its Graham Number of $26.71. The company pays a dividend of $0.66 per share, for a yield of 0.3% Its PEmg (price over earnings per share – ModernGraham) was 46, which was above the industry average of 27.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.38.

Mastercard 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) -$2.38
Graham Number $26.71
PEmg 46.00
Current Ratio 1.55
PB Ratio 36.43
Current Dividend $0.66
Dividend Yield 0.33%
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 9/1/2018
Total Current Assets $15,064,000,000
Total Current Liabilities $9,709,000,000
Long-Term Debt $5,858,000,000
Total Assets $23,340,000,000
Intangible Assets $3,973,000,000
Total Liabilities $17,544,000,000
Shares Outstanding (Diluted Average) 1,043,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.11
Dec2017 $3.65
Dec2016 $3.69
Dec2015 $3.35
Dec2014 $3.10
Dec2013 $2.56
Dec2012 $2.19
Dec2011 $1.48
Dec2010 $1.41
Dec2009 $1.12
Dec2008 -$0.19
Dec2007 $0.80
Dec2006 $0.04
Dec2005 $0.20
Dec2004 $0.24
Dec2003 -$0.39
Dec2002 $0.14
Dec2001 $0.20
Dec2000 $0.17
Dec1998 $0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.40
Dec2017 $3.45
Dec2016 $3.23
Dec2015 $2.85
Dec2014 $2.45
Dec2013 $2.00
Dec2012 $1.54
Dec2011 $1.12
Dec2010 $0.84
Dec2009 $0.50
Dec2008 $0.20
Dec2007 $0.32
Dec2006 $0.07
Dec2005 $0.08
Dec2004 $0.04
Dec2003 -$0.03
Dec2002 $0.14

Recommended Reading:

Other ModernGraham posts about the company

Mastercard Inc Valuation – March 2018 $MA
5 Best Stocks For Value Investors This Week – 7/16/16
Mastercard Inc Valuation – July 2016 $MA
19 Best Stocks For Value Investors This Week – 1/9/16
Mastercard Inc Valuation – January 2016 Update $MA

Other ModernGraham posts about related companies

Visa Inc Valuation – November 2018 $V
American Express Co Valuation – November 2018 $AXP
Mastercard Inc Valuation – March 2018 $MA
Discover Financial Services Valuation – January 2017 $DFS
Discover Financial Services Valuation – August 2016 $DFS
Mastercard Inc Valuation – July 2016 $MA
Discover Financial Services Valuation – February 2016 $DFS
Mastercard Inc Valuation – January 2016 Update $MA
Discover Financial Services Inc. Valuation – November 2015 Update $DFS
MasterCard Inc. Analysis – October 2015 Update $MA

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.

Visa Inc Valuation – November 2018 $V

Company Profile (excerpt from Reuters): Visa Inc. (Visa), incorporated on May 25, 2007, is a payments technology company that connects consumers, merchants, financial institutions, businesses, strategic partners and government entities to electronic payments. The Company operates through payment services segment. The Company enables global commerce through the transfer of value and information among the participants. The Company’s transaction processing network facilitates authorization, clearing and settlement of payment transactions and enables to provide its financial institution and merchant clients a range of products, platforms and value-added services. The Company is a retail electronic payment network based on payments volume, number of transactions and number of cards in circulation. The Company operates in party models, which include card issuing financial institutions, acquirers and merchants. The Company’s products/services include core products, processing infrastructure, transaction processing services, digital products, merchant products, and risk products and payment security initiatives.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of V – November 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 $301,247,162,015 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.61 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 302.21% Pass
6. Moderate PEmg Ratio PEmg < 20 34.17 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.19 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 1.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.41 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 $3.97
MG Growth Estimate 14.65%
MG Value $150.00
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $57.54
MG Value based on 0% Growth $33.73
Market Implied Growth Rate 12.84%
Current Price $135.60
% of Intrinsic Value 90.40%

Visa 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.01 in 2015 to an estimated $3.97 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 12.84% 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 Visa Inc revealed the company was trading above its Graham Number of $38.16. The company pays a dividend of $0.83 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was 34.17, which was above the industry average of 29.68. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.38.

Visa 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) -$7.38
Graham Number $38.16
PEmg 34.17
Current Ratio 1.61
PB Ratio 9.19
Current Dividend $0.83
Dividend Yield 0.61%
Number of Consecutive Years of Dividend Growth 11

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $18,216,000,000
Total Current Liabilities $11,305,000,000
Long-Term Debt $16,630,000,000
Total Assets $69,225,000,000
Intangible Assets $42,752,000,000
Total Liabilities $35,219,000,000
Shares Outstanding (Diluted Average) 2,305,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.18
Sep2018 $4.42
Sep2017 $2.80
Sep2016 $2.48
Sep2015 $2.58
Sep2014 $2.16
Sep2013 $1.90
Sep2012 $0.79
Sep2011 $1.29
Sep2010 $1.00
Sep2009 $0.78
Sep2008 $0.24

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.97
Sep2018 $3.20
Sep2017 $2.53
Sep2016 $2.25
Sep2015 $2.01
Sep2014 $1.62
Sep2013 $1.29
Sep2012 $0.93
Sep2011 $0.88
Sep2010 $0.59
Sep2009 $0.32
Sep2008 $0.08

Recommended Reading:

Other ModernGraham posts about the company

Visa Inc Valuation – February 2018 $V
12 Best Stocks For Value Investors This Week – 7/1/16
Visa Inc Valuation – June 2016 $V
9 Best Stocks For Value Investors This Week – 11/28/15
Visa Inc Valuation – November 2015 Update $V

Other ModernGraham posts about related companies

American Express Co Valuation – November 2018 $AXP
Mastercard Inc Valuation – March 2018 $MA
Discover Financial Services Valuation – January 2017 $DFS
Discover Financial Services Valuation – August 2016 $DFS
Mastercard Inc Valuation – July 2016 $MA
Discover Financial Services Valuation – February 2016 $DFS
Mastercard Inc Valuation – January 2016 Update $MA
Discover Financial Services Inc. Valuation – November 2015 Update $DFS
MasterCard Inc. Analysis – October 2015 Update $MA
Discover Financial Services Analysis – August 2015 Update $DFS

Disclaimer:

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

H&R Block Inc Valuation – March 2018 $HRB

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

HRB Chart

HRB data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HRB – March 2018

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,454,607,868 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.93 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 43.44% Pass
6. Moderate PEmg Ratio PEmg < 20 12.92 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -7.81 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.93 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.70 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.02
MG Growth Estimate 6.00%
MG Value $41.42
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $29.29
MG Value based on 0% Growth $17.17
Market Implied Growth Rate 2.21%
Current Price $26.09
% of Intrinsic Value 62.99%

H & R Block Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.44 in 2014 to an estimated $2.02 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.21% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

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

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

Stage 3: Information for Further Research

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

Useful Links:

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

Most Recent Balance Sheet Figures

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

Earnings Per Share History

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

Earnings Per Share – ModernGraham History

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

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Other ModernGraham posts about the company

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

Other ModernGraham posts about related companies

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

Disclaimer:

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

Morgan Stanley Valuation – March 2018 $MS

Company Profile (obtained from Marketwatch): Morgan Stanley provides investment banking products and services to its clients and customers including corporations, governments, financial institutions, and individuals. It operates through the following business segments: Institutional Securities, Wealth Management, and Investment Management. The Institutional Services segment provides financial advisory, capital-raising services, and related financing services on behalf of institutional investors. The Wealth Management segment offers brokerage and investment advisory services covering various types of investments, including equities, options, futures, foreign currencies, precious metals, fixed-income securities, mutual funds, structured products, alternative investments, unit investment trusts, managed futures, separately managed accounts, and mutual fund asset allocation programs. The Investment Management segment provides equity, fixed income, alternative investments, real estate, and merchant banking strategies. The company was founded by Harold Stanley and Henry S. Morgan on September 16, 1935 and is headquartered in New York, NY.

MS Chart

MS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MS – March 2018

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $103,049,132,685 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
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 223.95% Pass
5. Moderate PEmg Ratio PEmg < 20 17.77 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.33 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 $3.24
MG Growth Estimate 15.00%
MG Value $124.59
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $46.92
MG Value based on 0% Growth $27.51
Market Implied Growth Rate 4.64%
Current Price $57.51
% of Intrinsic Value 46.16%

Morgan Stanley is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.23 in 2014 to an estimated $3.24 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.64% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Morgan Stanley revealed the company was trading below its Graham Number of $59.03. The company pays a dividend of $0.9 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 17.77, which was below the industry average of 25.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Morgan Stanley performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Graham Number $59.03
PEmg 17.77
PB Ratio 1.33
Dividend Yield 1.56%
TTM Dividend $0.90
Number of Consecutive Years of Dividend Growth 4

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $202,334,000,000
Total Assets $851,733,000,000
Intangible Assets $9,045,000,000
Total Liabilities $774,342,000,000
Shares Outstanding (Diluted Average) 1,794,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.02
Dec2017 $3.07
Dec2016 $2.92
Dec2015 $2.90
Dec2014 $1.60
Dec2013 $1.36
Dec2012 -$0.02
Dec2011 $1.23
Dec2010 $2.63
Dec2009 -$0.77
Nov2008 $1.45
Nov2007 $2.98
Nov2006 $7.07
Nov2005 $4.57
Nov2004 $4.06
Nov2003 $3.45
Nov2002 $2.69
Nov2001 $3.11
Nov2000 $4.73
Nov1999 $4.10
Nov1998 $2.67

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.24
Dec2017 $2.69
Dec2016 $2.25
Dec2015 $1.74
Dec2014 $1.23
Dec2013 $0.99
Dec2012 $0.84
Dec2011 $1.35
Dec2010 $1.83
Dec2009 $1.97
Nov2008 $3.57
Nov2007 $4.56
Nov2006 $5.03
Nov2005 $3.86
Nov2004 $3.54
Nov2003 $3.39
Nov2002 $3.40

Recommended Reading:

Other ModernGraham posts about the company

Morgan Stanley Valuation – June 2016 $MS
5 Speculative and Overvalued Companies to Avoid – February 2015
34 Companies in the Spotlight This Week – 2/7/15
Morgan Stanley Annual Valuation – 2015 $MS
14 Companies in the Spotlight This Week – 1/25/14

Other ModernGraham posts about related companies

Ameriprise Financial Inc Valuation – March 2018 $AMP
Navient Corp Valuation – March 2018 $NAVI
Invesco Ltd Valuation – March 2018 $IVZ
Capital One Financial Corp Valuation – March 2018 $COF
Total System Services Inc Valuation – February 2018 $TSS
Visa Inc Valuation – February 2018 $V
Goldman Sachs Group Inc Valuation – February 2018 $GS
American Express Co. Valuation – February 2018 $AXP
Encore Capital Group Inc Valuation – Initial Coverage $ECPG
T.Rowe Price Group Inc Valuation – July 2017 $TROW

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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