Essex Property Trust Inc Valuation – June 2018 $ESS

Company Profile (excerpt from Reuters): Essex Property Trust, Inc., incorporated on March 11, 1994, is a self-administered and self-managed real estate investment trust (REIT). The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities, located along the West Coast. Its segments include Southern California, Northern California, Seattle Metro and Other real estate assets. The Company owns all of its interest in its real estate and other investments directly or indirectly through Essex Portfolio, L.P. (the Operating Partnership). As of December 31, 2016, the Company owned or held an interest in 245 communities, aggregating 59,645 apartment homes, excluding the Company’s ownership in preferred equity investments, as well as two operating commercial buildings (totaling approximately 140,564 square feet), and six active development projects with 2,223 apartment homes in various stages of development.

ESS Chart

ESS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ESS – June 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 $15,873,243,402 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.31 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 225.33% Pass
6. Moderate PEmg Ratio PEmg < 20 47.11 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.43 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.31 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 51.76 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 $5.07
MG Growth Estimate 13.27%
MG Value $177.52
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $73.45
MG Value based on 0% Growth $43.06
Market Implied Growth Rate 19.31%
Current Price $238.63
% of Intrinsic Value 134.42%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.69 in 2014 to an estimated $5.07 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.31% 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 Essex Property Trust Inc revealed the company was trading above its Graham Number of $96.67. The company pays a dividend of $7 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 47.11, which was below the industry average of 49.08, 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 $-86.

Essex Property Trust 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) -$86.00
Graham Number $96.67
PEmg 47.11
Current Ratio 1.31
PB Ratio 2.43
Current Dividend $7.00
Dividend Yield 2.93%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $467,395,000
Total Current Liabilities $356,902,000
Long-Term Debt $5,718,970,000
Total Assets $12,642,667,000
Intangible Assets $0
Total Liabilities $6,150,508,000
Shares Outstanding (Diluted Average) 66,083,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.37
Dec2017 $6.57
Dec2016 $6.27
Dec2015 $3.49
Dec2014 $2.06
Dec2013 $4.04
Dec2012 $3.41
Dec2011 $1.24
Dec2010 $1.14
Dec2009 $2.91
Dec2008 $2.09
Dec2007 $4.24
Dec2006 $2.45
Dec2005 $3.32
Dec2004 $3.36
Dec2003 $1.57
Dec2002 $2.60
Dec2001 $2.63
Dec2000 $2.37
Dec1999 $2.36
Dec1998 $1.36

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.07
Dec2017 $5.10
Dec2016 $4.20
Dec2015 $3.06
Dec2014 $2.69
Dec2013 $2.85
Dec2012 $2.22
Dec2011 $1.86
Dec2010 $2.30
Dec2009 $2.92
Dec2008 $2.98
Dec2007 $3.28
Dec2006 $2.76
Dec2005 $2.84
Dec2004 $2.57
Dec2003 $2.22
Dec2002 $2.45

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

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

McKesson Corp Valuation – June 2018 $MCK

Company Profile (excerpt from Reuters): McKesson Corporation, incorporated on July 7, 1994, is a healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information technology company. The Company provides medicines, medical products and healthcare services by partnering with pharmaceutical manufacturers, providers, pharmacies, governments and other organizations in healthcare. It operates through two segments: McKesson Distribution Solutions and McKesson Technology Solutions.

MCK Chart

MCK data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MCK – June 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 $29,995,548,994 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.01 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 145.53% Pass
6. Moderate PEmg Ratio PEmg < 20 13.52 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.98 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.01 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 14.97 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.76
MG Growth Estimate 13.30%
MG Value $377.58
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $155.96
MG Value based on 0% Growth $91.43
Market Implied Growth Rate 2.51%
Current Price $145.37
% of Intrinsic Value 38.50%

McKesson Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current 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 feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.7 in 2015 to an estimated $10.76 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.51% 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 McKesson Corporation revealed the company was trading above its Graham Number of $120.24. The company pays a dividend of $1.3 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 13.52, which was below the industry average of 37.1, 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 $-64.02.

McKesson Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$64.02
Graham Number $120.24
PEmg 13.52
Current Ratio 1.01
PB Ratio 2.98
Current Dividend $1.30
Dividend Yield 0.89%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $37,136,000,000
Total Current Liabilities $36,685,000,000
Long-Term Debt $6,751,000,000
Total Assets $60,381,000,000
Intangible Assets $15,026,000,000
Total Liabilities $50,324,000,000
Shares Outstanding (Diluted Average) 206,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.24
Mar2018 $0.32
Mar2017 $22.73
Mar2016 $9.70
Mar2015 $6.27
Mar2014 $5.41
Mar2013 $5.59
Mar2012 $5.59
Mar2011 $4.57
Mar2010 $4.62
Mar2009 $2.95
Mar2008 $3.32
Mar2007 $2.99
Mar2006 $2.38
Mar2005 -$0.53
Mar2004 $2.19
Mar2003 $1.88
Mar2002 $1.43
Mar2001 -$0.17
Mar2000 $2.55
Mar1999 $0.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.76
Mar2018 $9.30
Mar2017 $12.51
Mar2016 $7.11
Mar2015 $5.70
Mar2014 $5.33
Mar2013 $5.08
Mar2012 $4.62
Mar2011 $3.99
Mar2010 $3.55
Mar2009 $2.75
Mar2008 $2.46
Mar2007 $1.94
Mar2006 $1.44
Mar2005 $0.96
Mar2004 $1.66
Mar2003 $1.33

Recommended Reading:

Other ModernGraham posts about the company

McKesson Corp Valuation – August 2017 $MCK
McKesson Corp Valuation – July 2016 $MCK
47 Companies in the Spotlight This Week – 5/16/15
McKesson Corporation Annual Valuation – 2015 $MCK
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Disclaimer:

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

Automatic Data Processing Inc Valuation – April 2018 $ADP

Company Profile (excerpt from Reuters): Automatic Data Processing, Inc. (ADP), incorporated on June 12, 1961, is a provider of human capital management (HCM) solutions to employers, offering solutions to businesses of various sizes. The Company also provides business process outsourcing solutions. Its segments include Employer Services and Professional Employer Organization (PEO) Services. The Company markets its solutions primarily through its direct sales force. Employer Services also markets its solutions through indirect sales channels, such as marketing relationships with banks and certified public accountants, among others.

ADP Chart

ADP data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ADP – April 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 $52,257,064,073 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.06 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 47.42% Pass
6. Moderate PEmg Ratio PEmg < 20 32.42 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.31 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 1.06 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.95 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 $3.64
MG Growth Estimate 3.96%
MG Value $59.67
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $52.72
MG Value based on 0% Growth $30.91
Market Implied Growth Rate 11.96%
Current Price $117.89
% of Intrinsic Value 197.58%

Automatic Data Processing 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 low current ratio. 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 $2.88 in 2014 to an estimated $3.64 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.96% 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 Automatic Data Processing revealed the company was trading above its Graham Number of $28.47. The company pays a dividend of $2.24 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 32.42, which was below the industry average of 32.93, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.85.

Automatic Data Processing performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.85
Graham Number $28.47
PEmg 32.42
Current Ratio 1.06
PB Ratio 13.31
Current Dividend $2.24
Dividend Yield 1.90%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $39,350,000,000
Total Current Liabilities $37,250,900,000
Long-Term Debt $2,002,400,000
Total Assets $44,545,500,000
Intangible Assets $2,997,000,000
Total Liabilities $40,614,300,000
Shares Outstanding (Diluted Average) 443,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.03
Jun2017 $3.85
Jun2016 $3.25
Jun2015 $3.05
Jun2014 $3.14
Jun2013 $2.89
Jun2012 $2.82
Jun2011 $2.52
Jun2010 $2.40
Jun2009 $2.63
Jun2008 $2.34
Jun2007 $2.04
Jun2006 $2.68
Jun2005 $1.32
Jun2004 $1.18
Jun2003 $1.34
Jun2002 $1.75
Jun2001 $1.44
Jun2000 $1.31
Jun1999 $1.10
Jun1998 $0.98

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.64
Jun2017 $3.37
Jun2016 $3.10
Jun2015 $2.98
Jun2014 $2.88
Jun2013 $2.71
Jun2012 $2.60
Jun2011 $2.45
Jun2010 $2.42
Jun2009 $2.35
Jun2008 $2.11
Jun2007 $1.91
Jun2006 $1.78
Jun2005 $1.35
Jun2004 $1.38
Jun2003 $1.45
Jun2002 $1.44

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Disclaimer:

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

Express Scripts Holding Co Valuation – April 2018 $ESRX

Company Profile (excerpt from Reuters): Express Scripts Holding Company, incorporated on July 15, 2011, is a pharmacy benefit management (PBM) company. The Company is engaged in providing healthcare management and administration services to its clients, including managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and government health programs. The Company operates through two segments: PBM and Other Business Operations. The PBM segment includes its integrated PBM operations and specialty pharmacy operations. Its Other Business Operations segment includes its subsidiary, United BioSource Corporation (UBC), and its specialty distribution operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ESRX – April 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 $39,206,101,300 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.67 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 251.12% Pass
6. Moderate PEmg Ratio PEmg < 20 10.34 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.19 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.67 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.54 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.74
MG Growth Estimate 15.00%
MG Value $259.59
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $97.77
MG Value based on 0% Growth $57.31
Market Implied Growth Rate 0.92%
Current Price $69.72
% of Intrinsic Value 26.86%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.31 in 2014 to an estimated $6.74 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.92% 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 Express Scripts Holding Company revealed the company was trading below its Graham Number of $79.82. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 10.34, which was below the industry average of 44.81, 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 $-42.54.

Express Scripts Holding Company receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$42.54
Graham Number $79.82
PEmg 10.34
Current Ratio 0.67
PB Ratio 2.19
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $11,957,100,000
Total Current Liabilities $17,846,400,000
Long-Term Debt $14,981,500,000
Total Assets $54,255,800,000
Intangible Assets $40,725,600,000
Total Liabilities $36,136,200,000
Shares Outstanding (Diluted Average) 568,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.85
Dec2017 $7.74
Dec2016 $5.39
Dec2015 $3.56
Dec2014 $2.64
Dec2013 $2.25
Dec2012 $1.76
Dec2011 $2.53
Dec2010 $2.17
Dec2009 $1.56
Dec2008 $1.54
Dec2007 $1.08
Dec2006 $0.84
Dec2005 $0.67
Dec2004 $0.45
Dec2003 $0.40
Dec2002 $0.32
Dec2001 $0.20
Dec2000 -$0.02
Dec1999 $0.25
Dec1998 $0.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.74
Dec2017 $5.23
Dec2016 $3.69
Dec2015 $2.74
Dec2014 $2.31
Dec2013 $2.12
Dec2012 $2.01
Dec2011 $2.01
Dec2010 $1.65
Dec2009 $1.30
Dec2008 $1.09
Dec2007 $0.80
Dec2006 $0.62
Dec2005 $0.48
Dec2004 $0.34
Dec2003 $0.27
Dec2002 $0.19

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Disclaimer:

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

Hess Corp Valuation – March 2018 $HES

Company Profile (excerpt from Reuters): Hess Corporation, incorporated on February 7, 1920, is an exploration and production company. The Company is engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids (NGL) and natural gas. The Company’s segments include Exploration and Production, and Bakken Midstream. Its Exploration and Production segment explores for, develops, produces, purchases and sells crude oil, NGLs and natural gas with production operations primarily in the United States, Denmark, the Malaysia/Thailand Joint Development Area (JDA), Malaysia and Norway. The Bakken Midstream segment provides fee-based services, including crude oil and natural gas gathering, processing of natural gas and the fractionation of NGLs, transportation of crude oil by rail car, terminaling and loading crude oil and NGLs, and the storage and terminaling of propane, primarily in the Bakken shale play of North Dakota.

HES Chart

HES data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HES – 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 $15,582,549,729 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.53 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -364.15% Fail
6. Moderate PEmg Ratio PEmg < 20 -5.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.40 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.53 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.72 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$9.51
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth -$137.91
MG Value based on 0% Growth -$80.85
Market Implied Growth Rate -6.85%
Current Price $49.46
% of Intrinsic Value N/A

Hess Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or 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 $8.75 in 2014 to an estimated $-9.51 for 2018. This level of negative earnings does not support a positive valuation.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 Hess Corp. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was -5.2, which was below the industry average of 104.43, 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 $-18.83.

Hess Corp. 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) -$18.83
Graham Number $0.00
PEmg -5.20
Current Ratio 2.53
PB Ratio 1.40
Current Dividend $1.00
Dividend Yield 2.02%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $6,157,000,000
Total Current Liabilities $2,435,000,000
Long-Term Debt $6,397,000,000
Total Assets $23,112,000,000
Intangible Assets $360,000,000
Total Liabilities $12,061,000,000
Shares Outstanding (Diluted Average) 313,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$3.28
Dec2017 -$13.12
Dec2016 -$19.92
Dec2015 -$10.78
Dec2014 $7.53
Dec2013 $14.82
Dec2012 $5.95
Dec2011 $5.01
Dec2010 $6.47
Dec2009 $2.27
Dec2008 $7.24
Dec2007 $5.74
Dec2006 $6.08
Dec2005 $3.93
Dec2004 $3.19
Dec2003 $2.37
Dec2002 -$0.83
Dec2001 $3.42
Dec2000 $3.79
Dec1999 $1.62
Dec1998 -$1.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$9.51
Dec2017 -$9.85
Dec2016 -$5.64
Dec2015 $2.51
Dec2014 $8.75
Dec2013 $8.54
Dec2012 $5.40
Dec2011 $5.20
Dec2010 $5.38
Dec2009 $4.91
Dec2008 $5.90
Dec2007 $4.90
Dec2006 $3.97
Dec2005 $2.75
Dec2004 $2.24
Dec2003 $1.87
Dec2002 $1.50

Recommended Reading:

Other ModernGraham posts about the company

47 Companies in the Spotlight This Week – 5/16/15
Hess Corporation Annual Valuation – 2015 $HES
10 Companies Benjamin Graham Would Invest In Today – May 2015
5 Most Undervalued Companies for the Defensive Investor – April 2015
5 Companies to Research with the Lowest PEmg Ratio for the Defensive Investor – March 2015

Other ModernGraham posts about related companies

EQT Corporation Valuation – March 2018 $EQT
Helmerich & Payne Inc Valuation – March 2018 $HP
Chesapeake Energy Corp Valuation – March 2018 $CHK
Williams Companies Inc Valuation – March 2018 $WMB
Exxon Mobil Corp Valuation – February 2018 $XOM
Chevron Corp Valuation – February 2018 $CVX
Seven Generations Energy Ltd Valuation – Initial Coverage $TSE:VII
Pioneer Natural Resources Valuation – September 2017 $PXD
Gulfport Energy Corp Valuation – Initial Coverage $GPOR
Schlumberger Limited Valuation – July 2017 $SLB

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.

Progressive Corp Valuation – February 2018 $PGR

Company Profile (obtained from Marketwatch): Progressive Corp. is specialized in insurance products primarily related to motor vehicles. It offers insurance solutions for personal and commercial property casualty. It operates through the following segments: Personal Lines, Commercial Lines, Property, and Other Indemnity. The Personal Lines segment offers insurance for personal autos and recreational vehicles. The Commercial Lines segment writes primary liability and physical damage insurance for automobiles and trucks owned and operated predominately by small business in the business auto, for-hire transportation, contractor, for-hire specialty, and tow market. The Property segment covers residential property insurance for homeowners, other property owners, and renters. The Other Indemnity segment manages run-off businesses. The company was founded in 1965 and is headquartered in Mayfield Village, OH.

PGR Chart

PGR data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PGR – February 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 $33,490,488,743 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 55.77% Pass
5. Moderate PEmg Ratio PEmg < 20 23.12 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.63 Fail
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 $2.49
MG Growth Estimate 5.23%
MG Value $47.23
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $36.11
MG Value based on 0% Growth $21.17
Market Implied Growth Rate 7.31%
Current Price $57.58
% of Intrinsic Value 121.92%

Progressive Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has 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 $1.85 in 2014 to an estimated $2.49 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.31% 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.

At the time of valuation, further research into Progressive Corp revealed the company was trading above its Graham Number of $32.55. The company pays a dividend of $0.68 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 23.12, which was above the industry average of 20.16.

Progressive Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $32.55
PEmg 23.12
PB Ratio 3.63
Dividend Yield 1.18%
TTM Dividend $0.68
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $3,306,300,000
Total Assets $38,701,200,000
Intangible Assets $819,300,000
Total Liabilities $29,416,400,000
Shares Outstanding (Diluted Average) 585,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.95
Dec2017 $2.72
Dec2016 $1.76
Dec2015 $2.15
Dec2014 $2.15
Dec2013 $1.93
Dec2012 $1.48
Dec2011 $1.59
Dec2010 $1.61
Dec2009 $1.57
Dec2008 -$0.10
Dec2007 $1.65
Dec2006 $2.10
Dec2005 $1.74
Dec2004 $1.91
Dec2003 $1.42
Dec2002 $0.75
Dec2001 $0.46
Dec2000 $0.05
Dec1999 $0.33
Dec1998 $0.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.49
Dec2017 $2.22
Dec2016 $1.95
Dec2015 $1.98
Dec2014 $1.85
Dec2013 $1.68
Dec2012 $1.44
Dec2011 $1.37
Dec2010 $1.30
Dec2009 $1.22
Dec2008 $1.19
Dec2007 $1.81
Dec2006 $1.79
Dec2005 $1.50
Dec2004 $1.23
Dec2003 $0.79
Dec2002 $0.46

Recommended Reading:

Other ModernGraham posts about the company

Progressive Corporation Valuation – June 2016 $PGR
11 Best Stocks For Value Investors This Week – 11/21/15
Progressive Corp Valuation – November 2015 Update $PGR
The Best Companies of the Insurance Industry – October 2015
15 Best Stocks For Value Investors This Week – 8/22/15

Other ModernGraham posts about related companies

Aon PLC Valuation – February 2018 $AON
Travelers Companies Inc Valuation – February 2018 $TRV
Hanover Insurance Group Valuation – Initial Coverage $THG
Prudential Financial Inc Valuation – July 2017 $PRU
Assurant Inc Valuation – March 2017 $AIZ
American International Group Inc Valuation – March 2017 $AIG
Torchmark Corporation Valuation – March 2017 $TMK
Humana Inc Valuation – Initial Coverage $HUM
Chubb Ltd Valuation – March 2017 $CB
Stewart Information Services Corp Valuation – Initial Coverage $STC

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.

International Business Machines Corp Valuation – February 2018 $IBM

Company Profile (obtained from Marketwatch): International Business Machines Corp. is an information technology company, which provides integrated solutions that leverage information technology and knowledge of business processes. It operates through the following segments: Cognitive Solutions, Global Business Services, Technology Services & Cloud Platforms, Systems, and Global Financing. The Cognitive Solutions segment comprises a portfolio of capabilities that help IBM’s clients to identify actionable insights and inform decision making for competitive advantage. It includes Watson, a cognitive computing platform that has the ability to interact in natural language, process amounts of big data, and learn from interactions with people and computers. This segment consists of Solutions Software, which provides the basis for many of the company’s strategic areas including analytics, security and social; and Transaction Processing Software, which includes software that primarily runs mission-critical systems in industries such as banking, airlines and retail. The Global Business Services segment provides clients with consulting, application management and global process services. The Technology Services & Cloud Platforms segment provides IT infrastructure services creating business value for clients through integrated services that incorporate intellectual property within its global delivery model. The Systems segment provides clients with infrastructure technologies to help meet the requirements of hybrid cloud and cognitive workload from deploying analytics, to moving to digital service delivery with the cloud, and securing mobile transaction processing. The Global Financing segment facilitates IBM clients acquisition of information technology systems, software and services by providing financing solutions in the areas where the company functions. The company was founded by Charles Ranlett Flint and Thomas J. Watson Sr. on June 16, 1911 and is headquartered in Armonk, NY.

IBM Chart

IBM data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – February 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 $143,979,103,945 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.33 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 -7.43% Fail
6. Moderate PEmg Ratio PEmg < 20 13.89 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.21 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.33 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.22 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $11.20
MG Growth Estimate -2.41%
MG Value $41.31
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $162.34
MG Value based on 0% Growth $95.17
Market Implied Growth Rate 2.70%
Current Price $155.52
% of Intrinsic Value 376.47%

International Business Machines Corp. 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 PB ratio. 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 $13.33 in 2014 to an estimated $11.2 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.7% 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 International Business Machines Corp. revealed the company was trading above its Graham Number of $75.98. The company pays a dividend of $5.9 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.89, which was below the industry average of 34.38, 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 $-62.47.

International Business Machines Corp. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$62.47
Graham Number $75.98
PEmg 13.89
Current Ratio 1.33
PB Ratio 8.21
Current Dividend $5.90
Dividend Yield 3.79%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $49,735,000,000
Total Current Liabilities $37,363,000,000
Long-Term Debt $39,837,000,000
Total Assets $125,356,000,000
Intangible Assets $40,531,000,000
Total Liabilities $107,762,000,000
Shares Outstanding (Diluted Average) 928,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.50
Dec2017 $6.14
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12
Dec1998 $3.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $11.20
Dec2017 $10.61
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40
Dec2002 $3.33

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – March 2017 $IBM
International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14
International Business Machines Annual Valuation – 2014 $IBM
5 Outstanding Dow Components – March 2014

Other ModernGraham posts about related companies

Viavi Solutions Inc Valuation – Initial Coverage $VIAV
Equinix Inc Valuation – July 2017 $EQIX
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LivePerson Inc Valuation – Initial Coverage $LPSN
LogMeIn Inc Valuation – Initial Coverage $LOGM
Sykes Enterprises Inc Valuation – Initial Coverage $SYKE
Convergys Corp Valuation – Initial Coverage $CVG
International Business Machines Corp Valuation – March 2017 $IBM
Verisk Analytics Inc Valuation – Initial Coverage $VRSK
CSRA Inc Valuation – Initial Coverage $CSRA

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.

American Express Co. Valuation – February 2018 $AXP

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 Undervalued Stocks for the Enterprising Investor – August 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 American Express Co. (AXP) fares in the ModernGraham valuation model.

Company Profile (obtained from Marketwatch): American Express Co. operates as a global services company, which engages in the provision of credit card, financial, and global travel services. It operates through the following business segments: U.S. Card Services, International Card Services, Global Commercial Services, Global Network & Merchant Services, and Corporate & Other. The USCS segment offers products and services to consumers and small businesses in the United States and provides travel services to card members and other customers. The ICS segment provides proprietary consumer and small business cards outside the United States. The GCS segment includes global corporate payment services to large and mid-sized companies. The GNMS segment operates a global payments network that processes and settles proprietary and non-proprietary card transactions. It also provides point-of-sale products, multi-channel marketing programs and capabilities, services and data, leveraging the global closed-loop network. The Corporate & Other segment includes corporate functions and certain other businesses including the company’s enterprise growth business and other company operations. The company was founded by Henry Wells, William G. Fargo and John Warren Butterfield on March 28, 1850 and is headquartered in New York, NY.

AXP Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AXP – February 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 $84,456,033,395 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 66.48% Pass
5. Moderate PEmg Ratio PEmg < 20 19.11 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.63 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $5.09
MG Growth Estimate 1.23%
MG Value $55.86
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $73.84
MG Value based on 0% Growth $43.29
Market Implied Growth Rate 5.30%
Current Price $97.30
% of Intrinsic Value 174.17%

American Express Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PB ratio. 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 $4.71 in 2014 to an estimated $5.09 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.3% 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.

At the time of valuation, further research into American Express Company revealed the company was trading above its Graham Number of $55.19. The company pays a dividend of $1.34 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 19.11, which was below the industry average of 21.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

American Express Company receives an average overall rating in the ModernGraham grading system, scoring a C.

 

Stage 3: Information for Further Research

Graham Number $55.19
PEmg 19.11
PB Ratio 4.63
Dividend Yield 1.38%
TTM Dividend $1.34
Number of Consecutive Years of Dividend Growth 2

 

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $55,804,000,000
Total Assets $181,159,000,000
Intangible Assets $0
Total Liabilities $162,932,000,000
Shares Outstanding (Diluted Average) 868,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.38
Dec2017 $2.97
Dec2016 $5.65
Dec2015 $5.05
Dec2014 $5.56
Dec2013 $4.88
Dec2012 $3.89
Dec2011 $4.12
Dec2010 $3.35
Dec2009 $1.54
Dec2008 $2.32
Dec2007 $3.36
Dec2006 $2.99
Dec2005 $2.97
Dec2004 $2.68
Dec2003 $2.30
Dec2002 $2.01
Dec2001 $0.98
Dec2000 $2.07
Dec1999 $1.81
Dec1998 $1.54

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.09
Dec2017 $4.57
Dec2016 $5.25
Dec2015 $4.94
Dec2014 $4.71
Dec2013 $4.04
Dec2012 $3.43
Dec2011 $3.11
Dec2010 $2.64
Dec2009 $2.40
Dec2008 $2.84
Dec2007 $3.02
Dec2006 $2.77
Dec2005 $2.50
Dec2004 $2.18
Dec2003 $1.90
Dec2002 $1.69

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – January 2016
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – November 2015
5 Undervalued Dow Stocks to Research – November 2015
10 Best Stocks For Value Investors This Week – 10/31/15
American Express Company Valuation – October 2015 Update $AXP

Other ModernGraham posts about related companies

Encore Capital Group Inc Valuation – Initial Coverage $ECPG
T.Rowe Price Group Inc Valuation – July 2017 $TROW
T.Rowe Price Group Inc Valuation – June 2017 $TROW
Tricon Capital Group Inc Valuation – Initial Coverage $TSE:TCN
Moody’s Corporation Valuation – March 2017 $MCO
KKR & Co Ltd Valuation – March 2017 $KKR
Charles Schwab Corp Valuation – March 2017 $SCHW
Synchrony Financial Valuation – Initial Coverage $SYF
Franklin Resources Inc Valuation – February 2017 $BEN
S&P Global Inc Valuation – Initial Coverage $SPGI

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.

McKesson Corp Valuation – August 2017 $MCK

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 Undervalued Stocks for the Enterprising Investor – August 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 McKesson Corp (MCK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): McKesson Corporation (McKesson) is engaged in delivering pharmaceuticals, medical supplies and healthcare information technology. The Company operates through two segments: McKesson Distribution Solutions and Technology Solutions. The McKesson Distribution Solutions segment distributes drugs and equipment, and health and beauty care products across North America and internationally. The Distribution Solutions segment provides pharmaceutical solutions for biotech and pharmaceutical manufacturers, and practice management, technology, clinical support and business solutions to oncology and other specialty practices operating in the community setting. The Technology Solutions segment delivers clinical, patient care, financial, supply chain and strategic management software solutions, as well as connectivity, outsourcing and other services. Its McKesson Health Solutions portfolio includes ClarityQx, which is a payment technology.

MCK Chart

MCK data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MCK – August 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 $30,948,246,599 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 268.04% Pass
6. Moderate PEmg Ratio PEmg < 20 11.08 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.77 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.05 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.91 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 $13.28
MG Growth Estimate 15.00%
MG Value $511.33
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $192.58
MG Value based on 0% Growth $112.89
Market Implied Growth Rate 1.29%
Current Price $147.19
% of Intrinsic Value 28.79%

McKesson Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only initially concerned with the  low current 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 feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.33 in 2014 to an estimated $13.28 for 2018.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.29% 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 McKesson Corporation revealed the company was trading above its Graham Number of $120.39.  The company pays a dividend of $1.12 per share, for a yield of 0.8%  Its PEmg (price over earnings per share – ModernGraham) was 11.08, which was below the industry average of 48.5, 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 $-60.17.

McKesson Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$60.17
Graham Number $120.39
PEmg 11.08
Current Ratio 1.05
PB Ratio 2.77
Current Dividend $1.12
Dividend Yield 0.76%
Number of Consecutive Years of Dividend Growth 4

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ModernGraham tagged articles Morningstar
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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $37,697,000,000
Total Current Liabilities $35,799,000,000
Long-Term Debt $7,424,000,000
Total Assets $61,816,000,000
Intangible Assets $15,988,000,000
Total Liabilities $50,513,000,000
Shares Outstanding (Diluted Average) 213,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.25
Mar2017 $22.73
Mar2016 $9.70
Mar2015 $6.27
Mar2014 $5.41
Mar2013 $5.59
Mar2012 $5.59
Mar2011 $4.57
Mar2010 $4.62
Mar2009 $2.95
Mar2008 $3.32
Mar2007 $2.99
Mar2006 $2.38
Mar2005 -$0.53
Mar2004 $2.19
Mar2003 $1.88
Mar2002 $1.43
Mar2001 -$0.17
Mar2000 $2.55
Mar1999 $0.31
Mar1998 $1.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $13.28
Mar2017 $12.51
Mar2016 $7.11
Mar2015 $5.70
Mar2014 $5.33
Mar2013 $5.08
Mar2012 $4.62
Mar2011 $3.99
Mar2010 $3.55
Mar2009 $2.75
Mar2008 $2.46
Mar2007 $1.94
Mar2006 $1.44
Mar2005 $0.96
Mar2004 $1.66
Mar2003 $1.33
Mar2002 $1.06

Recommended Reading:

Other ModernGraham posts about the company

47 Companies in the Spotlight This Week – 5/16/15
McKesson Corporation Annual Valuation – 2015 $MCK
18 Companies in the Spotlight This Week – 5/17/14
McKesson Corp (MCK) Annual Valuation – 2014

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Disclaimer:

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

Cypress Semiconductor Corp Valuation – Initial Coverage $CY

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 – March 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 Cypress Semiconductor Corp (CY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cypress Semiconductor Corporation manufactures embedded system solutions for automotive, industrial, home automation and appliances, consumer electronics and medical products. The Company’s segments include Microcontroller and Connectivity Division (MCD), and Memory Products Division (MPD). MCD focuses on microcontroller (MCU), analog and wireless and wired connectivity solutions. MPD focuses on parallel and serial NOR flash memories, NAND flash memories, static random access memory (SRAM), ferroelectric-random access memory (F-RAM) ferroelectric memory devices and other specialty memories. The Company’s products include Traveo MCUs and Flexible MCUs; PSoC 1, PSoC 3, PSoC 4 and PSoC 5LP; CapSense, and TrueTouch Analog Power Management integrated circuits (PMICs) and energy harvesting solutions.

CY Chart

CY data by YCharts

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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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, 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 CY – April 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 $4,363,256,211 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.27 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 10.71% Fail
6. Moderate PEmg Ratio PEmg < 20 -21.56 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.28 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 1.27 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.24 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg -$0.63
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth -$9.09
MG Value based on 0% Growth -$5.33
Market Implied Growth Rate -15.03%
Current Price $13.51
% of Intrinsic Value N/A

Cypress Semiconductor Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or 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 $0.02 in 2013 to an estimated $-0.63 for 2017. This level of negative earnings does not support a positive valuation.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 Cypress Semiconductor Corporation revealed the company was trading above its Graham Number of $8.97. The company pays a dividend of $0.44 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -21.56, which was below the industry average of 41.95, 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 $-3.4.

Cypress Semiconductor Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.40
Graham Number $8.97
PEmg -21.56
Current Ratio 1.27
PB Ratio 2.28
Current Dividend $0.44
Dividend Yield 3.26%
Number of Consecutive Years of Dividend Growth 0

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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 $893,943,000
Total Current Liabilities $702,457,000
Long-Term Debt $1,194,979,000
Total Assets $3,871,871,000
Intangible Assets $2,358,531,000
Total Liabilities $1,980,043,000
Shares Outstanding (Diluted Average) 319,522,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.61
Dec2016 -$2.15
Dec2015 -$1.25
Dec2014 $0.11
Dec2013 -$0.32
Dec2012 -$0.16
Dec2011 $0.90
Dec2010 $0.40
Dec2009 -$1.03
Dec2008 -$1.89
Dec2007 $2.23
Dec2006 $0.25
Dec2005 -$0.69
Dec2004 $0.17
Dec2003 -$0.04
Dec2002 -$2.02
Dec2001 -$3.28
Dec2000 $2.03
Dec1999 $0.76
Dec1998 -$1.03
Dec1997 $0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.63
Dec2016 -$1.08
Dec2015 -$0.41
Dec2014 $0.07
Dec2013 $0.02
Dec2012 $0.00
Dec2011 $0.10
Dec2010 -$0.21
Dec2009 -$0.41
Dec2008 -$0.07
Dec2007 $0.69
Dec2006 -$0.21
Dec2005 -$0.68
Dec2004 -$0.66
Dec2003 -$0.89
Dec2002 -$1.11
Dec2001 -$0.53

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

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

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