5 Key Tips to Increase Your Investing

graph-163509_640Often when I talk to people about investing, I am surprised by the number of people who say they can’t afford to invest. The reality is you can’t afford not to. Investing wisely both protects your money and allows it to grow. For example, the average of the S&P 500 over the past 12 months has been around 17-18% while most bank accounts offer you below 1%, which doesn’t even keep up with inflation. With a plethora of options for investing using online brokers, as long as you don’t trade frequently (which an Intelligent Investor should avoid anyway), you can turn a profit even with a small amount originally invested.  Here are some key tips to help you increase the amount you invest.

1. Research and be realistic.

First decide what your goal is. Are you saving for a new home? Retirement? Decide how much you’ll need and then break that down into smaller chunks and determine what you’ll need to be putting away now to make that happen. Keep in mind the risks you can afford to take when investing and assume you’ll average about 10% return per year, while also being aware that the market is never predictable.

Next, decide how realistic your goal is. If the goal you’ve set for yourself in the future means you’d have to save way more than you can afford now, set a more manageable goal. While you shouldn’t give up on your ideal goal, setting a realistic starting point will give you confidence to keep investing and allow you to increase your investment over the years.

2. Know what you’re spending.

accounting-57284_640Take one month and track everything that you are spending. Don’t judge yourself and don’t cheat. This isn’t about being perfect, this is about awareness. When you know how much you are spending you have the opportunity to decide if you are ok with that number and give yourself the power to make changes. You may find that you are spending more than you feel comfortable on certain things or perhaps you’ll find that you’re fine with your spending. Either way, knowing exactly where your money is going gives you the ability to feel confident with your finances and make any changes if necessary.

3. Make changes gradually.

Start by designating a monthly amount to invest as well as an amount to increase by every month. A $10 increase in investing every month is small enough that you won’t feel the change, but after only ten months of increases you’ll be investing $100 more per month than before. Setting this up through automatic deposits to your investment account can help make this process easier.  Additionally, after you know how much you are spending (see #2), you can decide where you want to reduce your spending and use that money instead to invest.

4. Use all your opportunities.

When you pay off your car, credit card, student loans, etc. designate that same amount to investing. You haven’t had that money available for spending and as a result it will allow you to increase your investing with ease. The same is true for all increases in income as well such as raises, inheritances, tax refunds, etc.

5. Start NOW.

Statistically, the sooner you start investing, the greater amount of money you’ll have when you reach your goal date. While you might not be able to save as much as you would like right now, procrastinating means you’ll have to save even more later.

What other tips do you have for increasing the amount you invest?  Please share in the comments below.

photo (9)

KeyCorp (KEY) Annual Valuation

KeyBankIn 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 KeyCorp fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KeyCorp, is a bank holding company. It is a bank-based financial services company. KeyCorp is the parent holding company for KeyBank National Association (KeyBank), its principal subsidiary, through which most of its banking services are provided. Through KeyBank and certain other subsidiaries, the Company provides a range of retail and commercial banking, commercial leasing, investment management, consumer finance and investment banking products and services to individual, corporate and institutional clients through two major business segments: Key Community Bank and Key Corporate Bank. In August 2013, KeyCorp closed on its agreement to sell Victory Capital Management and its broker dealer affiliate Victory Capital Advisers.

KEY Chart

KEY data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 3/6

  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 – FAIL
  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 – FAIL
  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 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3

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

Valuation Summary

Key Data:

Recent Price $12.85
MG Value $24.64
MG Opinion Undervalued
Value Based on 3% Growth $9.28
Value Based on 0% Growth $5.44
Market Implied Growth Rate 5.79%
PEmg 20.08
PB Ratio 1.13

Balance Sheet – 9/30/2013

Total Debt $6,154,000,000
Total Assets $90,708,000,000
Intangible Assets $979,000,000
Total Liabilities $80,502,000,000
Outstanding Shares 897,820,000

Earnings Per Share

2013 $0.93
2012 $0.88
2011 $0.92
2010 $0.47
2009 -$2.27
2008 -$3.36
2007 $2.38
2006 $2.91
2005 $2.73
2004 $2.30
2003 $2.12

Earnings Per Share – ModernGraham 

2013 $0.64
2012 $0.11
2011 -$0.31
2010 -$0.61
2009 -$0.61
2008 $0.61

Dividend History

KEY Dividend Chart

KEY Dividend data by YCharts

Conclusion:

KeyCorp is not currently suitable for either the Defensive Investor or the Enterprising Investor, primarily due to the fact the company did not fare well during the financial crisis.  In addition, the Defensive Investor requires stronger earnings growth over the ten year period and a lower PEmg ratio.  The company will most likely be suitable for the Enterprising Investor in next year’s valuation, assuming it has another year of positive earnings.  Value investors wishing to follow the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities, including reviewing ModernGraham’s valuation of Wells Fargo Corp (WFC) and ModernGraham’s valuation of JP Morgan Chase (JPM).  From strictly a valuation perspective, the company does appear to be undervalued after growing its EPSmg (normalized earnings) from -$0.61 in 2009 to $0.64 for 2013.  This level of growth outpaces the market’s implied growth estimate of 5.79%, and the ModernGraham valuation model returns an intrinsic value 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 KeyCorp (KEY)?  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 KeyCorp (KEY) 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.

7 Key Tips to Value Investing

My early days of investing involved some speculative purchases of Priceline and Kmart.  The first one turned out great and inspired a passion for investing.  The second one?  Not so much.  Kmart was bankrupt when I bought it, and I soon learned that meant shareholders might receive absolutely nothing when the company emerges from bankruptcy.  I learned the most important lesson of all from the Kmart failure:  never lose money.  Here’s a look at why that’s important, and some other key tips I’ve mastered over the years.  If you have any other tips, leave them in the comments.

Narrow Focus

1.  Never Lose Money.

Warren Buffett’s number one rule is never to lose money.  His rule number two is to never forget rule number one.  That’s how important this is.  After all, when you lose money, you have to gain an even higher return just to return to where you began.  For example, if you invest $1000 in Company A and the investment falls to $500, at that point, you have to double your money just to get your investment back.  So the key, of course, is to avoid investing in companies that may drop in value.  That’s easier said than done, but the simplest way to do that is by only investing in companies that have strong financials.  Look at the balance sheet to review things like the company’s current ratio, amount of long-term debt, amount of intangible assets, and other key items indicating whether the company’s financial accounts are in good order (for more information about reading balance sheets, check out the ModernGraham Academy’s Intro to the Balance Sheet course).  Look also at the income statement to review whether the company has achieved a profit consistently over time, and if the net income of the company has grown over time.  Good financials don’t guarantee an investment will not lose money, but they sure help.

2.  Invest.  Don’t Speculate.

The first chapter of Benjamin Graham’s classic The Intelligent Investor deals specifically with the difference between investing and speculating.  In general, pure investing promises a safety of principal and an adequate return, and anything else is speculating.  In reality, there are no investments that completely promise a safety of principal (not even treasury bonds anymore!).  My belief is that the line should be drawn in that an investment provides a return through capital gains as well as income, so long as the investment itself does not involve so much risk that it would effectively be speculating.  Therefore, common stocks that pay dividends may qualify as investments, while common stocks that don’t pay dividends are speculative.  After all, if there is no dividend income, you are merely speculating that the company will grow in value.  If there is dividend income, you may be speculating about the growth of the company, but you are also investing in the return of your investment through the dividend payments.  Dividends are key to investing wisely.  Don’t forget that.

3.  Don’t Invest on Margin.

Graham also said that “In our conservative view every nonprofessional who operates on margin should recognize that he is ipso facto speculating…”  This is absolutely true.  Buying on margin involves speculating that your purchase will not only provide safety of principal and an adequate return, but that the return will also be greater than the cost of borrowing.  An intelligent investor does not know how soon the return will be achieved, because of the uncertainty that is inherent in the market (see the next point about Mr. Market).  Rather, the intelligent investor knows only that his investment should not decrease in value and should provide an income.  As a result, guessing about whether a return will be adequate in time to beat a given cost of capital is speculating on its face.

Mr. Market

4.  Don’t Listen to Mr. Market.

The classic story of Mr. Market, as told by Graham in chapter 8 of The Intelligent Investor, explains in essence that the market is irrational.  The intelligent investor will do research and arrive at a given value for an investment, and the market will say the investment is worth something completely different on day one.  Then on day two, there will be a whole new value from the market.  Some days, the market will be right, but most days the market is wrong.  On the best days for intelligent investors, the market is crazy stupid, and opportunities for profit exist.  The best thing to do is to ignore the daily swings of the market, but pay attention to the trend in price of your investments.  Know how much the companies are worth, and don’t be afraid to make a move when the market is way off from where you believe the value lies.

Castle

5.  Don’t Forget a Margin of Safety.

Humans make mistakes.  All intelligent investors are human (or at least as far as I know…).  Therefore, intelligent investors will make mistakes.  By leaving yourself a margin of safety in your valuation, you can account for the inevitable mistake.  Think of your safety margin like the moat that helps protect your principal which is the castle.  For me, I use multiple safety margins.  First, the ModernGraham valuation formula estimates a growth rate based on the growth in the normalized earnings per share, then it decreases that estimate by 25% before using it in the valuation (the total possible growth rate is also capped at 15% per year).  Then, once the valuation is complete, I only will purchase a stock if it is trading at less than 75% of the value I’ve calculated.  Together, these safety margins help protect from loss of principal, thus helping to achieve Buffett’s number one rule (see above).

6.  Don’t Listen to Bad Management.

When an investor purchases common stock in a corporation, the investor becomes an owner of the company.  Many investors forget this concept, instead simply viewing the purchase of stock as a way to make a quick buck.  This attitude can lead to loss of principal if the investor is not paying attention to the performance of company management and it turns out the management makes terrible decisions.  Intelligent Investors take advantage of owning a share of the company and become involved in exercising shareholder rights.  This doesn’t necessarily mean becoming an activist, but it does mean reading the annual reports and participating in shareholder meetings either in person or via proxy ballot.  As a shareholder, your vote counts.  Use it.

7.  Don’t Stop Reading.

Always look to learn more about value investing, or any other endeavor you pursue.  Grow your understanding of what you are doing and you will become better at it.  For value investing, begin by reading Graham’s The Intelligent Investor, if you haven’t done so already.  Graham’s Security Analysis is also useful, but is a much more technical book.  After that, read some of the Berkshire Hathaway shareholder letters.  Check out more of our site here at ModernGraham, or visit other blogs such as Value Investing News, CSInvesting, or some of the others in our blogroll in the left sidebar.  There is a lot of good material out there for learning, and I hope you never stop striving to research.

What other tips do you have for value investors?

Photo Credit:  Benjamin Clark

Intel Corporation Valuation – April 2019 #INTC

Company Profile (excerpt from Reuters): Intel Corporation, incorporated on March 1, 1989, is engaged in designing and manufacturing products and technologies, such as the cloud. The Company’s segments are Client Computing Group (CCG), Data Center Group (DCG), Internet of Things Group (IOTG), Non-Volatile Memory Solutions Group (NSG), Intel Security Group (ISecG), Programmable Solutions Group (PSG), All Other and New Technology Group (NTG). The Company delivers computer, networking and communications platforms to a set of customers, including original equipment manufacturers (OEMs), original design manufacturers (ODMs), cloud and communications service providers, as well as industrial, communications and automotive equipment manufacturers. It offers platforms to integrate various components and technologies, including a microprocessor and chipset, a stand-alone System-on-Chip (SoC), or a multichip package. Its platforms are managed by additional hardware, software and services offered by Intel.

Downloadable PDF version of this valuation:

ModernGraham Valuation of INTC – April 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $249,631,094,870 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.73 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 61.87% Pass
6. Moderate PEmg Ratio PEmg < 20 16.34 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.42 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 1.73 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.06 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 PassModernGraham Valuation of INTC – April 2019

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.40
MG Growth Estimate 8.02%
MG Value $83.35
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $49.26
MG Value based on 0% Growth $28.88
Market Implied Growth Rate 3.91%
Current Price $55.45
% of Intrinsic Value 66.53%

Intel Corporation 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 $2.21 in 2015 to an estimated $3.4 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.91% 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 Intel Corporation revealed the company was trading above its Graham Number of $39.14. The company pays a dividend of $1.2 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.32, which was below the industry average of 35.4, 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 $-5.24.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.24
Graham Number $39.14
PEmg 16.32
Current Ratio 1.73
PB Ratio 3.42
Current Dividend $1.20
Dividend Yield 2.16%
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 12/1/2018
Total Current Assets $28,787,000,000
Total Current Liabilities $16,626,000,000
Long-Term Debt $25,098,000,000
Total Assets $127,963,000,000
Intangible Assets $36,349,000,000
Total Liabilities $52,981,000,000
Shares Outstanding (Diluted Average) 4,620,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.10
Dec2018 $4.48
Dec2017 $1.99
Dec2016 $2.12
Dec2015 $2.33
Dec2014 $2.31
Dec2013 $1.89
Dec2012 $2.13
Dec2011 $2.39
Dec2010 $2.01
Dec2009 $0.77
Dec2008 $0.92
Dec2007 $1.18
Dec2006 $0.86
Dec2005 $1.40
Dec2004 $1.16
Dec2003 $0.85
Dec2002 $0.46
Dec2001 $0.19
Dec2000 $1.51
Dec1999 $1.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.40
Dec2018 $2.91
Dec2017 $2.13
Dec2016 $2.18
Dec2015 $2.21
Dec2014 $2.15
Dec2013 $2.00
Dec2012 $1.91
Dec2011 $1.69
Dec2010 $1.27
Dec2009 $0.95
Dec2008 $1.06
Dec2007 $1.11
Dec2006 $1.04
Dec2005 $1.02
Dec2004 $0.83
Dec2003 $0.72

Recommended Reading:

Other ModernGraham posts about the company

Intel Corp Valuation – November 2018 $INTC
Intel Corp Valuation – February 2018 $INTC
5 Overvalued Dow Components – July 2016
Intel Corporation Valuation – May 2016 $INTC
11 Best Stocks For Value Investors This Week – 11/21/15

Other ModernGraham posts about related companies

Apple Inc Valuation – April 2019 #AAPL
Arista Networks Inc Valuation – April 2019 #ANET
Maxim Integrated Products Inc Valuation – April 2019 #MXIM
Keysight Technologies Inc Valuation – April 2019 #KEYS
Lam Research Corp Valuation – April 2019 #LRCX
Emerson Electric Co Valuation – April 2019 #EMR
Skyworks Solutions Inc Valuation – March 2019 #SWKS
Garmin Ltd Valuation – March 2019 #GRMN
Hewlett Packard Enterprise Co Valuation – March 2019 #HPE
Fortive Corp Valuation – March 2019 #FTV

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.

Apple Inc Valuation – April 2019 #AAPL

Company Profile (excerpt from Reuters): Apple Inc., incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players. The Company sells a range of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s segments include the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and the Asian countries not included in the Company’s other operating segments. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of consumer and professional software applications, iPhone OS (iOS), OS X and watchOS operating systems, iCloud, Apple Pay and a range of accessory, service and support offerings.

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL – April 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $928,509,329,542 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 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 151.37% Pass
6. Moderate PEmg Ratio PEmg < 20 19.47 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.97 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.86 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.11
MG Growth Estimate 6.57%
MG Value $218.81
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $146.65
MG Value based on 0% Growth $85.97
Market Implied Growth Rate 5.48%
Current Price $196.89
% of Intrinsic Value 89.98%

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $7.03 in 2015 to an estimated $10.11 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.48% 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 Apple Inc. revealed the company was trading above its Graham Number of $71.63. The company pays a dividend of $2.72 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 19.47, which was below the industry average of 35.4, 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 $-24.09.

Apple Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.09
Graham Number $71.63
PEmg 19.47
Current Ratio 1.30
PB Ratio 7.97
Current Dividend $2.72
Dividend Yield 1.38%
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
Total Current Assets $140,828,000,000
Total Current Liabilities $108,283,000,000
Long-Term Debt $92,989,000,000
Total Assets $373,719,000,000
Intangible Assets $0
Total Liabilities $255,827,000,000
Shares Outstanding (Diluted Average) 4,773,252,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.12
Sep2018 $11.91
Sep2017 $9.21
Sep2016 $8.31
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.11
Sep2018 $9.75
Sep2017 $8.37
Sep2016 $7.70
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04

Recommended Reading:

Other ModernGraham posts about the company

Apple Inc Valuation – November 2018 $AAPL
Apple Inc Valuation – February 2018 $AAPL
Apple Inc Valuation – January 2017 $AAPL
Apple Inc Valuation – August 2016 $AAPL
Apple Inc Valuation – February 2016 $AAPL

Other ModernGraham posts about related companies

Maxim Integrated Products Inc Valuation – April 2019 #MXIM
Keysight Technologies Inc Valuation – April 2019 #KEYS
Lam Research Corp Valuation – April 2019 #LRCX
Emerson Electric Co Valuation – April 2019 #EMR
Skyworks Solutions Inc Valuation – March 2019 #SWKS
Garmin Ltd Valuation – March 2019 #GRMN
Hewlett Packard Enterprise Co Valuation – March 2019 #HPE
Fortive Corp Valuation – March 2019 #FTV
Analog Devices Inc Valuation – March 2019 #ADI
IPG Photonics Corp Valuation – March 2019 #IPGP

Disclaimer:

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

Arista Networks Inc Valuation – April 2019 #ANET

Company Profile (excerpt from Reuters): Arista Networks, Inc., incorporated on December 2, 2011, is a supplier of cloud networking solutions that use software innovations to address the needs of Internet companies, cloud service providers and data centers for enterprise support. The Company develops, markets and sells cloud networking solutions, which consist of its Gigabit Ethernet switches and related software. The Company’s cloud networking solutions consist of its Extensible Operating System (EOS), a set of network applications and its Ethernet switching and routing platforms. The programmability of EOS has allowed the Company to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility and analytics, and has also allowed it to integrate with a range of third-party applications for virtualization, management, automation, orchestration and network services. EOS supports cloud and virtualization solutions, including VMware NSX, Microsoft System Center, OpenStack and other cloud management frameworks.

Downloadable PDF version of this valuation:

ModernGraham Valuation of ANET – April 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,736,366,775 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.48 Pass
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 2711.11% Pass
6. Moderate PEmg Ratio PEmg < 20 58.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.81 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 4.48 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.36
MG Growth Estimate 15.00%
MG Value $206.51
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $77.78
MG Value based on 0% Growth $45.59
Market Implied Growth Rate 24.94%
Current Price $313.17
% of Intrinsic Value 151.65%

Arista Networks Inc 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, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. 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 $1.09 in 2015 to an estimated $5.36 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 24.94% 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 Arista Networks Inc revealed the company was trading above its Graham Number of $72.85. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 58.38, which was above the industry average of 35.4. Finally, the company was trading above its Net Current Asset Value (NCAV) of $21.97.

Arista Networks 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) $21.97
Graham Number $72.85
PEmg 58.38
Current Ratio 4.48
PB Ratio 11.81
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,714,802,000
Total Current Liabilities $606,504,000
Long-Term Debt $0
Total Assets $3,081,983,000
Intangible Assets $112,294,000
Total Liabilities $938,594,000
Shares Outstanding (Diluted Average) 80,844,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.30
Dec2018 $4.06
Dec2017 $5.35
Dec2016 $2.50
Dec2015 $1.67
Dec2014 $1.29
Dec2013 $0.73
Dec2012 $0.00
Dec2011 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.36
Dec2018 $3.59
Dec2017 $3.00
Dec2016 $1.63
Dec2015 $1.09
Dec2014 $0.71
Dec2013 $0.37
Dec2012 $0.17
Dec2011 $0.21

Recommended Reading:

Other ModernGraham posts about the company

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

Other ModernGraham posts about related companies

Maxim Integrated Products Inc Valuation – April 2019 #MXIM
Keysight Technologies Inc Valuation – April 2019 #KEYS
Lam Research Corp Valuation – April 2019 #LRCX
Emerson Electric Co Valuation – April 2019 #EMR
Skyworks Solutions Inc Valuation – March 2019 #SWKS
Garmin Ltd Valuation – March 2019 #GRMN
Hewlett Packard Enterprise Co Valuation – March 2019 #HPE
Fortive Corp Valuation – March 2019 #FTV
Analog Devices Inc Valuation – March 2019 #ADI
IPG Photonics Corp Valuation – March 2019 #IPGP

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.

Skyworks Solutions Inc Valuation – March 2019 #SWKS

Company Profile (excerpt from Reuters): Skyworks Solutions Inc., incorporated on June 10, 2002, designs, develops, manufactures and markets semiconductor products, including intellectual property. The Company’s analog semiconductors connect people, places, and things, spanning various unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. The Company’s geographical segments include the United States, Other Americas, China, Taiwan, South Korea, Other Asia-Pacific, Europe, Middle East and Africa. The Company operates throughout the world with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America. The Company is engaged with key original equipment manufacturers (OEM), smartphone providers and baseband reference design partners. The Company’s plants are located in Mexico, Singapore, the United States, Japan, and Rest of world. The Company offers its technology from the smartphones to the factory floor to hospitals and medical providers to the automated home, connected car, and wearables. Skyworks is enabling opportunities with solutions supporting a set of wireless protocols, including cellular long-term evolution (LTE), wireless fidelity (Wi-Fi), Bluetooth, Zigbee and emerging fifth generation (5G) standards.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SWKS – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,356,881,784 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.18 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 460.20% Pass
6. Moderate PEmg Ratio PEmg < 20 15.02 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.63 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 6.18 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.49
MG Growth Estimate 15.00%
MG Value $211.44
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $79.63
MG Value based on 0% Growth $46.68
Market Implied Growth Rate 3.26%
Current Price $82.48
% of Intrinsic Value 39.01%

Skyworks Solutions Inc 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 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 Undervalued after growing its EPSmg (normalized earnings) from $2.51 in 2015 to an estimated $5.49 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.26% 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 Skyworks Solutions Inc revealed the company was trading above its Graham Number of $57.35. The company pays a dividend of $1.34 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 15.02, which was below the industry average of 35.5, 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 $8.49.

Skyworks Solutions Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $8.49
Graham Number $57.35
PEmg 15.02
Current Ratio 6.18
PB Ratio 3.63
Current Dividend $1.34
Dividend Yield 1.62%
Number of Consecutive Years of Dividend Growth 5

 

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,208,500,000
Total Current Liabilities $357,300,000
Long-Term Debt $0
Total Assets $4,738,900,000
Intangible Assets $1,319,900,000
Total Liabilities $700,600,000
Shares Outstanding (Diluted Average) 177,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.33
Sep2018 $5.01
Sep2017 $5.41
Sep2016 $5.18
Sep2015 $4.10
Sep2014 $2.38
Sep2013 $1.45
Sep2012 $1.05
Sep2011 $1.19
Sep2010 $0.75
Sep2009 $0.56
Sep2008 $0.68
Sep2007 $0.36
Sep2006 -$0.55
Sep2005 $0.16
Sep2004 $0.15
Sep2003 -$3.24
Mar2002 -$0.42
Mar2001 $0.75
Mar2000 $0.21
Mar1999 $0.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.49
Sep2018 $4.85
Sep2017 $4.42
Sep2016 $3.56
Sep2015 $2.51
Sep2014 $1.60
Sep2013 $1.14
Sep2012 $0.94
Sep2011 $0.82
Sep2010 $0.55
Sep2009 $0.38
Sep2008 $0.24
Sep2007 -$0.19
Sep2006 -$0.57
Sep2005 -$0.56
Sep2004 -$0.78
Sep2003 -$1.00

Recommended Reading:

Other ModernGraham posts about the company

Skyworks Solutions Inc Valuation – June 2018 $SWKS
Skyworks Solutions Inc Valuation – April 2017 $SWKS
21 Best Undervalued Stocks of the Week – 8/27/16
Skyworks Solutions Inc Valuation – August 2016 $SWKS
Skyworks Solutions Inc Stock Valuation – February 2016 $SWKS

Other ModernGraham posts about related companies

Garmin Ltd Valuation – March 2019 #GRMN
Hewlett Packard Enterprise Co Valuation – March 2019 #HPE
Fortive Corp Valuation – March 2019 #FTV
Analog Devices Inc Valuation – March 2019 #ADI
IPG Photonics Corp Valuation – March 2019 #IPGP
Micron Technology Inc Valuation – March 2019 #MU
Amphenol Corp Valuation – March 2019 #APH
Xilinx Inc Valuation – March 2019 #XLNX
Western Digital Corp Valuation – March 2019 #WDC
Texas Instruments Inc Valuation – March 2019 #TXN

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.

Hormel Foods Corp Valuation – March 2019 #HRL

Company Profile (excerpt from Reuters): Hormel Foods Corporation, incorporated on September 20, 1928, is engaged in the production of a range of meat and food products and the marketing of those products throughout the United States and internationally. The Company is a processor of branded and unbranded food products for retail, foodservice and fresh product customers. The Company operates through four segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store (JOTS) and International & Other. The Company’s Grocery Products segment is engaged in the processing, marketing and sale of shelf-stable food products sold for the retail market and also consist of health and nutrition products, including Muscle Milk protein products. The Grocery Products segment also includes the Company’s MegaMex Foods, LLC (MegaMex) joint venture. The Company’s Refrigerated Foods segment consists of the processing, marketing and sale of branded and unbranded pork, beef, chicken and turkey products for retail, foodservice and fresh product customers. The Company’s JOTS segment consists of the processing, marketing and sale of branded and unbranded turkey products for retail, foodservice and fresh product customers. The Company’s International & Other segment includes Hormel Foods International Corporation (HFIC), which manufactures, markets and sells the Company’s products internationally. The International & Other segment also includes the Company’s international joint ventures.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HRL – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,494,749,686 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.46 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 104.74% Pass
6. Moderate PEmg Ratio PEmg < 20 25.84 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.20 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.46 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.38 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 $1.70
MG Growth Estimate 8.16%
MG Value $42.10
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $24.60
MG Value based on 0% Growth $14.42
Market Implied Growth Rate 8.67%
Current Price $43.84
% of Intrinsic Value 104.13%

Hormel Foods Corp 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.1 in 2015 to an estimated $1.7 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 8.67% 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 Hormel Foods Corp revealed the company was trading above its Graham Number of $20.32. The company pays a dividend of $0.75 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 25.84, which was below the industry average of 26.89, 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 $-0.64.

Hormel Foods Corp performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.64
Graham Number $20.32
PEmg 25.84
Current Ratio 1.46
PB Ratio 4.20
Current Dividend $0.75
Dividend Yield 1.71%
Number of Consecutive Years of Dividend Growth 20

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Google Finance MSN Money
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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2019
Total Current Assets $2,100,686,000
Total Current Liabilities $1,435,812,000
Long-Term Debt $250,000,000
Total Assets $8,155,398,000
Intangible Assets $3,921,741,000
Total Liabilities $2,449,619,000
Shares Outstanding (Diluted Average) 547,118,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.75
Oct2018 $1.86
Oct2017 $1.57
Oct2016 $1.64
Oct2015 $1.27
Oct2014 $1.12
Oct2013 $0.98
Oct2012 $0.93
Oct2011 $0.87
Oct2010 $0.73
Oct2009 $0.63
Oct2008 $0.52
Oct2007 $0.54
Oct2006 $0.51
Oct2005 $0.46
Oct2004 $0.42
Oct2003 $0.33
Oct2002 $0.34
Oct2001 $0.33
Oct2000 $0.30
Oct1999 $0.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.70
Oct2018 $1.61
Oct2017 $1.43
Oct2016 $1.30
Oct2015 $1.10
Oct2014 $0.98
Oct2013 $0.89
Oct2012 $0.81
Oct2011 $0.72
Oct2010 $0.62
Oct2009 $0.56
Oct2008 $0.51
Oct2007 $0.49
Oct2006 $0.44
Oct2005 $0.40
Oct2004 $0.36
Oct2003 $0.32

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – February 2019
Best Dividend Paying Stocks for Dividend Growth Investors – August 2018
Best Dividend Paying Stocks for Dividend Growth Investors – June 2018
Hormel Foods Corp Valuation – June 2018 $HRL
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017

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Sysco Corp Valuation – March 2019 $SYY
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McCormick & Co Valuation – February 2019 $MKC
Archer-Daniels Midland Co Valuation – February 2019 $ADM
Conagra Brands Inc Valuation – February 2019 $CAG
Monster Beverage Corp Valuation – February 2019 $MNST
Campbell Soup Co Valuation – January 2019 $CPB

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.

10 Low PE Stock Picks for the Enterprising Investor – March 2019

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected 10 low PE stocks for the Enterprising Investor.  These companies have the lowest PEmg (price / normalized earnings) ratio out of all companies reviewed by ModernGraham. Each company has been determined to be suitable for the Enterprising Investor and undervalued according to the ModernGraham approach.

Defensive Investors are defined as investors who need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to select companies that present a moderate (though still low) amount of risk.

LyondellBasell Industries NV (LYB)

LyondellBasell Industries NV is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $6.13 in 2014 to an estimated $10.84 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.41% annual earnings loss 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 LyondellBasell Industries NV revealed the company was trading above its Graham Number of $77.64. The company pays a dividend of $3.55 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.68, which was below the industry average of 20.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.01.

LyondellBasell Industries NV performs fairly well in the ModernGraham grading system, scoring a B.  (See the full valuation)

Lincoln National Corporation (LNC)

Lincoln National Corporation 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 $4.25 in 2014 to an estimated $7.01 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.58% annual earnings loss 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 Lincoln National Corporation revealed the company was trading below its Graham Number of $117.31. The company pays a dividend of $0.87 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 7.33, which was below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Lincoln National Corporation performs fairly well in the ModernGraham grading system, scoring a B+.  (See the full valuation)

Synchrony Financial (SYF)

Synchrony Financial 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, and the poor dividend history. 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 $2.22 in 2015 to an estimated $3.36 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.7% 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 Synchrony Financial revealed the company was trading below its Graham Number of $43.03. The company pays a dividend of $0.72 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 9.91, which was below the industry average of 21.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Synchrony Financial fares extremely well in the ModernGraham grading system, scoring an A-.  (See the full valuation)

BorgWarner Inc. (BWA)

BorgWarner Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. 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 $2.58 in 2015 to an estimated $3.51 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.72% 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 BorgWarner Inc. revealed the company was trading below its Graham Number of $43.32. The company pays a dividend of $0.68 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.93, which was below the industry average of 21.23, 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 $-9.33.

BorgWarner Inc. performs fairly well in the ModernGraham grading system, scoring a B+.  (See the full valuation)

Citizens Financial Group Inc (CFG)

Citizens Financial Group Inc 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, and the poor dividend history. 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 $-0.08 in 2015 to an estimated $3.21 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.47% 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 Citizens Financial Group Inc revealed the company was trading below its Graham Number of $60.22. The company pays a dividend of $0.98 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.44, which was below the industry average of 16.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Citizens Financial Group Inc fares extremely well in the ModernGraham grading system, scoring an A-.  (See the full valuation)

Morgan Stanley (MS)

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 $3.46 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.9% 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 $63.69. The company pays a dividend of $0.9 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 12.29, which was below the industry average of 18, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Morgan Stanley fares extremely well in the ModernGraham grading system, scoring an A-.  (See the full valuation)

Bank of America Corp (BAC)

Bank of America Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth 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 $0.76 in 2015 to an estimated $2.2 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.46% 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 Bank of America Corp revealed the company was trading below its Graham Number of $39.29. The company pays a dividend of $0.54 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 13.42, which was below the industry average of 14.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Bank of America Corp performs fairly well in the ModernGraham grading system, scoring a B+.  (See the full valuation)

KeyCorp (KEY)

KeyCorp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth 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 $0.91 in 2014 to an estimated $1.24 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.16% 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 KeyCorp revealed the company was trading below its Graham Number of $22.58. The company pays a dividend of $0.38 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.83, which was below the industry average of 14.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

KeyCorp fares extremely well in the ModernGraham grading system, scoring an A-.  (See the full valuation)

Huntington Bancshares Incorporated (HBAN)

Huntington Bancshares Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth 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 $0.66 in 2014 to an estimated $0.96 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.68% 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 Huntington Bancshares Incorporated revealed the company was trading below its Graham Number of $15.53. The company pays a dividend of $0.35 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.86, which was below the industry average of 14.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Huntington Bancshares Incorporated fares extremely well in the ModernGraham grading system, scoring an A-.  (See the full valuation)

Regions Financial Corp (RF)

Regions Financial Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth 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 $0.52 in 2014 to an estimated $1.1 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.75% 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 Regions Financial Corp revealed the company was trading below its Graham Number of $21.6. The company pays a dividend of $0.32 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 13.99, which was below the industry average of 14.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Regions Financial Corp fares extremely well in the ModernGraham grading system, scoring an A-.  (See the full valuation)

What do you think?  Are these companies a good value for Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:

The author held a long position in Starwood Property Trust Inc (STWD) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not related to the companies mentioned in any capacity.  Please take a moment to read our detailed disclaimer.

American Water Works Co Inc Valuation – March 2019 #AWK

Company Profile (excerpt from Reuters): American Water Works Company, Inc., incorporated on August 28, 1936, is a holding company for regulated and market-based subsidiaries throughout the United States and Ontario, Canada. The Company’s Regulated Businesses segment provided water and wastewater services as public utilities in 16 states in the United States as of December 31, 2016. The Market-Based Businesses consists of four segments, including Military Services Group, which conducts operation and maintenance (O&M) of water and wastewater systems for military bases; Contract Operations Group, which conducts O&M of water and wastewater facilities for municipalities and the food and beverage industry; Homeowner Services Group, which primarily provides water and sewer line protection plans for homeowners, and Keystone, which provides water services for natural gas exploration and production companies.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AWK – March 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,002,457,263 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.37 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 71.64% Pass
6. Moderate PEmg Ratio PEmg < 20 34.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.28 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 0.37 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.76 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 $3.02
MG Growth Estimate 4.70%
MG Value $54.13
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $43.86
MG Value based on 0% Growth $25.71
Market Implied Growth Rate 13.13%
Current Price $105.13
% of Intrinsic Value 194.23%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.3 in 2015 to an estimated $3.02 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.13% 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 American Water Works Company Inc revealed the company was trading above its Graham Number of $50.93. The company pays a dividend of $1.78 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 34.76, which was above the industry average of 23.71. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-79.66.

American Water Works Company Inc scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$79.66
Graham Number $50.93
PEmg 34.76
Current Ratio 0.37
PB Ratio 3.28
Current Dividend $1.78
Dividend Yield 1.69%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $781,000,000
Total Current Liabilities $2,094,000,000
Long-Term Debt $7,569,000,000
Total Assets $21,223,000,000
Intangible Assets $1,659,000,000
Total Liabilities $15,359,000,000
Shares Outstanding (Diluted Average) 183,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.55
Dec2018 $3.15
Dec2017 $2.38
Dec2016 $2.62
Dec2015 $2.64
Dec2014 $2.35
Dec2013 $2.06
Dec2012 $2.01
Dec2011 $1.75
Dec2010 $1.53
Dec2009 -$1.39
Dec2008 -$3.52
Dec2007 -$2.14
Dec2006 -$1.01
Dec2005 -$2.03
Dec2001 $1.61
Dec2000 $1.61
Dec1999 $1.40
Dec1998 $1.54
Dec1997 $1.42
Dec1996 $1.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.02
Dec2018 $2.72
Dec2017 $2.47
Dec2016 $2.46
Dec2015 $2.30
Dec2014 $2.07
Dec2013 $1.68
Dec2012 $1.02
Dec2011 $0.10
Dec2010 -$0.92
Dec2009 -$2.10
Dec2008 -$2.11
Dec2007 -$1.07
Dec2006 -$0.25
Dec2005 $0.36
Dec2001 $1.55
Dec2000 $1.49

Recommended Reading:

Other ModernGraham posts about the company

American Water Works Co Inc Valuation – June 2018 $AWK
American Water Works Company Inc Valuation – Initial Coverage $AWK

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NextEra Energy Inc Valuation – February 2019 $NEE
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NRG Energy Inc Valuation – January 2019 $NRG
DTE Energy Co Valuation – January 2019 $DTE

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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