Phillips 66 Valuation – March 2019 #PSX

Company Profile (excerpt from Reuters): Phillips 66, incorporated on November 10, 2011, is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. The Company operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment gathers, processes, transports and markets natural gas, and transports, stores, fractionates and markets natural gas liquids (NGLs) in the United States. The Chemicals segment consists of its equity investment in Chevron Phillips Chemical Company LLC (CPChem), which manufactures and markets petrochemicals and plastics. The Refining segment buys, sells and refines crude oil and other feedstocks at refineries, primarily in the United States and Europe. The M&S segment purchases for resale and markets refined petroleum products, such as gasolines, distillates and aviation fuels, primarily in the United States and Europe, as well as includes the manufacturing and marketing of specialty products, and power generation operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PSX – 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 $44,040,480,834 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.48 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 343.98% Pass
6. Moderate PEmg Ratio PEmg < 20 11.54 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.66 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 1.48 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.60 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $8.39
MG Growth Estimate 3.34%
MG Value $127.43
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $121.72
MG Value based on 0% Growth $71.35
Market Implied Growth Rate 1.52%
Current Price $96.89
% of Intrinsic Value 76.04%

Phillips 66 does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $6.87 in 2015 to an estimated $8.39 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 1.52% 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 Phillips 66 revealed the company was trading above its Graham Number of $93.06. The company pays a dividend of $3.1 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.54, which was below the industry average of 58.42, 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 $-30.01.

Phillips 66 receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$30.01
Graham Number $93.06
PEmg 11.54
Current Ratio 1.48
PB Ratio 1.66
Current Dividend $3.10
Dividend Yield 3.20%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $13,209,000,000
Total Current Liabilities $8,935,000,000
Long-Term Debt $11,093,000,000
Total Assets $54,302,000,000
Intangible Assets $4,139,000,000
Total Liabilities $27,149,000,000
Shares Outstanding (Diluted Average) 464,528,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.12
Dec2018 $11.80
Dec2017 $9.85
Dec2016 $2.92
Dec2015 $7.73
Dec2014 $8.33
Dec2013 $6.02
Dec2012 $6.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.39
Dec2018 $8.73
Dec2017 $7.12
Dec2016 $5.94
Dec2015 $6.87
Dec2014 $5.68
Dec2013 $3.73
Dec2012 $2.16

Recommended Reading:

Other ModernGraham posts about the company

Phillips 66 Valuation – April 2018 $PSX
Phillips 66 Valuation – August 2016 $PSX
10 Best Dividend Paying Stocks for the Enterprising Investor – August 2016
5 Undervalued Stocks Near Lows for Enterprising Value Investors – Aug 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016

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TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC
Baker Hughes, a GE Co Valuation – February 2019 $BHGE
EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP
Devon Energy Corp Valuation – January 2019 $DVN
Noble Energy Inc Valuation – January 2019 $NBL

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.

Halliburton Co Valuation – March 2019 #HAL

Company Profile (excerpt from Reuters): Halliburton Company, incorporated on November 7, 1996, is a provider of services and products to the upstream oil and natural gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production throughout the life of the field. The Company operates through two segments: the Completion and Production segment, and the Drilling and Evaluation segment. The Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift and completion services. The Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation and wellbore placement solutions that enable customers to model, measure, drill and optimize their well construction activities.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HAL – 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 $26,987,755,256 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.32 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 -70.87% Fail
6. Moderate PEmg Ratio PEmg < 20 -134.48 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.83 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 2.32 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.64 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 -$0.23
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth -$3.34
MG Value based on 0% Growth -$1.96
Market Implied Growth Rate -71.49%
Current Price $30.93
% of Intrinsic Value N/A

Halliburton Company 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 $1.89 in 2015 to an estimated $-0.23 for 2019. 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 Halliburton Company revealed the company was trading above its Graham Number of $15.24. The company pays a dividend of $0.72 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -134.48, which was below the industry average of 58.42, 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 $-6.06.

Halliburton Company 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) -$6.06
Graham Number $15.24
PEmg -134.48
Current Ratio 2.32
PB Ratio 2.83
Current Dividend $0.72
Dividend Yield 2.33%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $11,151,000,000
Total Current Liabilities $4,802,000,000
Long-Term Debt $10,421,000,000
Total Assets $25,982,000,000
Intangible Assets $2,825,000,000
Total Liabilities $16,438,000,000
Shares Outstanding (Diluted Average) 872,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.95
Dec2018 $1.89
Dec2017 -$0.53
Dec2016 -$6.69
Dec2015 -$0.79
Dec2014 $4.11
Dec2013 $2.36
Dec2012 $2.84
Dec2011 $3.08
Dec2010 $2.01
Dec2009 $1.27
Dec2008 $2.45
Dec2007 $3.68
Dec2006 $2.23
Dec2005 $2.27
Dec2004 -$1.12
Dec2003 -$0.95
Dec2002 -$1.16
Dec2001 $0.94
Dec2000 $0.56
Dec1999 $0.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.23
Dec2018 -$0.68
Dec2017 -$1.41
Dec2016 -$1.11
Dec2015 $1.89
Dec2014 $3.11
Dec2013 $2.51
Dec2012 $2.50
Dec2011 $2.39
Dec2010 $2.14
Dec2009 $2.26
Dec2008 $2.47
Dec2007 $2.06
Dec2006 $0.92
Dec2005 $0.18
Dec2004 -$0.70
Dec2003 -$0.33

Recommended Reading:

Other ModernGraham posts about the company

Halliburton Co Valuation – May 2018 $HAL
Most Overvalued Stocks of the S&P 500 – March 2017
Halliburton Company Valuation – January 2017 $HAL
Halliburton Company Analysis – September 2015 Update $HAL
Halliburton Company Analysis – June 2015 Update $HAL

Other ModernGraham posts about related companies

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National Oilwell Varco Inc Valuation – February 2019 $NOV
Diamondback Energy Inc Valuation – February 2019 $FANG
TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC
Baker Hughes, a GE Co Valuation – February 2019 $BHGE
EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP
Devon Energy Corp Valuation – January 2019 $DVN
Noble Energy Inc Valuation – January 2019 $NBL

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.

General Mills Inc Valuation – February 2019 $GIS

Company Profile (excerpt from Reuters): General Mills, Inc., incorporated on June 20, 1928, is a manufacturer and marketer of branded consumer foods and pet food products sold through retail stores. The Company is a supplier of branded and unbranded consumer food products to the North American foodservice and commercial baking industries. It also provides pet food products through its subsidiary Blue Buffalo Pet Products Inc. The Company has four segments: U.S. Retail, International, Pet operating, and Convenience Stores and Foodservice. The Company offers a range of food products with a focus on categories, including ready-to-eat cereal; convenient meals, including meal kits, ethnic meals, pizza, soup, side dish mixes, frozen breakfast and frozen entrees; snacks, including grain, fruit and savory snacks, nutrition bars and frozen hot snacks; yogurt, and super-premium ice cream. The Company’s other product categories include baking mixes and ingredients, and refrigerated and frozen dough. The Company’s products are marketed under various brands, which include Annie’s, Betty Crocker, Bisquick, Bugles, Cascadian Farm, Cheerios, Chex, Cinnamon Toast Crunch, Cocoa Puffs, Cookie Crisp, Fiber One, Food Should Taste Good, Fruit by the Foot, Fruit Gushers, Fruit Roll-Ups, Gardetto’s, Go-Gurt, Gold Medal, Golden Grahams, Haagen-Dazs, Helpers, Jeno’s, Jus-Rol, Kitano, Kix, La Saltena, Larabar, Latina, Liberte, Lucky Charms, Muir Glen, Nature Valley, Oatmeal Crisp, Old El Paso, Pillsbury, Progresso, Raisin Nut Bran, Total, Totino’s, Trix, Wanchai Ferry, Wheaties, Yoki and Yoplait. It also provides food products for dogs and cats through its subsidiary.

Downloadable PDF version of this valuation:

ModernGraham Valuation of GIS – February 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 $27,927,852,744 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.58 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 24.28% Fail
6. Moderate PEmg Ratio PEmg < 20 16.09 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.05 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.58 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.98 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.91
MG Growth Estimate 2.72%
MG Value $40.53
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $42.18
MG Value based on 0% Growth $24.72
Market Implied Growth Rate 3.79%
Current Price $46.80
% of Intrinsic Value 115.48%

General Mills, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the 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 Overvalued after growing its EPSmg (normalized earnings) from $2.46 in 2015 to an estimated $2.91 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.79% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into General Mills, Inc. revealed the company was trading above its Graham Number of $24.85. The company pays a dividend of $1.96 per share, for a yield of 4.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.09, which was below the industry average of 26.71, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-31.71.

General Mills, 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) -$31.71
Graham Number $24.85
PEmg 16.09
Current Ratio 0.58
PB Ratio 4.05
Current Dividend $1.96
Dividend Yield 4.19%
Number of Consecutive Years of Dividend Growth 14

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $4,233,800,000
Total Current Liabilities $7,298,100,000
Long-Term Debt $12,208,600,000
Total Assets $30,384,000,000
Intangible Assets $21,221,000,000
Total Liabilities $23,404,600,000
Shares Outstanding (Diluted Average) 604,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.65
May2018 $3.64
May2017 $2.77
May2016 $2.77
May2015 $1.97
May2014 $2.83
May2013 $2.79
May2012 $2.35
May2011 $2.70
May2010 $2.24
May2009 $1.90
May2008 $1.86
May2007 $1.59
May2006 $1.45
May2005 $1.54
May2004 $1.30
May2003 $1.22
May2002 $0.67
May2001 $1.14
May2000 $1.00
May1999 $0.85

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.91
May2018 $2.96
May2017 $2.62
May2016 $2.54
May2015 $2.46
May2014 $2.67
May2013 $2.52
May2012 $2.33
May2011 $2.23
May2010 $1.93
May2009 $1.74
May2008 $1.62
May2007 $1.48
May2006 $1.36
May2005 $1.27
May2004 $1.11
May2003 $1.00

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Other ModernGraham posts about the company

General Mills Inc Valuation – May 2018 $GIS
General Mills Inc Valuation – January 2017 $GIS
General Mills Inc Valuation – August 2016 $GIS
27 Companies in the Spotlight This Week – 4/4/15
General Mills Inc. Annual Valuation – 2015 $GIS

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Campbell Soup Co Valuation – January 2019 $CPB
Kellogg Co Valuation – January 2019 $K
PepsiCo Inc Valuation – January 2019 $PEP
The Hershey Co Valuation – January 2019 $HSY
Coca-Cola Co Valuation – November 2018 $KO
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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.

Allegion PLC Valuation – February 2019 $ALLE

Company Profile (excerpt from Reuters): Allegion Public Limited Company, incorporated on May 9, 2013, is a provider of security products and solutions. The Company offers a portfolio of mechanical and electronic security products across a range of brands. Its segments include Americas; Europe, Middle East, India and Africa (EMEIA), and Asia Pacific. Its products include door closers and controls; door and door frames (steel); electronic security products; electronic and biometric access control systems; exit devices; locks, locksets, portable locks and key systems; time, attendance and workforce productivity systems, and other accessories. The Company sells a range of security products and solutions for end users in commercial, institutional and residential facilities across the world, including into the education, healthcare, government, hospitality, commercial office and single and multi-family residential markets. As of December 31, 2016, it manufactured and sold mechanical and electronic security products and solutions in approximately 130 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ALLE – February 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 $8,399,205,187 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.79 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 40600.00% Pass
6. Moderate PEmg Ratio PEmg < 20 23.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 12.97 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 1.79 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.43 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 $3.81
MG Growth Estimate 15.00%
MG Value $146.61
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $55.22
MG Value based on 0% Growth $32.37
Market Implied Growth Rate 7.43%
Current Price $88.94
% of Intrinsic Value 60.67%

Allegion PLC 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 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 level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.08 in 2015 to an estimated $3.81 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.43% 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 Allegion PLC revealed the company was trading above its Graham Number of $27.16. The company pays a dividend of $0.84 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 23.36, which was below the industry average of 24.89, 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 $-12.84.

Allegion PLC performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.84
Graham Number $27.16
PEmg 23.36
Current Ratio 1.79
PB Ratio 12.97
Current Dividend $0.84
Dividend Yield 0.94%
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 $931,600,000
Total Current Liabilities $520,800,000
Long-Term Debt $1,409,500,000
Total Assets $2,810,200,000
Intangible Assets $1,430,100,000
Total Liabilities $2,156,200,000
Shares Outstanding (Diluted Average) 95,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.82
Dec2018 $4.54
Dec2017 $2.85
Dec2016 $2.36
Dec2015 $1.59
Dec2014 $1.80
Dec2013 $0.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.81
Dec2018 $3.08
Dec2017 $2.16
Dec2016 $1.62
Dec2015 $1.08
Dec2014 $0.69
Dec2013 $0.11

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – July 2018
Allegion PLC Valuation – May 2018 $ALLE
Allegion PLC Valuation – January 2017 $ALLE
Allegion PLC Valuation – August 2016 $ALLE
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Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
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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.

Bank of New York Mellon Corp Valuation – February 2019 $BK

Company Profile (excerpt from Reuters): The Bank of New York Mellon Corporation, incorporated on February 9, 2007, is a global investments company. The Company is focused on helping its clients manage and service their financial assets throughout the investment lifecycle. It provides financial services for institutions, corporations or individual investors. It allows clients to create, trade, hold, manage, service, distribute or restructure investments. The Company operates businesses through two segments: Investment Management and Investment Services. The Company also has an Other segment, which includes the leasing portfolio, corporate treasury activities (including its investment securities portfolio), derivatives and other trading, corporate and bank-owned life insurance and renewable energy investments, and business exits. As of September 30, 2018, the Company had $34.5 trillion in assets under custody and/or administration and $1.8 trillion in assets under management.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BK – February 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $52,474,421,623 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 97.25% Pass
5. Moderate PEmg Ratio PEmg < 20 14.41 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.34 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.68
MG Growth Estimate 10.24%
MG Value $106.77
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $53.41
MG Value based on 0% Growth $31.31
Market Implied Growth Rate 2.95%
Current Price $53.07
% of Intrinsic Value 49.70%

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.19 in 2015 to an estimated $3.68 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.95% 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 New York Mellon Corp revealed the company was trading below its Graham Number of $59.25. The company pays a dividend of $1.04 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 14.41, which was below the industry average of 20.29, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Bank of New York Mellon Corp fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $59.25
PEmg 14.41
PB Ratio 1.34
Dividend Yield 1.96%
TTM Dividend $1.04
Number of Consecutive Years of Dividend Growth 8

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $29,163,000,000
Total Assets $362,873,000,000
Intangible Assets $20,570,000,000
Total Liabilities $322,134,000,000
Shares Outstanding (Diluted Average) 1,030,404,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.04
Dec2018 $3.72
Dec2017 $3.72
Dec2016 $3.15
Dec2015 $2.71
Dec2014 $2.15
Dec2013 $1.73
Dec2012 $1.73
Dec2011 $2.03
Dec2010 $2.06
Dec2009 -$1.16
Dec2008 $1.20
Dec2007 $2.18
Dec2006 $3.94
Dec2005 $2.03
Dec2004 $1.85
Dec2003 $1.52
Dec2002 $1.24
Dec2001 $1.81
Dec2000 $1.92
Dec1999 $2.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.68
Dec2018 $3.37
Dec2017 $3.02
Dec2016 $2.55
Dec2015 $2.19
Dec2014 $1.93
Dec2013 $1.64
Dec2012 $1.46
Dec2011 $1.30
Dec2010 $1.17
Dec2009 $1.03
Dec2008 $2.16
Dec2007 $2.53
Dec2006 $2.51
Dec2005 $1.76
Dec2004 $1.64
Dec2003 $1.61

Recommended Reading:

Other ModernGraham posts about the company

Bank of New York Mellon Corp Valuation – May 2018 $BK
15 Best Stocks for Value Investors This Week – 1/14/17
Bank of New York Mellon Corp Valuation – January 2017 $BK
10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016
5 Best Undervalued Stocks of the Week – 8/14/16

Other ModernGraham posts about related companies

Western Union Co Valuation – February 2019 $WU
Raymond James Financial Valuation – February 2019 $RJF
Nasdaq Inc Valuation – February 2019 $NDAQ
E*Trade Financial Corp Valuation – January 2019 $ETFC
Marsh & McLennan Companies Inc Valuation – January 2019 $MMC
Intercontinental Exchange Inc Valuation – January 2019 $ICE
H&R Block Inc Valuation – January 2019 $HRB
State Street Corp Valuation – January 2019 $STT
Morgan Stanley Valuation – January 2019 $MS
MSCI Inc Valuation – January 2019 $MSCI

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.

Allergan PLC Valuation – February 2019 $AGN

Company Profile (excerpt from Reuters): Allergan plc, incorporated on May 16, 2013, is a specialty pharmaceutical company. The Company is engaged in the development, manufacturing, marketing and distribution of brand name pharmaceutical products, medical aesthetics, biosimilar and over-the-counter (OTC) pharmaceutical products. The Company operates through three segments: US Specialized Therapeutics, US General Medicine and International. The US Specialized Therapeutics segment includes sales relating to branded products within the United States, including Medical Aesthetics, Medical Dermatology, Eye Care, Neurosciences and Urology therapeutic products. The US General Medicine segment includes sales relating to branded products within the United States that do not fall into the US Specialized Therapeutics business units, including Central Nervous System, Gastrointestinal, Women’s Health, Anti-Infectives and Diversified Brands. The International segment includes sales relating to products sold outside the United States. Within its US Specialized Therapeutics, US General Medicine and International operations, the Company sells its brand and aesthetic pharmaceutical products primarily to drug wholesalers, retailers and distributors, including national retail drug and food store chains, hospitals, clinics, mail-order retailers, government agencies and managed healthcare providers, such as health maintenance organizations and other institutions.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AGN – February 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 $45,604,760,587 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 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 -392.79% Fail
6. Moderate PEmg Ratio PEmg < 20 31.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.71 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 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 30.67 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.34
MG Growth Estimate 15.00%
MG Value $166.99
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $62.89
MG Value based on 0% Growth $36.87
Market Implied Growth Rate 11.56%
Current Price $137.11
% of Intrinsic Value 82.11%

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.54 in 2015 to an estimated $4.34 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 11.56% 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 Allergan plc revealed the company was trading below its Graham Number of $262.47. The company pays a dividend of $2.88 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 31.61, which was below the industry average of 39.51, 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 $-90.04.

Allergan plc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$90.04
Graham Number $262.47
PEmg 31.61
Current Ratio 1.13
PB Ratio 0.71
Current Dividend $2.88
Dividend Yield 2.10%
Number of Consecutive Years of Dividend Growth 2

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $6,475,400,000
Total Current Liabilities $5,727,900,000
Long-Term Debt $22,929,400,000
Total Assets $101,787,600,000
Intangible Assets $89,608,700,000
Total Liabilities $36,656,600,000
Shares Outstanding (Diluted Average) 335,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $15.86
Dec2018 -$15.26
Dec2017 -$13.19
Dec2016 $38.18
Dec2015 $10.01
Dec2014 -$7.42
Dec2013 -$5.27
Dec2012 $0.76
Dec2011 $2.06
Dec2010 $1.48
Dec2009 $1.96
Dec2008 $2.09
Dec2007 $1.27
Dec2006 -$4.37
Dec2005 $1.22
Dec2004 $1.26
Dec2003 $1.74
Dec2002 $1.62
Dec2001 $1.07
Dec2000 $1.52
Dec1999 $1.82

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.34
Dec2018 -$0.13
Dec2017 $6.45
Dec2016 $13.26
Dec2015 $0.54
Dec2014 -$3.35
Dec2013 -$0.81
Dec2012 $1.50
Dec2011 $1.84
Dec2010 $1.31
Dec2009 $0.96
Dec2008 $0.41
Dec2007 -$0.21
Dec2006 -$0.54
Dec2005 $1.38
Dec2004 $1.45
Dec2003 $1.55

Recommended Reading:

Other ModernGraham posts about the company

Allergan PLC Valuation – May 2018 $AGN
Allergan plc Valuation – January 2017 $AGN
Allergan PLC Analysis – August 2015 Update $AGN
34 Companies in the Spotlight This Week – 2/7/15
Allergan Inc. Quarterly Valuation – February 2015 $AGN

Other ModernGraham posts about related companies

Incyte Corp Valuation – February 2019 $INCY
Regeneron Pharmaceuticals Inc Valuation – February 2019 $REGN
Alexion Pharmaceuticals Inc Valuation – February 2019 $ALXN
Vertex Pharmaceuticals Inc Valuation – February 2019 $VRTX
Perrigo Company Valuation – February 2019 $PRGO
Eli Lilly and Co Valuation – January 2019 $LLY
Zoetis Inc Valuation – January 2019 $ZTS
Gilead Sciences Inc Valuation – January 2019 $GILD
Pfizer Inc Valuation – November 2018 $PFE
Nektar Therapeutics Valuation – November 2018 $NKTR

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.

National Oilwell Varco Inc Valuation – February 2019 $NOV

Company Profile (excerpt from Reuters): National Oilwell Varco, Inc. (NOV), incorporated on July 14, 1995, is an oilfield equipment manufacturer and technology provider. The Company operates through four segments: Rig Technologies, Wellbore Technologies and Completion & Production Solutions. The Rig Technologies segment designs, manufactures, sells, and supports land rigs, offshore drilling equipment packages, and drilling rig components. The Wellbore Technologies segment designs, manufactures, rents and sells a range of equipment and technologies used to perform drilling operations. The Completion & Production Solutions segment integrates technologies for well completions and oil and gas production.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NOV – February 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 $10,920,171,664 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.11 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 -106.13% Fail
6. Moderate PEmg Ratio PEmg < 20 -23.84 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.78 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 3.11 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.55 Pass
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 -$1.19
MG Growth Estimate -4.25%
MG Value $3.63
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$17.32
MG Value based on 0% Growth -$10.15
Market Implied Growth Rate -16.17%
Current Price $28.48
% of Intrinsic Value 784.65%

National-Oilwell Varco, Inc. 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 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 $3.07 in 2015 to an estimated $-1.19 for 2019. 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 National-Oilwell Varco, Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.2 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was -23.84, which was below the industry average of 43.92, 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 $3.63.

National-Oilwell Varco, 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) $3.63
Graham Number $0.00
PEmg -23.84
Current Ratio 3.11
PB Ratio 0.78
Current Dividend $0.20
Dividend Yield 0.70%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $7,279,000,000
Total Current Liabilities $2,341,000,000
Long-Term Debt $2,704,000,000
Total Assets $19,796,000,000
Intangible Assets $9,284,000,000
Total Liabilities $5,907,000,000
Shares Outstanding (Diluted Average) 378,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.18
Dec2018 -$0.08
Dec2017 -$0.63
Dec2016 -$6.41
Dec2015 -$1.99
Dec2014 $5.82
Dec2013 $5.44
Dec2012 $5.83
Dec2011 $4.70
Dec2010 $3.98
Dec2009 $3.52
Dec2008 $4.90
Dec2007 $3.76
Dec2006 $1.94
Dec2005 $0.91
Dec2004 $0.67
Dec2003 $0.47
Dec2002 $0.45
Dec2001 $0.64
Dec2000 $0.08
Dec1999 -$0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$1.19
Dec2018 -$1.35
Dec2017 -$1.18
Dec2016 -$0.39
Dec2015 $3.07
Dec2014 $5.45
Dec2013 $5.07
Dec2012 $4.79
Dec2011 $4.24
Dec2010 $3.88
Dec2009 $3.55
Dec2008 $3.19
Dec2007 $2.07
Dec2006 $1.11
Dec2005 $0.68
Dec2004 $0.53
Dec2003 $0.41

Recommended Reading:

Other ModernGraham posts about the company

10 Most Overvalued Stocks of the S&P 500 – July 2018
National Oilwell Varco Inc Valuation – May 2018 $NOV
National-Oilwell Varco Valuation – December 2016 $NOV
5 of the Worst Stocks to Invest In – August 2016
National-Oilwell Varco Inc Valuation – August 2016 $NOV

Other ModernGraham posts about related companies

Diamondback Energy Inc Valuation – February 2019 $FANG
TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC
Baker Hughes, a GE Co Valuation – February 2019 $BHGE
EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP
Devon Energy Corp Valuation – January 2019 $DVN
Noble Energy Inc Valuation – January 2019 $NBL
ONEOK Inc Valuation – January 2019 $OKE
Marathon Oil Corp Valuation – January 2019 $MRO

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.

Arthur J Gallagher & Co Valuation – February 2019 $AJG

Company Profile (excerpt from Reuters): Arthur J. Gallagher & Co., incorporated on March 30, 1972, is engaged in providing insurance brokerage and consulting services, and third-party claims settlement and administration services to both domestic and international entities. The Company operates through three segments: brokerage, risk management and corporate. As of December 31, 2016, the Company operated primarily as a retail commercial property and casualty broker throughout more than 35 locations in Australia, 35 locations in Canada and 25 locations in New Zealand. As of December 31, 2016, in the United Kingdom, the Company operated as a retail broker from approximately 100 locations. The Company also has an underwriting operation for clients to access Lloyd’s of London and other international insurance markets, and a program operation offering risk management products and services to the United Kingdom public entities. In Bermuda, the Company acts principally as a wholesaler for clients looking to access the Bermuda insurance markets and also provides services relating to the formation and management of offshore captive insurance companies. As of December 31, 2016, through its global network of correspondent insurance brokers and consultants, the Company served its clients’ coverage and serviced needs in more than 150 countries around the world.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AJG – February 2019

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

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,824,192,568 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 116.11% Pass
5. Moderate PEmg Ratio PEmg < 20 25.83 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.31 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 $3.12
MG Growth Estimate 9.34%
MG Value $84.76
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $45.21
MG Value based on 0% Growth $26.50
Market Implied Growth Rate 8.67%
Current Price $80.54
% of Intrinsic Value 95.02%

Arthur J Gallagher & Co is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.92 in 2015 to an estimated $3.12 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 Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Arthur J Gallagher & Co revealed the company was trading above its Graham Number of $45.42. The company pays a dividend of $1.64 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 25.83, which was below the industry average of 32.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Arthur J Gallagher & Co performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $45.42
PEmg 25.83
PB Ratio 3.31
Dividend Yield 2.04%
TTM Dividend $1.64
Number of Consecutive Years of Dividend Growth 8

Useful Links:

 

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $3,091,400,000
Total Assets $16,334,000,000
Intangible Assets $6,398,600,000
Total Liabilities $11,764,300,000
Shares Outstanding (Diluted Average) 187,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.75
Dec2018 $3.40
Dec2017 $2.64
Dec2016 $2.22
Dec2015 $2.06
Dec2014 $1.97
Dec2013 $2.06
Dec2012 $1.59
Dec2011 $1.28
Dec2010 $1.66
Dec2009 $1.28
Dec2008 $0.82
Dec2007 $1.43
Dec2006 $1.31
Dec2005 $0.32
Dec2004 $1.99
Dec2003 $1.57
Dec2002 $1.41
Dec2001 $1.39
Dec2000 $1.04
Dec1999 $0.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.12
Dec2018 $2.69
Dec2017 $2.28
Dec2016 $2.06
Dec2015 $1.92
Dec2014 $1.81
Dec2013 $1.67
Dec2012 $1.43
Dec2011 $1.33
Dec2010 $1.34
Dec2009 $1.13
Dec2008 $1.09
Dec2007 $1.26
Dec2006 $1.22
Dec2005 $1.23
Dec2004 $1.62
Dec2003 $1.37

Recommended Reading:

Other ModernGraham posts about the company

Arthur J Gallagher & Co Valuation – April 2018 $AJG
Arthur J Gallagher & Co Valuation – December 2016 $AJG
Arthur J Gallagher & Company Analysis – Initial Coverage $AJG

Other ModernGraham posts about related companies

Brighthouse Financial Inc Valuation – February 2019 $BHF
Allstate Corp Valuation – February 2019 $ALL
Hartford Financial Services Group Inc Valuation – February 2019 $HIG
Unum Group Valuation – February 2019 $UNM
Everest Re Group Ltd Valuation – February 2019 $RE
Cigna Corp Valuation – January 2019 $CI
MetLife Inc Valuation – January 2019 $MET
Aflac Inc Valuation – January 2019 $AFL
Principal Financial Group Inc Valuation – January 2019 $PFG
Progressive Corp Valuation – January 2019 $PGR

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.

Ball Corporation Valuation – February 2019 $BLL

Company Profile (excerpt from Reuters): Ball Corporation (Ball), incorporated on December 19, 1922, is a supplier of metal packaging to the beverage, food, personal care and household products industries. The Company’s packaging products are produced for a range of end uses and are manufactured in facilities around the world. Its segments include beverage packaging, North and Central America; beverage packaging, South America; beverage packaging, Europe; food and aerosol packaging; aerospace, and other. Its major product line is aluminum and steel beverage containers. It also produces steel food, aerosol containers, extruded aluminum aerosol containers and aluminum slugs. It sells its packaging products to multinational beverage, food, personal care and household products companies. Its aerospace business is engaged in the design, development and manufacture of aerospace systems for civil, commercial and national cyber security aerospace markets. It produces spacecraft, instruments and sensors, radio frequency systems and components, data exploitation solutions and a range of aerospace technologies and products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BLL – February 2019

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,465,563,018 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.96 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 20.83% Fail
6. Moderate PEmg Ratio PEmg < 20 36.45 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.30 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 0.96 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -42.00 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 $1.50
MG Growth Estimate 2.25%
MG Value $19.42
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $21.68
MG Value based on 0% Growth $12.71
Market Implied Growth Rate 13.97%
Current Price $54.50
% of Intrinsic Value 280.58%

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

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.3 in 2015 to an estimated $1.5 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.97% 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 Ball Corporation revealed the company was trading above its Graham Number of $23.31. The company pays a dividend of $0.4 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 36.45, which was above the industry average of 17.32. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.14.

Ball Corporation 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) -$26.14
Graham Number $23.31
PEmg 36.45
Current Ratio 0.96
PB Ratio 5.30
Current Dividend $0.40
Dividend Yield 0.73%
Number of Consecutive Years of Dividend Growth 2

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,940,000,000
Total Current Liabilities $4,095,000,000
Long-Term Debt $6,510,000,000
Total Assets $16,554,000,000
Intangible Assets $6,663,000,000
Total Liabilities $12,992,000,000
Shares Outstanding (Diluted Average) 346,274,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.30
Dec2018 $1.29
Dec2017 $1.05
Dec2016 $0.81
Dec2015 $1.00
Dec2014 $1.65
Dec2013 $1.37
Dec2012 $1.25
Dec2011 $1.32
Dec2010 $1.28
Dec2009 $1.02
Dec2008 $0.83
Dec2007 $0.69
Dec2006 $0.79
Dec2005 $0.62
Dec2004 $0.66
Dec2003 $0.50
Dec2002 $0.34
Dec2001 -$0.12
Dec2000 $0.03
Dec1999 $0.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.50
Dec2018 $1.12
Dec2017 $1.08
Dec2016 $1.13
Dec2015 $1.30
Dec2014 $1.42
Dec2013 $1.29
Dec2012 $1.21
Dec2011 $1.14
Dec2010 $1.01
Dec2009 $0.84
Dec2008 $0.74
Dec2007 $0.68
Dec2006 $0.65
Dec2005 $0.52
Dec2004 $0.41
Dec2003 $0.25

Recommended Reading:

Other ModernGraham posts about the company

Ball Corporation Valuation – April 2018 $BLL
Ball Corporation Valuation – December 2016 $BLL
Ball Corporation Analysis – 2015 Update $BLL
19 Companies in the Spotlight This Week – 8/9/14
Ball Corporation Annual Valuation – 2014 $BLL

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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.

Illumina Inc Valuation – February 2019 $ILMN

Company Profile (excerpt from Reuters): Illumina, Inc. (Illumina), incorporated on May 16, 2000, is a provider of sequencing- and array-based solutions for genetic analysis. The Company operates through two segments: Core Illumina and the consolidated variable interest entities (VIEs), which include the activities of GRAIL, Inc. (GRAIL) and Helix Holdings I, LLC (Helix). Core Illumina consists of its core operations. Core Illumina’s products and services serve customers in the research, clinical and applied markets, and enable the adoption of a range of genomic solutions. GRAIL is engaged in developing a blood test for early-stage cancer detection. Helix was established to enable individuals to explore their genetic information by providing sequencing and database services for consumers through third-party partners.

ILMN Chart

ILMN data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ILMN – February 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 $44,073,541,076 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.49 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 543.51% Pass
6. Moderate PEmg Ratio PEmg < 20 57.55 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.85 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 2.49 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.33 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 $5.21
MG Growth Estimate 15.00%
MG Value $200.56
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $75.54
MG Value based on 0% Growth $44.28
Market Implied Growth Rate 24.53%
Current Price $299.82
% of Intrinsic Value 149.49%

Illumina, 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 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 $2.04 in 2015 to an estimated $5.21 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 24.53% 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 Illumina, Inc. revealed the company was trading above its Graham Number of $60.58. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 57.55, which was above the industry average of 51.18. Finally, the company was trading above its Net Current Asset Value (NCAV) of $9.05.

Illumina, 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) $9.05
Graham Number $60.58
PEmg 57.55
Current Ratio 2.49
PB Ratio 11.85
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,490,000,000
Total Current Liabilities $1,804,000,000
Long-Term Debt $890,000,000
Total Assets $6,959,000,000
Intangible Assets $1,016,000,000
Total Liabilities $3,114,000,000
Shares Outstanding (Diluted Average) 152,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.38
Dec2018 $5.56
Dec2017 $4.92
Dec2016 $3.07
Dec2015 $3.10
Dec2014 $2.37
Dec2013 $0.90
Dec2012 $1.13
Dec2011 $0.62
Dec2010 $0.87
Dec2009 $0.53
Dec2008 $0.30
Dec2007 -$2.57
Dec2006 $0.41
Dec2005 -$0.26
Dec2004 -$0.09
Dec2003 -$0.43
Dec2002 -$0.66
Dec2001 -$0.42
Dec2000 -$0.69
Dec1999 -$1.96

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.21
Dec2018 $4.35
Dec2017 $3.45
Dec2016 $2.52
Dec2015 $2.04
Dec2014 $1.40
Dec2013 $0.88
Dec2012 $0.81
Dec2011 $0.41
Dec2010 $0.18
Dec2009 -$0.22
Dec2008 -$0.54
Dec2007 -$0.84
Dec2006 -$0.05
Dec2005 -$0.31
Dec2004 -$0.37
Dec2003 -$0.62

Recommended Reading:

Other ModernGraham posts about the company

Illumina Inc Valuation – April 2018 $ILMN
Illumina Inc Valuation – Initial Coverage $ILMN

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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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