Mr. Market and a Valuation of the Dow For Value Investors – July 2017

 

Mr. Market’s Mental State

Legendary value investor Benjamin Graham is probably most famous for his Mr. Market parable.  In the story, an investor is greeted each day by Mr. Market, who offers to purchase the investor’s stocks.  Every offer is different, and sometimes the price is insanely high, sometimes it seems fair, and other times it is clearly too low.  But one thing remains the same – the intrinsic value of the investments does not change.  As a result, the investor is left to decide when to buy and sell based on the relationship between the intrinsic value and the price Mr. Market is offering.

All value investors today should keep the analogy in mind, and implement the overall concept.  To assist in that goal, ModernGraham has various tools available, and the infographic shown above is one of them, displaying a summary of the valuations of 878 companies reviewed by ModernGraham.

This month, out of the 878 companies reviewed by ModernGraham, the average PEmg ratio (price over normalized earnings) is 26.72 and the average company is trading at 121.83% of its intrinsic value.  Last month, the average PEmg ratio was 26.78 and the average company was trading at 122.1% of its intrinsic value.

The highest PEmg average we have seen while tracking this information was 26.78 in July 2017 while the lowest PEmg average was 22.25 in February 2016.  The highest average intrinsic value was 122.1% in July 2017 and the lowest average intrinsic value was 103.19% in February 2016.

Month Average PEmg Average % of value, 200% outlier Average % of value, 500% outlier Defensive % Enterprising % Speculative % Undervalued % Fairly Valued % Overvalued %
August 2014 24.36 90.57% 120.87% n/a n/a n/a n/a n/a n/a
September 2014 25.37 93.37% 120.58% n/a n/a n/a n/a n/a n/a
October 2014 24.29 90.24% 116.67% 12% 35% 53% 31% 21% 48%
November 2014 25.32 90.61% 117.38% 12% 35% 53% 29% 21% 50%
December 2014 26.17 92.28% 117.00% 11% 34% 55% 28% 23% 49%
January 2015 25.63 93.48% 119.68% 10% 34% 55% 30% 20% 50%
February 2015 25.79 92.72% 115.81% 10% 35% 55% 33% 19% 49%
March 2015 25.79 88.03% 114.81% 10% 35% 55% 31% 19% 49%
April 2015 25.64 86.18% 112.23% 9.9% 35.2% 54.9% 32.1% 19.4% 48.5%
May 2015 25.17 86.64% 112.99% 9.1% 36.1% 54.8% 32.1% 20.4% 47.4%
June 2015 25.47 86.43% 112.50% 8.7% 34.7% 56.5% 30.0% 21.2% 48.8%
July 2015 25.24 85.65% 118.11% 9.6% 33.1% 57.3% 30.9% 19.3% 49.6%
August 2015 25.08 86.79% 116.39% 9.8% 32.7% 57.5% 29.5% 21.0% 49.5%
September 2015 23.2 82.45% 103.59% 9.4% 32.6% 57.9% 35.7% 18.9% 45.5%
October 2015 22.95 81.80% 101.69% 10.5% 31.7% 57.8% 35.5% 18.7% 45.8%
November 2015 23.97 84.84% 110.89% 10.1% 32.2% 57.7% 32.0% 19.2% 48.7%
December 2015 23.27 84.55% 115.56% 10.6% 31.5% 57.8% 33.0% 17.8% 49.2%
January 2016 22.87 82.61% 110.62% 10.9% 30.8% 58.3% 35.9% 16.8% 47.3%
February 2016 22.25 79.54% 103.19% 10.9% 30.7% 58.4% 36.7% 16.3% 47.0%
March 2016 23.07 83.92% 106.76% 11.3% 29.9% 58.8% 33.4% 19.0% 47.6%
April 2016 23.37 83.65% 110.61% 11.3% 29.9% 58.8% 32.5% 18.8% 48.7%
May 2016 23.78 82.90% 112.17% 11.4% 29.9% 58.8% 31.3% 18.5% 50.2%
June 2016 24.21 84.77% 115.18% 11.6% 30.0% 58.5% 30.7% 17.3% 52.0%
July 2016 23.83 86.40% 117.49% 11.8% 29.9% 58.2% 30.1% 19.0% 50.8%
August 2016 24.68 89.40% 117.12% 11.9% 30.7% 57.4% 29.6% 19.3% 51.1%
September 2016 23.86 91.21% 115.16% 11.2% 30.1% 58.7% 28.6% 18.4% 53.0%
October 2016 24.07 91.41% 117.93% 11.2% 30.2% 58.6% 28.4% 18.5% 53.2%
November 2016 24.2 92.55% 119.16% 11.0% 30.3% 58.7% 28.0% 17.8% 54.2%
December 2016 24.56 93.20% 121.14% 10.5% 31.1% 58.4% 28.0% 17.6% 54.4%
January 2017 24.8 93.57% 121.72% 9.5% 32.8% 57.7% 26.5% 17.0% 56.5%
February 2017 25.54 80.97% 111.6% 8.9% 33.4% 57.7% 25.1% 17.9% 57.0%
March 2017 26.4 82.96% 118.0% 8.2% 33.8% 58.0% 24.6% 17.0% 58.4%
April 2017 26.48 82.59% 119.2% 8.1% 33.5% 58.4% 24.6% 17.6% 57.8%
May 2017 26.08 81.70% 117.4% 8.1% 33.5% 58.4% 25.8% 16.0% 58.2%
June 2017 26.78 83.33% 122.1% 8.1% 33.5% 58.4% 24.2% 16.3% 59.5%
July 2017 26.72 81.97% 121.8% 8.2% 33.3% 58.5% 23.7% 16.6% 59.7%

Valuation of the Dow

Each month ModernGraham takes a look at the Dow Jones Industrial Average, listing out each individual component in an easy to read table, and calculates a value for the index that is based on the ModernGraham valuation model’s estimates for intrinsic values for each component.  Over time this figure can be useful for determining whether the market as a whole is undervalued or overvalued.
^DJI Chart

^DJI data by YCharts

At the time of writing, the Dow Jones Industrial Average (DJIA) was at 21,574.73. The ModernGraham Valuation of the DJIA was 18,787.53. As a result, the DJIA was trading at 114.84% of its estimated value. This figure is above the ModernGraham margin of error, and therefore it appears the DJIA is presently overvalued.

To see the individual valuation articles, please click on the company name in the table below.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Dividend Yield
AXP American Express Company D 5/19/2016 $117.34 $85.52 72.88% 16.80 1.36%
AAPL Apple Inc. S 1/24/2017 $231.48 $150.08 64.83% 18.81 1.45%
BA Boeing Co E 6/13/2016 $201.69 $208.24 103.25% 28.33 1.83%
CAT Caterpillar Inc. S 8/27/2016 $0.00 $107.07 N/A 24.28 2.88%
CSCO Cisco Systems, Inc. D 1/11/2017 $37.19 $31.51 84.73% 15.76 3.14%
CVX Chevron Corporation S 3/15/2017 $0.00 $103.72 N/A 28.11 4.14%
DD E I Du Pont De Nemours And Co E 8/28/2016 $36.35 $84.00 231.09% 25.53 1.81%
DIS Walt Disney Co S 3/17/2017 $174.08 $105.75 60.75% 20.26 1.41%
GE General Electric Company S 7/21/2016 $0.26 $26.89 10342.31% 30.21 3.42%
GS Goldman Sachs Group Inc S 6/20/2016 $174.21 $223.31 128.18% 16.52 1.16%
HD Home Depot Inc S 2/22/2017 $203.38 $152.17 74.82% 28.82 1.75%
IBM International Business Machines Corp. S 3/13/2017 $94.03 $154.00 163.78% 11.81 3.57%
INTC Intel Corporation D 5/20/2016 $26.44 $34.53 130.60% 16.06 2.84%
JNJ Johnson & Johnson E 1/16/2017 $105.81 $134.46 127.08% 24.40 2.31%
JPM JPMorgan Chase & Co. D 7/24/2016 $96.69 $91.07 94.19% 16.86 1.98%
KO The Coca-Cola Co S 7/28/2016 $10.76 $44.67 415.15% 25.10 3.00%
MCD McDonald’s Corporation S 11/20/2016 $49.98 $153.96 308.04% 30.13 2.31%
MMM 3M Co E 12/13/2016 $135.24 $211.31 156.25% 27.99 2.06%
MRK Merck & Co., Inc. E 8/29/2016 $26.80 $62.41 232.87% 25.58 2.93%
MSFT Microsoft Corporation E 2/2/2017 $15.97 $73.30 458.99% 33.02 2.01%
NKE Nike Inc E 11/19/2016 $59.52 $57.65 96.86% 28.97 1.11%
PFE Pfizer Inc. S 3/9/2017 $7.21 $33.36 462.69% 19.06 3.60%
PG Procter & Gamble Co S 7/8/2016 $17.20 $88.64 515.35% 25.77 2.99%
TRV Travelers Companies Inc D 12/1/2016 $320.65 $125.53 39.15% 12.72 1.55%
UNH UnitedHealth Group Inc S 2/28/2017 $173.14 $186.85 107.92% 25.22 1.27%
UTX United Technologies Corporation D 5/18/2016 $174.94 $122.63 70.10% 16.03 2.09%
V Visa Inc E 6/26/2016 $89.37 $97.58 109.19% 42.06 1.41%
VZ Verizon Communications Inc. S 7/28/2016 $124.10 $43.36 34.94% 13.47 5.21%
WMT Wal-Mart Stores Inc S 5/20/2016 $39.55 $76.20 192.67% 16.82 2.57%
XOM Exxon Mobil Corporation S 2/9/2017 $0.00 $80.60 N/A 16.62 3.67%

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Disclaimer:

The author held a long position in Apple Inc (AAPL), Home Depot (HD) and Walt Disney Co. (DIS) 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 read our full disclaimer.

El Pollo LoCo Holdings Inc Valuation – Initial Coverage $LOCO

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

Company Profile (obtained from Google Finance): El Pollo Loco Holdings, Inc. is a restaurant concept that offers fire-grilling citrus-marinated chicken. The Company operates in the limited service restaurant segment. The Company’s activities are conducted through its subsidiary, El Pollo Loco, Inc. (EPL), which develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. The restaurants are located in California, Arizona, Nevada, Texas and Utah. The Company offers flame-grilled chicken in a range of contemporary Mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads. The Company operates approximately 190 and franchises over 250 El Pollo Loco restaurants. In addition, the Company licenses approximately two restaurants in the Philippines. The Company serves individual and family-sized chicken meals, a range of Mexican-inspired entrees and sides. It offers alternative proteins, such as shrimp, carnitas and beef.

LOCO Chart

LOCO data by YCharts

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ModernGraham Valuation of LOCO – April 2017

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $440,763,196 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.79 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 5700.00% Pass
6. Moderate PEmg Ratio PEmg < 20 19.59 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.71 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 0.79 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -11.03 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.59
MG Growth Estimate 15.00%
MG Value $22.79
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $8.58
MG Value based on 0% Growth $5.03
Market Implied Growth Rate 5.55%
Current Price $11.60
% of Intrinsic Value 50.90%

El Pollo LoCo Holdings Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, 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, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.27 in 2013 to an estimated $0.59 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.55% 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 El Pollo LoCo Holdings Inc revealed the company was trading above its Graham Number of $10.04. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 19.59, which was below the industry average of 33.24, 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 $-4.36.

El Pollo LoCo Holdings 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) -$4.36
Graham Number $10.04
PEmg 19.59
Current Ratio 0.79
PB Ratio 1.71
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $35,885,000
Total Current Liabilities $45,318,000
Long-Term Debt $104,000,000
Total Assets $471,305,000
Intangible Assets $311,046,000
Total Liabilities $206,123,000
Shares Outstanding (Diluted Average) 39,027,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.65
Dec2016 $0.47
Dec2015 $0.62
Dec2014 $1.24
Dec2013 -$0.59
Dec2012 -$0.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.59
Dec2016 $0.47
Dec2015 $0.38
Dec2014 $0.20
Dec2013 -$0.27
Dec2012 -$0.09

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

Chipotle Mexican Grill Inc Valuation – March 2017 $CMG
Sonic Corporation Valuation – Initial Coverage $SONC
Darden Restaurants Inc Valuation – February 2017 $DRI
Jack in the Box Inc Valuation – Initial Coverage $JACK
Chuy’s Holdings Inc Valuation – Initial Coverage $CHUY
Yum Brands Inc Valuation – December 2016 $YUM
McDonald’s Corp Valuation – November 2016 $MCD
Chipotle Mexican Grill Inc Valuation – August 2016 $CMG
Yum! Brands Inc Valuation – August 2016 $YUM
Starbucks Corp Valuation – June 2016 $SBUX

Disclaimer:

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

Cypress Semiconductor Corp Valuation – Initial Coverage $CY

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

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

CY Chart

CY data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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ModernGraham Valuation of CY – April 2017

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,363,256,211 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.27 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 10.71% Fail
6. Moderate PEmg Ratio PEmg < 20 -21.56 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.28 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.27 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.24 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

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

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

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.02 in 2013 to an estimated $-0.63 for 2017. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Cypress Semiconductor Corporation revealed the company was trading above its Graham Number of $8.97. The company pays a dividend of $0.44 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -21.56, which was below the industry average of 41.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.4.

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

Stage 3: Information for Further Research

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

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $893,943,000
Total Current Liabilities $702,457,000
Long-Term Debt $1,194,979,000
Total Assets $3,871,871,000
Intangible Assets $2,358,531,000
Total Liabilities $1,980,043,000
Shares Outstanding (Diluted Average) 319,522,000

Earnings Per Share History

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

Earnings Per Share – ModernGraham History

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

Recommended Reading:

Other ModernGraham posts about the company

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

Other ModernGraham posts about related companies

Littelfuse Inc Valuation – Initial Coverage $LFUS
CTS Corporation Valuation – Initial Coverage $CTS
IT Hardware Industry Review – March 2017
Garmin Ltd Valuation – March 2017 $GRMN
Hewlett Packard Enterprise Co Valuation – Initial Valuation $HPE
Fortive Corp Valuation – Initial Coverage $FTV
Analog Devices Inc Valuation – February 2017 $ADI
Micron Technology Inc Valuation – February 2017 $MU
Amphenol Corp Valuation – February 2017 $APH
Kopin Corporation Valuation – Initial Coverage $KOPN

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.

Chipotle Mexican Grill Inc Valuation – March 2017 $CMG

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

Company Profile (obtained from Google Finance): Chipotle Mexican Grill, Inc. (Chipotle), together with its subsidiaries, operates Chipotle Mexican Grill restaurants. The Company’s Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. As of December 31, 2016, the Company managed its operations and restaurants based on 11 regions. As of December 31, 2016, the Company operated 2,198 Chipotle restaurants throughout the United States, as well as 29 international Chipotle restaurants, and it also had 23 restaurants in operation in other non-Chipotle concepts. As of December 31, 2016, 29 of its restaurants were located outside of the United States, with 17 in Canada, six in the United Kingdom, five in France and one in Frankfurt, Germany. The Company sells gift cards, which do not have an expiration date. The Company categorizes its restaurants as end-caps (at the end of a line of retail outlets), in-lines (in a line of retail outlets), free-standing or other.

CMG Chart

CMG data by YCharts

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CMG – March 2017

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,871,606,267 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.85 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 82.34% Pass
6. Moderate PEmg Ratio PEmg < 20 53.21 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.79 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 1.85 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 Fail

Stage 2: Determination of Intrinsic Value

EPSmg $7.78
MG Growth Estimate -0.75%
MG Value $54.45
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $112.82
MG Value based on 0% Growth $66.14
Market Implied Growth Rate 22.36%
Current Price $414.02
% of Intrinsic Value 760.35%

Chipotle Mexican Grill, 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 PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $8.19 in 2013 to an estimated $7.78 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 22.36% 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 Chipotle Mexican Grill, Inc. revealed the company was trading above its Graham Number of $80.53. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 53.21, which was above the industry average of 31.3. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.4.

Chipotle Mexican Grill, 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) -$3.40
Graham Number $80.53
PEmg 53.21
Current Ratio 1.85
PB Ratio 8.79
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $522,374,000
Total Current Liabilities $281,793,000
Long-Term Debt $0
Total Assets $2,026,103,000
Intangible Assets $21,939,000
Total Liabilities $623,610,000
Shares Outstanding (Diluted Average) 29,770,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.92
Dec2016 $0.77
Dec2015 $15.10
Dec2014 $14.13
Dec2013 $10.47
Dec2012 $8.75
Dec2011 $6.76
Dec2010 $5.64
Dec2009 $3.95
Dec2008 $2.36
Dec2007 $2.13
Dec2006 $1.28
Dec2005 $1.43
Dec2004 $0.24
Dec2003 -$0.34
Dec2002 -$0.87
Dec2001 -$1.49

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.78
Dec2016 $9.09
Dec2015 $12.51
Dec2014 $10.53
Dec2013 $8.19
Dec2012 $6.53
Dec2011 $5.00
Dec2010 $3.77
Dec2009 $2.64
Dec2008 $1.82
Dec2007 $1.35
Dec2006 $0.75
Dec2005 $0.26
Dec2004 -$0.38
Dec2003 -$0.64
Dec2002 -$0.69
Dec2001 -$0.50

Recommended Reading:

Other ModernGraham posts about the company

Chipotle Mexican Grill Inc Stock Valuation – February 2016 $CMG
Chipotle Mexican Group Inc Valuation – November 2015 Update $CMG
Chipotle Mexican Grill Inc. Analysis – August 2015 Update $CMG
21 Companies in the Spotlight This Week – 5/9/15
Chipolte Mexican Grill Inc. Quarterly Valuation – May 2015 $CMG

Other ModernGraham posts about related companies

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Darden Restaurants Inc Valuation – February 2017 $DRI
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Chuy’s Holdings Inc Valuation – Initial Coverage $CHUY
Yum Brands Inc Valuation – December 2016 $YUM
McDonald’s Corp Valuation – November 2016 $MCD
Chipotle Mexican Grill Inc Valuation – August 2016 $CMG
Yum! Brands Inc Valuation – August 2016 $YUM
Starbucks Corp Valuation – June 2016 $SBUX
McDonald’s Corporation Valuation – May 2016 $MCD

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.

Best Dividend Paying Stocks for Dividend Growth Investors – March 2017

Dividend Growth Stocks

Dividend growth investing is a very popular approach which can fit within the ModernGraham methods.  This article will look at companies reviewed by ModernGraham which have grown their dividends annually for at least the last 20 years.

For all 835 companies covered by ModernGraham, I track the number of years a company has grown its dividend, and provide that information in my individual company valuations.

Out of the 835 companies, only 67 have grown dividends annually for at least the last 20 years.  Here is an overview of those companies:

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

AFLAC Incorporated (AFL)

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.72 in 2012 to an estimated $6.22 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.36% 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 AFLAC Incorporated revealed the company was trading below its Graham Number of $87.98. The company pays a dividend of $1.64 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 11.22, which was below the industry average of 18.78, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Cintas Corporation (CTAS)

Cintas 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 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 $2.07 in 2013 to an estimated $4.36 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.06% 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.  (See the full valuation)

CTAS charts July 2016

T. Rowe Price Group Inc (TROW)

T. Rowe Price Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. 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 $2.75 in 2012 to an estimated $4.22 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.89% 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 T. Rowe Price Group Inc revealed the company was trading above its Graham Number of $41.69. The company pays a dividend of $2.12 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.27, which was below the industry average of 19.87, 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 $-0.07.  (See the full valuation)

TROW charts August 2016

United Technologies Corporation (UTX)

United Technologies Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.17 in 2012 to an estimated $7.65 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.29% 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.  (See the full valuation)

UTX Charts May 2016

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

A. O. Smith Corp (AOS)

A. O. Smith Corp 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 $1.9 in 2012 to an estimated $2.82 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 4.47% 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 below the price.  (See the full valuation)

AOS charts June 2016

Cincinnati Financial Corporation (CINF)

Cincinnati Financial Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.12 in 2012 to an estimated $3.21 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.36% 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.  (See the full valuation)

CINF charts May 2016

Carlisle Companies, Inc. (CSL)

Carlisle Companies, Inc. 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 $3.24 in 2013 to an estimated $4.64 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.07% 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 Carlisle Companies, Inc. revealed the company was trading above its Graham Number of $70.65. The company pays a dividend of $1.3 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 22.65, which was below the industry average of 27.42, 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 $-2.21.  (See the full valuation)

W W Grainger Inc (GWW)

W W Grainger Inc 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 is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $8.13 in 2012 to an estimated $11.16 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.36% 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 W W Grainger Inc revealed the company was trading above its Graham Number of $92.08. The company pays a dividend of $4.78 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 21.21, which was below the industry average of 22.25, 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 $-11.81.  (See the full valuation)

Hormel Foods Corp (HRL)

Hormel Foods Corp 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 $0.89 in 2013 to an estimated $1.46 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.65% 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 $17.73. The company pays a dividend of $0.61 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 23.8, which was below the industry average of 24.74, 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 $0.61.  (See the full valuation)

Leggett & Platt, Inc. (LEG)

Leggett & Platt, Inc. 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 high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.21 in 2012 to an estimated $1.93 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 9.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Leggett & Platt, Inc. revealed the company was trading above its Graham Number of $21.85. The company pays a dividend of $1.3 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 27.11, which was below the industry average of 27.31, 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 $-4.2.  (See the full valuation)

LEG charts August 2016

People’s United Financial, Inc. (PBCT)

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.51 in 2012 to an estimated $0.83 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 7.13% 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.  (See the full valuation)

PBCT charts June 2016

Ross Stores, Inc. (ROST)

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.36 in 2013 to an estimated $2.35 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.44% 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.  (See the full valuation)

ROST charts June 2016

VF Corp (VFC)

VF 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 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 $1.83 in 2012 to an estimated $2.72 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 7.2% 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.  (See the full valuation)

VFC charts August 2016

The Full List

[not-level-free]
Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ADM Archer Daniels Midland Company E 1/3/2017 $21.55 $44.95 208.58% 17.49 2.63%
ADP Automatic Data Processing E 11/20/2016 $49.29 $103.12 209.21% 31.25 2.06%
AFL AFLAC Incorporated D 12/19/2016 $112.32 $71.41 63.58% 11.48 2.30%
ALB Albemarle Corporation E 3/18/2017 $35.12 $104.25 296.84% 25.87 1.17%
AOS A. O. Smith Corp E 6/11/2016 $64.88 $50.96 78.55% 18.07 1.59%
APD Air Products & Chemicals, Inc. S 1/27/2017 $41.85 $136.45 326.05% 27.51 2.48%
BCR C R Bard Inc E 3/21/2017 $93.40 $249.54 267.17% 34.95 0.40%
BDX Becton Dickinson and Co S 1/8/2017 $18.86 $181.32 961.40% 36.78 1.46%
BEN Franklin Resources, Inc. D 2/24/2017 $31.56 $41.35 131.02% 13.60 1.79%
BF.B Brown-Forman Corporation S 2/2/2017 $45.80 $47.28 103.23% 25.15 1.44%
BMS Bemis Company, Inc. E 7/1/2016 $43.96 $48.71 110.81% 21.36 2.32%
CAH Cardinal Health Inc S 7/3/2016 $54.67 $81.45 148.98% 23.68 1.90%
CFR Cullen/Frost Bankers, Inc. E 12/8/2016 $62.02 $85.15 137.29% 19.94 2.51%
CHRW C.H. Robinson Worldwide, Inc. S 8/29/2016 $46.96 $78.36 166.87% 23.53 2.13%
CINF Cincinnati Financial Corporation E 5/21/2016 $76.98 $72.78 94.54% 22.67 2.56%
CL Colgate-Palmolive Company S 1/27/2016 $32.95 $73.70 223.67% 29.25 2.06%
CLX Clorox Co S 1/28/2017 $63.04 $137.51 218.13% 28.71 2.26%
CSL Carlisle Companies, Inc. E 2/27/2017 $99.67 $106.60 106.95% 22.97 1.22%
CTAS Cintas Corporation E 7/21/2016 $167.73 $123.78 73.80% 28.39 0.85%
CVX Chevron Corporation S 3/15/2017 $0.00 $108.04 N/A 29.28 3.97%
DOV Dover Corp D 7/8/2016 $60.20 $78.29 130.05% 17.17 2.12%
ECL Ecolab Inc. S 6/26/2016 $117.40 $124.20 105.79% 33.48 1.10%
ED Consolidated Edison, Inc. S 2/26/2017 $46.08 $77.34 167.84% 19.38 3.47%
EMR Emerson Electric Co. S 2/12/2016 $38.39 $58.96 153.58% 18.54 3.21%
EPD Enterprise Products Partners L.P. S 8/27/2016 $21.05 $27.21 129.26% 21.26 5.70%
ESS Essex Property Trust Inc S 3/14/2017 $87.33 $233.60 267.49% 57.25 2.74%
EXPD Expeditors International of Washington E 6/25/2016 $39.14 $55.58 142.00% 26.59 1.30%
GPC Genuine Parts Company E 7/8/2016 $83.61 $93.30 111.59% 20.33 2.68%
GWW W W Grainger Inc E 1/12/2017 $219.90 $240.06 109.17% 21.51 1.99%
HP Helmerich & Payne, Inc. S 6/23/2016 $14.72 $66.95 454.82% 20.04 4.11%
HRL Hormel Foods Corp E 3/9/2017 $40.41 $34.48 85.33% 23.62 1.77%
IBM International Business Machines Corp. S 3/13/2017 $94.03 $173.88 184.92% 13.33 3.16%
ITW Illinois Tool Works Inc. D 7/6/2016 $100.87 $133.48 132.33% 24.09 1.60%
JKHY Jack Henry & Associates, Inc. S 1/30/2017 $78.75 $93.89 119.23% 33.53 1.16%
JNJ Johnson & Johnson E 1/16/2017 $105.81 $127.25 120.26% 23.09 2.44%
KMB Kimberly Clark Corp S 6/24/2016 $47.14 $133.68 283.58% 29.32 2.66%
KO The Coca-Cola Co S 7/28/2016 $10.76 $42.50 394.98% 23.88 3.15%
LECO Lincoln Electric Holdings, Inc. E 3/8/2017 $29.79 $85.89 288.32% 29.52 1.53%
LEG Leggett & Platt, Inc. E 8/25/2016 $50.91 $50.00 98.21% 25.91 2.60%
LLTC Linear Technology Corporation E 7/12/2016 $19.97 $65.00 325.49% 33.16 1.88%
LOW Lowe’s Companies, Inc. S 1/8/2016 $83.53 $81.92 98.07% 32.00 1.31%
MCD McDonald’s Corporation S 11/20/2016 $49.98 $128.52 257.14% 25.15 2.77%
MDT Medtronic plc. Ordinary Shares D 7/12/2016 $34.43 $81.12 235.61% 24.58 1.87%
MKC McCormick & Company, Incorporated S 1/3/2017 $49.74 $101.67 204.40% 30.53 1.66%
MMM 3M Co E 12/13/2016 $135.24 $192.13 142.07% 25.45 2.27%
NEE NextEra Energy Inc S 12/21/2016 $79.43 $131.85 166.00% 24.33 2.56%
NNN National Retail Properties, Inc. S 12/4/2016 $20.46 $44.30 216.52% 36.02 3.97%
PBCT People’s United Financial, Inc. D 6/20/2016 $22.89 $17.83 77.89% 21.48 3.76%
PEP PepsiCo, Inc. S 7/13/2016 $43.65 $111.77 256.06% 27.00 2.56%
PG Procter & Gamble Co S 7/8/2016 $17.20 $91.19 530.17% 26.51 2.91%
PH Parker-Hannifin Corp D 7/15/2016 $81.86 $156.90 191.67% 24.36 1.61%
PPG PPG Industries, Inc. S 1/16/2017 $215.75 $104.48 48.43% 18.66 1.45%
PX Praxair, Inc. E 6/13/2016 $69.25 $116.95 168.88% 21.15 2.48%
ROST Ross Stores, Inc. E 6/21/2016 $71.19 $65.77 92.39% 27.99 0.71%
SHW Sherwin-Williams Co S 7/12/2016 $386.46 $307.95 79.68% 30.67 0.93%
SKT Tanger Factory Outlet Centers Inc. S 1/16/2017 $61.57 $32.36 52.56% 20.23 3.77%
SON Sonoco Products Co E 2/6/2017 $32.94 $53.32 161.87% 23.39 2.70%
SPGI S&P Global Inc S 2/8/2017 $135.28 $128.20 94.77% 30.74 1.10%
SWK Stanley Black & Decker, Inc. S 1/28/2016 $125.20 $129.57 103.49% 27.05 1.67%
SYY SYSCO Corporation S 1/25/2017 $13.77 $51.80 376.18% 28.94 2.39%
TGT Target Corporation S 3/7/2017 $18.93 $53.39 282.04% 15.48 4.35%
TROW T. Rowe Price Group Inc D 8/25/2016 $103.50 $68.60 66.28% 16.26 3.09%
TSE:CNR Canadian National Railway Company S 1/30/2017 $118.66 $95.30 80.31% 21.18 1.57%
UTX United Technologies Corporation D 5/18/2016 $174.94 $112.16 64.11% 14.66 2.28%
VFC VF Corp E 8/1/2016 $62.96 $53.05 84.26% 19.50 2.70%
WBA Walgreens Boots Alliance Inc S 7/6/2016 $61.94 $83.21 134.34% 25.45 1.71%
WMT Wal-Mart Stores Inc S 5/20/2016 $39.55 $69.90 176.74% 15.43 2.80%

[/not-level-free][level-free]

To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ADM Archer Daniels Midland Company E 1/3/2017 $44.95 2.63%
ADP Automatic Data Processing E 11/20/2016 $103.12 2.06%
AFL AFLAC Incorporated D 12/19/2016 $71.41 2.30%
ALB Albemarle Corporation E 3/18/2017 $104.25 1.17%
AOS A. O. Smith Corp E 6/11/2016 $50.96 1.59%
APD Air Products & Chemicals, Inc. S 1/27/2017 $136.45 2.48%
BCR C R Bard Inc E 3/21/2017 $249.54 0.40%
BDX Becton Dickinson and Co S 1/8/2017 $181.32 1.46%
BEN Franklin Resources, Inc. D 2/24/2017 $41.35 1.79%
BF.B Brown-Forman Corporation S 2/2/2017 $47.28 1.44%
BMS Bemis Company, Inc. E 7/1/2016 $48.71 2.32%
CAH Cardinal Health Inc S 7/3/2016 $81.45 1.90%
CFR Cullen/Frost Bankers, Inc. E 12/8/2016 $85.15 2.51%
CHRW C.H. Robinson Worldwide, Inc. S 8/29/2016 $78.36 2.13%
CINF Cincinnati Financial Corporation E 5/21/2016 $72.78 2.56%
CL Colgate-Palmolive Company S 1/27/2016 $73.70 2.06%
CLX Clorox Co S 1/28/2017 $137.51 2.26%
CSL Carlisle Companies, Inc. E 2/27/2017 $106.60 1.22%
CTAS Cintas Corporation E 7/21/2016 $123.78 0.85%
CVX Chevron Corporation S 3/15/2017 $108.04 3.97%
DOV Dover Corp D 7/8/2016 $78.29 2.12%
ECL Ecolab Inc. S 6/26/2016 $124.20 1.10%
ED Consolidated Edison, Inc. S 2/26/2017 $77.34 3.47%
EMR Emerson Electric Co. S 2/12/2016 $58.96 3.21%
EPD Enterprise Products Partners L.P. S 8/27/2016 $27.21 5.70%
ESS Essex Property Trust Inc S 3/14/2017 $233.60 2.74%
EXPD Expeditors International of Washington E 6/25/2016 $55.58 1.30%
GPC Genuine Parts Company E 7/8/2016 $93.30 2.68%
GWW W W Grainger Inc E 1/12/2017 $240.06 1.99%
HP Helmerich & Payne, Inc. S 6/23/2016 $66.95 4.11%
HRL Hormel Foods Corp E 3/9/2017 $34.48 1.77%
IBM International Business Machines Corp. S 3/13/2017 $173.88 3.16%
ITW Illinois Tool Works Inc. D 7/6/2016 $133.48 1.60%
JKHY Jack Henry & Associates, Inc. S 1/30/2017 $93.89 1.16%
JNJ Johnson & Johnson E 1/16/2017 $127.25 2.44%
KMB Kimberly Clark Corp S 6/24/2016 $133.68 2.66%
KO The Coca-Cola Co S 7/28/2016 $42.50 3.15%
LECO Lincoln Electric Holdings, Inc. E 3/8/2017 $85.89 1.53%
LEG Leggett & Platt, Inc. E 8/25/2016 $50.00 2.60%
LLTC Linear Technology Corporation E 7/12/2016 $65.00 1.88%
LOW Lowe’s Companies, Inc. S 1/8/2016 $81.92 1.31%
MCD McDonald’s Corporation S 11/20/2016 $128.52 2.77%
MDT Medtronic plc. Ordinary Shares D 7/12/2016 $81.12 1.87%
MKC McCormick & Company, Incorporated S 1/3/2017 $101.67 1.66%
MMM 3M Co E 12/13/2016 $192.13 2.27%
NEE NextEra Energy Inc S 12/21/2016 $131.85 2.56%
NNN National Retail Properties, Inc. S 12/4/2016 $44.30 3.97%
PBCT People’s United Financial, Inc. D 6/20/2016 $17.83 3.76%
PEP PepsiCo, Inc. S 7/13/2016 $111.77 2.56%
PG Procter & Gamble Co S 7/8/2016 $91.19 2.91%
PH Parker-Hannifin Corp D 7/15/2016 $156.90 1.61%
PPG PPG Industries, Inc. S 1/16/2017 $104.48 1.45%
PX Praxair, Inc. E 6/13/2016 $116.95 2.48%
ROST Ross Stores, Inc. E 6/21/2016 $65.77 0.71%
SHW Sherwin-Williams Co S 7/12/2016 $307.95 0.93%
SKT Tanger Factory Outlet Centers Inc. S 1/16/2017 $32.36 3.77%
SON Sonoco Products Co E 2/6/2017 $53.32 2.70%
SPGI S&P Global Inc S 2/8/2017 $128.20 1.10%
SWK Stanley Black & Decker, Inc. S 1/28/2016 $129.57 1.67%
SYY SYSCO Corporation S 1/25/2017 $51.80 2.39%
TGT Target Corporation S 3/7/2017 $53.39 4.35%
TROW T. Rowe Price Group Inc D 8/25/2016 $68.60 3.09%
TSE:CNR Canadian National Railway Company S 1/30/2017 $95.30 1.57%
UTX United Technologies Corporation D 5/18/2016 $112.16 2.28%
VFC VF Corp E 8/1/2016 $53.05 2.70%
WBA Walgreens Boots Alliance Inc S 7/6/2016 $83.21 1.71%
WMT Wal-Mart Stores Inc S 5/20/2016 $69.90 2.80%

[/level-free]

Disclaimer: 

The author held a long position in Dover Corporation and People’s United Financial Inc 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 and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

Mr. Market and a Valuation of the Dow For Value Investors – March 2017

Mr. Market’s Mental State

Legendary value investor Benjamin Graham is probably most famous for his Mr. Market parable.  In the story, an investor is greeted each day by Mr. Market, who offers to purchase the investor’s stocks.  Every offer is different, and sometimes the price is insanely high, sometimes it seems fair, and other times it is clearly too low.  But one thing remains the same – the intrinsic value of the investments does not change.  As a result, the investor is left to decide when to buy and sell based on the relationship between the intrinsic value and the price Mr. Market is offering.

All value investors today should keep the analogy in mind, and implement the overall concept.  To assist in that goal, ModernGraham has various tools available, and the infographic shown above is one of them, displaying a summary of the valuations of 808 companies reviewed by ModernGraham.

This month, out of the 808 companies reviewed by ModernGraham, the average PEmg ratio (price over normalized earnings) is 26.40 and the average company is trading at 118.02% of its intrinsic value.  Last month, the average PEmg ratio was 25.54 and the average company was trading at 111.6% of its intrinsic value.

The highest PEmg average we have seen while tracking this information was 26.40 in March 2017 while the lowest PEmg average was 22.25 in February 2016.  The highest average intrinsic value was 121.72% in January 2017 and the lowest average intrinsic value was 103.19% in February 2016.

Month Average PEmg Average % of value, 200% outlier Average % of value, 500% outlier Defensive % Enterprising % Speculative % Undervalued % Fairly Valued % Overvalued %
August 2014 24.36 90.57% 120.87% n/a n/a n/a n/a n/a n/a
September 2014 25.37 93.37% 120.58% n/a n/a n/a n/a n/a n/a
October 2014 24.29 90.24% 116.67% 12% 35% 53% 31% 21% 48%
November 2014 25.32 90.61% 117.38% 12% 35% 53% 29% 21% 50%
December 2014 26.17 92.28% 117.00% 11% 34% 55% 28% 23% 49%
January 2015 25.63 93.48% 119.68% 10% 34% 55% 30% 20% 50%
February 2015 25.79 92.72% 115.81% 10% 35% 55% 33% 19% 49%
March 2015 25.79 88.03% 114.81% 10% 35% 55% 31% 19% 49%
April 2015 25.64 86.18% 112.23% 9.9% 35.2% 54.9% 32.1% 19.4% 48.5%
May 2015 25.17 86.64% 112.99% 9.1% 36.1% 54.8% 32.1% 20.4% 47.4%
June 2015 25.47 86.43% 112.50% 8.7% 34.7% 56.5% 30.0% 21.2% 48.8%
July 2015 25.24 85.65% 118.11% 9.6% 33.1% 57.3% 30.9% 19.3% 49.6%
August 2015 25.08 86.79% 116.39% 9.8% 32.7% 57.5% 29.5% 21.0% 49.5%
September 2015 23.2 82.45% 103.59% 9.4% 32.6% 57.9% 35.7% 18.9% 45.5%
October 2015 22.95 81.80% 101.69% 10.5% 31.7% 57.8% 35.5% 18.7% 45.8%
November 2015 23.97 84.84% 110.89% 10.1% 32.2% 57.7% 32.0% 19.2% 48.7%
December 2015 23.27 84.55% 115.56% 10.6% 31.5% 57.8% 33.0% 17.8% 49.2%
January 2016 22.87 82.61% 110.62% 10.9% 30.8% 58.3% 35.9% 16.8% 47.3%
February 2016 22.25 79.54% 103.19% 10.9% 30.7% 58.4% 36.7% 16.3% 47.0%
March 2016 23.07 83.92% 106.76% 11.3% 29.9% 58.8% 33.4% 19.0% 47.6%
April 2016 23.37 83.65% 110.61% 11.3% 29.9% 58.8% 32.5% 18.8% 48.7%
May 2016 23.78 82.90% 112.17% 11.4% 29.9% 58.8% 31.3% 18.5% 50.2%
June 2016 24.21 84.77% 115.18% 11.6% 30.0% 58.5% 30.7% 17.3% 52.0%
July 2016 23.83 86.40% 117.49% 11.8% 29.9% 58.2% 30.1% 19.0% 50.8%
August 2016 24.68 89.40% 117.12% 11.9% 30.7% 57.4% 29.6% 19.3% 51.1%
September 2016 23.86 91.21% 115.16% 11.2% 30.1% 58.7% 28.6% 18.4% 53.0%
October 2016 24.07 91.41% 117.93% 11.2% 30.2% 58.6% 28.4% 18.5% 53.2%
November 2016 24.2 92.55% 119.16% 11.0% 30.3% 58.7% 28.0% 17.8% 54.2%
December 2016 24.56 93.20% 121.14% 10.5% 31.1% 58.4% 28.0% 17.6% 54.4%
January 2017 24.8 93.57% 121.72% 9.5% 32.8% 57.7% 26.5% 17.0% 56.5%
February 2017 25.54 80.97% 111.6% 8.9% 33.4% 57.7% 25.1% 17.9% 57.0%
March 2017 26.4 82.96% 118.0% 8.2% 33.8% 58.0% 24.6% 17.0% 58.4%

Valuation of the Dow

Each month ModernGraham takes a look at the Dow Jones Industrial Average, listing out each individual component in an easy to read table, and calculates a value for the index that is based on the ModernGraham valuation model’s estimates for intrinsic values for each component.  Over time this figure can be useful for determining whether the market as a whole is undervalued or overvalued.
^DJI Chart

^DJI data by YCharts

At the time of writing, the Dow Jones Industrial Average (DJIA) was at 20,855.73. The ModernGraham Valuation of the DJIA was 19,539.14. As a result, the DJIA was trading at 106.74% of its estimated value. This figure is within the ModernGraham margin of error, and therefore it appears the DJIA is presently fairly valued.

To see the individual valuation articles, please click on the company name in the table below.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Dividend Yield
AXP American Express Company D 5/19/2016 $117.34 $79.04 67.36% 15.53 1.47%
AAPL Apple Inc. S 1/24/2017 $231.48 $139.00 60.05% 17.42 1.57%
BA Boeing Co E 6/13/2016 $201.69 $181.74 90.11% 24.73 2.10%
CAT Caterpillar Inc. S 8/27/2016 $0.00 $93.23 N/A 21.14 3.30%
CSCO Cisco Systems, Inc. D 1/11/2017 $37.19 $34.02 91.48% 17.01 2.91%
CVX Chevron Corporation S 8/18/2016 $0.00 $109.61 N/A 23.42 3.90%
DD E I Du Pont De Nemours And Co E 8/28/2016 $36.35 $79.77 219.45% 24.25 1.91%
DIS Walt Disney Co S 12/10/2015 $157.29 $110.84 70.47% 23.94 1.24%
GE General Electric Company S 7/21/2016 $0.26 $29.80 11461.54% 33.48 3.09%
GS Goldman Sachs Group Inc S 6/20/2016 $174.21 $250.24 143.64% 18.51 1.04%
HD Home Depot Inc S 2/22/2017 $203.38 $146.92 72.24% 27.83 1.81%
IBM International Business Machines Corp. S 11/10/2015 $200.54 $179.45 89.48% 13.33 2.90%
INTC Intel Corporation D 5/20/2016 $26.44 $35.62 134.72% 16.57 2.75%
JNJ Johnson & Johnson E 1/16/2017 $105.81 $124.10 117.29% 22.52 2.50%
JPM JPMorgan Chase & Co. D 7/24/2016 $96.69 $91.21 94.33% 16.89 1.97%
KO The Coca-Cola Co S 7/28/2016 $10.76 $41.99 390.24% 23.59 3.19%
MCD McDonald’s Corporation S 11/20/2016 $49.98 $128.09 256.28% 25.07 2.78%
MMM 3M Co E 12/13/2016 $135.24 $189.51 140.13% 25.10 2.30%
MRK Merck & Co., Inc. E 8/29/2016 $26.80 $65.80 245.52% 26.97 2.78%
MSFT Microsoft Corporation E 2/2/2017 $15.97 $64.99 406.95% 29.27 2.26%
NKE Nike Inc E 11/19/2016 $59.52 $56.51 94.94% 28.40 1.13%
PFE Pfizer Inc. S 8/16/2016 $27.24 $33.91 124.49% 19.27 3.42%
PG Procter & Gamble Co S 7/8/2016 $17.20 $90.14 524.07% 26.20 2.94%
TRV Travelers Companies Inc D 12/1/2016 $320.65 $121.24 37.81% 12.28 1.61%
UNH UnitedHealth Group Inc S 2/28/2017 $173.14 $167.91 96.98% 22.66 1.42%
UTX United Technologies Corporation D 5/18/2016 $174.94 $111.75 63.88% 14.61 2.29%
V Visa Inc E 6/26/2016 $89.37 $88.96 99.54% 38.34 1.55%
VZ Verizon Communications Inc. S 7/28/2016 $124.10 $49.16 39.61% 15.27 4.60%
WMT Wal-Mart Stores Inc S 5/20/2016 $39.55 $69.80 176.49% 15.41 2.81%
XOM Exxon Mobil Corporation S 2/9/2017 $0.00 $81.03 N/A 16.71 3.65%

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Disclaimer:

The author held a long position in Apple Inc (AAPL), Home Depot (HD) and Walt Disney Co. (DIS) 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 read our full disclaimer.

Best Dividend Paying Stocks for Dividend Growth Investors – February 2017

Dividend Growth Stocks

Dividend growth investing is a very popular approach which can fit within the ModernGraham methods.  This article will look at companies reviewed by ModernGraham which have grown their dividends annually for at least the last 20 years.

For all 737 companies covered by ModernGraham, I track the number of years a company has grown its dividend, and provide that information in my individual company valuations.

Out of the 737 companies, only 66 have grown dividends annually for at least the last 20 years.  Here is an overview of those companies:

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

AFLAC Incorporated (AFL)

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

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.72 in 2012 to an estimated $6.22 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.36% 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 AFLAC Incorporated revealed the company was trading below its Graham Number of $87.98. The company pays a dividend of $1.64 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 11.22, which was below the industry average of 18.78, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Cintas Corporation (CTAS)

Cintas 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 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 $2.07 in 2013 to an estimated $4.36 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.06% 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.  (See the full valuation)

CTAS charts July 2016

T. Rowe Price Group Inc (TROW)

T. Rowe Price Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. 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 $2.75 in 2012 to an estimated $4.22 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.89% 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 T. Rowe Price Group Inc revealed the company was trading above its Graham Number of $41.69. The company pays a dividend of $2.12 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.27, which was below the industry average of 19.87, 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 $-0.07.  (See the full valuation)

TROW charts August 2016

United Technologies Corporation (UTX)

United Technologies Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.17 in 2012 to an estimated $7.65 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.29% 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.  (See the full valuation)

UTX Charts May 2016

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

A. O. Smith Corp (AOS)

A. O. Smith Corp 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 $1.9 in 2012 to an estimated $2.82 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 4.47% 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 below the price.  (See the full valuation)

AOS charts June 2016

Franklin Resources, Inc. (BEN)

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.5 in 2012 to an estimated $3.2 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 2.18% 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 Franklin Resources, Inc. revealed the company was trading above its Graham Number of $35.55. The company pays a dividend of $0.69 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 11.51, which was below the industry average of 19.87, 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 $14.41.  (See the full valuation)

BEN charts August 2016

Cincinnati Financial Corporation (CINF)

Cincinnati Financial Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.12 in 2012 to an estimated $3.21 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.36% 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.  (See the full valuation)

CINF charts May 2016

Hormel Foods Corp (HRL)

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 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 $0.81 in 2012 to an estimated $1.29 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 9.9% 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 $17.33. The company pays a dividend of $0.56 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 29.96, which was below the industry average of 30.19, 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 $0.03.  (See the full valuation)

HRL charts August 2016

Leggett & Platt, Inc. (LEG)

Leggett & Platt, Inc. 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 high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.21 in 2012 to an estimated $1.93 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 9.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Leggett & Platt, Inc. revealed the company was trading above its Graham Number of $21.85. The company pays a dividend of $1.3 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 27.11, which was below the industry average of 27.31, 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 $-4.2.  (See the full valuation)

LEG charts August 2016

People’s United Financial, Inc. (PBCT)

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.51 in 2012 to an estimated $0.83 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 7.13% 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.  (See the full valuation)

PBCT charts June 2016

Ross Stores, Inc. (ROST)

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

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.36 in 2013 to an estimated $2.35 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.44% 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.  (See the full valuation)

ROST charts June 2016

VF Corp (VFC)

VF 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 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 $1.83 in 2012 to an estimated $2.72 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 7.2% 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.  (See the full valuation)

VFC charts August 2016

The Full List

[not-level-free]
Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ADM Archer Daniels Midland Company E 1/3/2017 $21.55 $44.69 207.38% 17.39 2.64%
ADP Automatic Data Processing E 11/20/2016 $49.29 $99.68 202.23% 30.21 2.13%
AFL AFLAC Incorporated D 12/19/2016 $112.32 $71.10 63.30% 11.43 2.31%
ALB Albemarle Corporation S 8/25/2016 $0.00 $91.92 N/A 41.04 1.29%
AOS A. O. Smith Corp E 6/11/2016 $64.88 $49.59 76.43% 17.59 1.63%
APD Air Products & Chemicals, Inc. S 1/27/2017 $41.85 $141.50 338.11% 28.53 2.40%
BCR C R Bard Inc E 8/25/2016 $73.15 $242.41 331.39% 42.53 0.40%
BDX Becton Dickinson and Co S 1/8/2017 $18.86 $180.90 959.17% 36.69 1.46%
BEN Franklin Resources, Inc. D 8/21/2016 $54.08 $42.53 78.64% 13.29 1.62%
BF.B Brown-Forman Corporation S 2/2/2017 $45.80 $48.20 105.24% 25.64 1.41%
BMS Bemis Company, Inc. E 7/1/2016 $43.96 $48.62 110.60% 21.32 2.32%
CAH Cardinal Health Inc S 7/3/2016 $54.67 $80.71 147.63% 23.46 1.92%
CFR Cullen/Frost Bankers, Inc. E 12/8/2016 $62.02 $94.12 151.76% 22.04 2.27%
CHRW C.H. Robinson Worldwide, Inc. S 8/29/2016 $46.96 $79.06 168.36% 23.74 2.11%
CINF Cincinnati Financial Corporation E 5/21/2016 $76.98 $72.67 94.40% 22.64 2.56%
CL Colgate-Palmolive Company S 1/27/2016 $32.95 $71.98 218.45% 28.56 2.11%
CLC CLARCOR Inc. E 1/8/2017 $45.74 $82.93 181.31% 30.38 1.06%
CLX Clorox Co S 1/28/2017 $63.04 $133.71 212.10% 27.91 2.33%
CTAS Cintas Corporation E 7/21/2016 $167.73 $118.61 70.71% 27.20 0.89%
CVX Chevron Corporation S 8/18/2016 $0.00 $110.33 N/A 23.57 3.88%
DOV Dover Corp D 7/8/2016 $60.20 $79.94 132.79% 17.53 2.08%
ECL Ecolab Inc. S 6/26/2016 $117.40 $123.95 105.58% 33.41 1.10%
ED Consolidated Edison, Inc. S 8/21/2016 $39.19 $73.50 187.55% 19.09 3.59%
EMR Emerson Electric Co. S 2/12/2016 $38.39 $61.89 161.21% 19.46 3.05%
EPD Enterprise Products Partners L.P. S 8/27/2016 $21.05 $28.86 137.10% 22.55 5.37%
ESS Essex Property Trust Inc S 10/9/2015 $153.41 $228.10 148.69% 57.31 2.60%
EXPD Expeditors International of Washington E 6/25/2016 $39.14 $56.50 144.35% 27.03 1.27%
GPC Genuine Parts Company E 7/8/2016 $83.61 $100.67 120.40% 21.93 2.48%
GWW W W Grainger Inc E 1/12/2017 $219.90 $254.96 115.94% 22.85 1.87%
HP Helmerich & Payne, Inc. S 6/23/2016 $14.72 $68.26 463.72% 20.44 4.03%
HRL Hormel Foods Corp E 8/24/2016 $34.15 $37.26 109.11% 28.88 1.50%
IBM International Business Machines Corp. S 11/10/2015 $200.54 $180.67 90.09% 13.42 2.88%
ITW Illinois Tool Works Inc. D 7/6/2016 $100.87 $130.31 129.19% 23.52 1.64%
JKHY Jack Henry & Associates, Inc. S 1/30/2017 $78.75 $92.53 117.50% 33.05 1.18%
JNJ Johnson & Johnson E 1/16/2017 $105.81 $118.86 112.33% 21.57 2.61%
KMB Kimberly Clark Corp S 6/24/2016 $47.14 $131.93 279.87% 28.93 2.70%
KO The Coca-Cola Co S 7/28/2016 $10.76 $41.23 383.18% 23.16 3.25%
LEG Leggett & Platt, Inc. E 8/25/2016 $50.91 $48.62 95.50% 25.19 2.67%
LLTC Linear Technology Corporation E 7/12/2016 $19.97 $64.92 325.09% 33.12 1.88%
LOW Lowe’s Companies, Inc. S 1/8/2016 $83.53 $76.74 91.87% 29.98 1.39%
MCD McDonald’s Corporation S 11/20/2016 $49.98 $127.80 255.70% 25.01 2.79%
MDT Medtronic plc. Ordinary Shares D 7/12/2016 $34.43 $78.88 229.10% 23.90 1.93%
MKC McCormick & Company, Incorporated S 1/3/2017 $49.74 $97.59 196.20% 29.31 1.73%
MMM 3M Co E 12/13/2016 $135.24 $182.95 135.28% 24.23 2.38%
NEE NextEra Energy Inc S 12/21/2016 $79.43 $126.86 159.71% 23.41 2.66%
NNN National Retail Properties, Inc. S 12/4/2016 $20.46 $44.72 218.57% 36.36 3.94%
PBCT People’s United Financial, Inc. D 6/20/2016 $22.89 $19.19 83.84% 23.12 3.49%
PEP PepsiCo, Inc. S 7/13/2016 $43.65 $108.15 247.77% 26.12 2.64%
PG Procter & Gamble Co S 7/8/2016 $17.20 $91.09 529.59% 26.48 2.91%
PH Parker-Hannifin Corp D 7/15/2016 $81.86 $153.89 187.99% 23.90 1.64%
PPG PPG Industries, Inc. S 1/16/2017 $215.75 $102.37 47.45% 18.28 1.48%
PX Praxair, Inc. E 6/13/2016 $69.25 $117.42 169.56% 21.23 2.47%
ROST Ross Stores, Inc. E 6/21/2016 $71.19 $68.55 96.29% 29.17 0.69%
SHW Sherwin-Williams Co S 7/12/2016 $386.46 $311.35 80.56% 31.01 0.92%
SKT Tanger Factory Outlet Centers Inc. S 1/16/2017 $61.57 $33.69 54.72% 21.06 3.62%
SON Sonoco Products Co E 2/6/2017 $32.94 $52.86 160.47% 23.18 2.72%
SPGI S&P Global Inc S 2/8/2017 $135.28 $130.39 96.39% 31.27 1.08%
SWK Stanley Black & Decker, Inc. S 1/28/2016 $125.20 $126.65 101.16% 26.44 1.71%
SYY SYSCO Corporation S 1/25/2017 $13.77 $52.35 380.17% 29.25 2.37%
TGT Target Corporation S 8/22/2016 $3.67 $65.79 1792.64% 21.36 3.40%
TROW T. Rowe Price Group Inc D 8/25/2016 $103.50 $71.10 68.70% 16.85 2.98%
TSE:CNR Canadian National Railway Company S 1/30/2017 $118.66 $93.85 79.09% 20.86 1.60%
UTX United Technologies Corporation D 5/18/2016 $174.94 $112.15 64.11% 14.66 2.28%
VFC VF Corp E 8/1/2016 $62.96 $52.68 83.67% 19.37 2.71%
WBA Walgreens Boots Alliance Inc S 7/6/2016 $61.94 $85.86 138.62% 26.26 1.65%
WMT Wal-Mart Stores Inc S 5/20/2016 $39.55 $69.37 175.40% 15.31 2.83%

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ADM Archer Daniels Midland Company E 1/3/2017 $44.69 2.64%
ADP Automatic Data Processing E 11/20/2016 $99.68 2.13%
AFL AFLAC Incorporated D 12/19/2016 $71.10 2.31%
ALB Albemarle Corporation S 8/25/2016 $91.92 1.29%
AOS A. O. Smith Corp E 6/11/2016 $49.59 1.63%
APD Air Products & Chemicals, Inc. S 1/27/2017 $141.50 2.40%
BCR C R Bard Inc E 8/25/2016 $242.41 0.40%
BDX Becton Dickinson and Co S 1/8/2017 $180.90 1.46%
BEN Franklin Resources, Inc. D 8/21/2016 $42.53 1.62%
BF.B Brown-Forman Corporation S 2/2/2017 $48.20 1.41%
BMS Bemis Company, Inc. E 7/1/2016 $48.62 2.32%
CAH Cardinal Health Inc S 7/3/2016 $80.71 1.92%
CFR Cullen/Frost Bankers, Inc. E 12/8/2016 $94.12 2.27%
CHRW C.H. Robinson Worldwide, Inc. S 8/29/2016 $79.06 2.11%
CINF Cincinnati Financial Corporation E 5/21/2016 $72.67 2.56%
CL Colgate-Palmolive Company S 1/27/2016 $71.98 2.11%
CLC CLARCOR Inc. E 1/8/2017 $82.93 1.06%
CLX Clorox Co S 1/28/2017 $133.71 2.33%
CTAS Cintas Corporation E 7/21/2016 $118.61 0.89%
CVX Chevron Corporation S 8/18/2016 $110.33 3.88%
DOV Dover Corp D 7/8/2016 $79.94 2.08%
ECL Ecolab Inc. S 6/26/2016 $123.95 1.10%
ED Consolidated Edison, Inc. S 8/21/2016 $73.50 3.59%
EMR Emerson Electric Co. S 2/12/2016 $61.89 3.05%
EPD Enterprise Products Partners L.P. S 8/27/2016 $28.86 5.37%
ESS Essex Property Trust Inc S 10/9/2015 $228.10 2.60%
EXPD Expeditors International of Washington E 6/25/2016 $56.50 1.27%
GPC Genuine Parts Company E 7/8/2016 $100.67 2.48%
GWW W W Grainger Inc E 1/12/2017 $254.96 1.87%
HP Helmerich & Payne, Inc. S 6/23/2016 $68.26 4.03%
HRL Hormel Foods Corp E 8/24/2016 $37.26 1.50%
IBM International Business Machines Corp. S 11/10/2015 $180.67 2.88%
ITW Illinois Tool Works Inc. D 7/6/2016 $130.31 1.64%
JKHY Jack Henry & Associates, Inc. S 1/30/2017 $92.53 1.18%
JNJ Johnson & Johnson E 1/16/2017 $118.86 2.61%
KMB Kimberly Clark Corp S 6/24/2016 $131.93 2.70%
KO The Coca-Cola Co S 7/28/2016 $41.23 3.25%
LEG Leggett & Platt, Inc. E 8/25/2016 $48.62 2.67%
LLTC Linear Technology Corporation E 7/12/2016 $64.92 1.88%
LOW Lowe’s Companies, Inc. S 1/8/2016 $76.74 1.39%
MCD McDonald’s Corporation S 11/20/2016 $127.80 2.79%
MDT Medtronic plc. Ordinary Shares D 7/12/2016 $78.88 1.93%
MKC McCormick & Company, Incorporated S 1/3/2017 $97.59 1.73%
MMM 3M Co E 12/13/2016 $182.95 2.38%
NEE NextEra Energy Inc S 12/21/2016 $126.86 2.66%
NNN National Retail Properties, Inc. S 12/4/2016 $44.72 3.94%
PBCT People’s United Financial, Inc. D 6/20/2016 $19.19 3.49%
PEP PepsiCo, Inc. S 7/13/2016 $108.15 2.64%
PG Procter & Gamble Co S 7/8/2016 $91.09 2.91%
PH Parker-Hannifin Corp D 7/15/2016 $153.89 1.64%
PPG PPG Industries, Inc. S 1/16/2017 $102.37 1.48%
PX Praxair, Inc. E 6/13/2016 $117.42 2.47%
ROST Ross Stores, Inc. E 6/21/2016 $68.55 0.69%
SHW Sherwin-Williams Co S 7/12/2016 $311.35 0.92%
SKT Tanger Factory Outlet Centers Inc. S 1/16/2017 $33.69 3.62%
SON Sonoco Products Co E 2/6/2017 $52.86 2.72%
SPGI S&P Global Inc S 2/8/2017 $130.39 1.08%
SWK Stanley Black & Decker, Inc. S 1/28/2016 $126.65 1.71%
SYY SYSCO Corporation S 1/25/2017 $52.35 2.37%
TGT Target Corporation S 8/22/2016 $65.79 3.40%
TROW T. Rowe Price Group Inc D 8/25/2016 $71.10 2.98%
TSE:CNR Canadian National Railway Company S 1/30/2017 $93.85 1.60%
UTX United Technologies Corporation D 5/18/2016 $112.15 2.28%
VFC VF Corp E 8/1/2016 $52.68 2.71%
WBA Walgreens Boots Alliance Inc S 7/6/2016 $85.86 1.65%
WMT Wal-Mart Stores Inc S 5/20/2016 $69.37 2.83%

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Disclaimer: 

The author held a long position in Dover Corporation and People’s United Financial Inc 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 and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

Sonic Corporation Valuation – Initial Coverage $SONC

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

Company Profile (obtained from Google Finance): Sonic Corp. operates and franchises the chain of drive-thru restaurants (Sonic Drive-Ins) in the United States. As of August 31, 2016, 3,557 Sonic Drive-Ins were in operation from coast to coast in 45 states, consisting of 345 Company drive-thrus and 3,212 franchise drive-thrus. As of August 31, 2016, its restaurant design and construction consisted of a kitchen housed in a one-story building, which was approximately 1,500 square feet, flanked by canopy-covered rows of 16 to 24 parking spaces, with each space having its own payment terminal, intercom speaker system and menu board. At a Sonic Drive-In, a customer drives into one of the parking spaces, orders through the intercom speaker system and has the food delivered by a carhop and Sonic Drive-Ins also include a drive-thru lane and patio seating to provide customers with alternative dining options. Its food items include specialty drinks, such as cherry limeades and slushes, ice cream desserts and chicken sandwiches and hamburgers.

SONC Chart

SONC data by YCharts

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SONC – February 2017

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

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,111,528,041 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.51 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 74.06% Pass
6. Moderate PEmg Ratio PEmg < 20 22.00 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -9.88 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 1.51 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 16.86 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 $1.14
MG Growth Estimate 15.00%
MG Value $43.89
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $16.53
MG Value based on 0% Growth $9.69
Market Implied Growth Rate 6.75%
Current Price $25.08
% of Intrinsic Value 57.14%

Sonic Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, 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 $0.53 in 2013 to an estimated $1.14 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.75% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Sonic Corporation revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.47 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 22, which was below the industry average of 31.3, 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 $-13.16.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.16
Graham Number $0.00
PEmg 22.00
Current Ratio 1.51
PB Ratio -9.88
Current Dividend $0.47
Dividend Yield 1.87%
Number of Consecutive Years of Dividend Growth 3

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2016
Total Current Assets $99,132,000
Total Current Liabilities $65,519,000
Long-Term Debt $566,672,000
Total Assets $593,316,000
Intangible Assets $76,266,000
Total Liabilities $711,509,000
Shares Outstanding (Diluted Average) 46,543,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.20
Aug2016 $1.29
Aug2015 $1.20
Aug2014 $0.85
Aug2013 $0.64
Aug2012 $0.60
Aug2011 $0.31
Aug2010 $0.34
Aug2009 $0.81
Aug2008 $0.97
Aug2007 $0.91
Aug2006 $0.88
Aug2005 $0.75
Aug2004 $0.63
Aug2003 $0.52
Aug2002 $0.50
Aug2001 $0.41
Aug2000 $0.35
Aug1999 $0.28
Aug1998 $0.20
Aug1997 $0.19

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.14
Aug2016 $1.05
Aug2015 $0.86
Aug2014 $0.64
Aug2013 $0.53
Aug2012 $0.52
Aug2011 $0.55
Aug2010 $0.70
Aug2009 $0.88
Aug2008 $0.88
Aug2007 $0.81
Aug2006 $0.72
Aug2005 $0.62
Aug2004 $0.53
Aug2003 $0.45
Aug2002 $0.40
Aug2001 $0.32

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

Jack in the Box Inc Valuation – Initial Coverage $JACK
Chuy’s Holdings Inc Valuation – Initial Coverage $CHUY
Yum Brands Inc Valuation – December 2016 $YUM
McDonald’s Corp Valuation – November 2016 $MCD
Chipotle Mexican Grill Inc Valuation – August 2016 $CMG
Yum! Brands Inc Valuation – August 2016 $YUM
Starbucks Corp Valuation – June 2016 $SBUX
McDonald’s Corporation Valuation – May 2016 $MCD
Chipotle Mexican Grill Inc Stock Valuation – February 2016 $CMG
McDonald’s Corporation – November 2015 Update $MCD

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.

Mr. Market and a Valuation of the Dow For Value Investors – February 2017

Mr. Market’s Mental State

Legendary value investor Benjamin Graham is probably most famous for his Mr. Market parable.  In the story, an investor is greeted each day by Mr. Market, who offers to purchase the investor’s stocks.  Every offer is different, and sometimes the price is insanely high, sometimes it seems fair, and other times it is clearly too low.  But one thing remains the same – the intrinsic value of the investments does not change.  As a result, the investor is left to decide when to buy and sell based on the relationship between the intrinsic value and the price Mr. Market is offering.

All value investors today should keep the analogy in mind, and implement the overall concept.  To assist in that goal, ModernGraham has various tools available, and the infographic shown above is one of them, displaying a summary of the valuations of 686 companies reviewed by ModernGraham.

This month, out of the 686 companies reviewed by ModernGraham, the average PEmg ratio (price over normalized earnings) is 25.54 and the average company is trading at 111.63% of its intrinsic value.  Last month, the average PEmg ratio was 24.8 and the average company was trading at 121.72% of its intrinsic value.

The highest PEmg average we have seen while tracking this information was 26.17 in December 2014 while the lowest PEmg average was 22.25 in February 2016.  The highest average intrinsic value was 93.6% in January 2017 and the lowest average intrinsic value was 103.19% in February 2016.

Month Average PEmg Average % of value, 200% outlier Average % of value, 500% outlier Defensive % Enterprising % Speculative % Undervalued % Fairly Valued % Overvalued %
August 2014 24.36 90.57% 120.87% n/a n/a n/a n/a n/a n/a
September 2014 25.37 93.37% 120.58% n/a n/a n/a n/a n/a n/a
October 2014 24.29 90.24% 116.67% 12% 35% 53% 31% 21% 48%
November 2014 25.32 90.61% 117.38% 12% 35% 53% 29% 21% 50%
December 2014 26.17 92.28% 117.00% 11% 34% 55% 28% 23% 49%
January 2015 25.63 93.48% 119.68% 10% 34% 55% 30% 20% 50%
February 2015 25.79 92.72% 115.81% 10% 35% 55% 33% 19% 49%
March 2015 25.79 88.03% 114.81% 10% 35% 55% 31% 19% 49%
April 2015 25.64 86.18% 112.23% 9.9% 35.2% 54.9% 32.1% 19.4% 48.5%
May 2015 25.17 86.64% 112.99% 9.1% 36.1% 54.8% 32.1% 20.4% 47.4%
June 2015 25.47 86.43% 112.50% 8.7% 34.7% 56.5% 30.0% 21.2% 48.8%
July 2015 25.24 85.65% 118.11% 9.6% 33.1% 57.3% 30.9% 19.3% 49.6%
August 2015 25.08 86.79% 116.39% 9.8% 32.7% 57.5% 29.5% 21.0% 49.5%
September 2015 23.2 82.45% 103.59% 9.4% 32.6% 57.9% 35.7% 18.9% 45.5%
October 2015 22.95 81.80% 101.69% 10.5% 31.7% 57.8% 35.5% 18.7% 45.8%
November 2015 23.97 84.84% 110.89% 10.1% 32.2% 57.7% 32.0% 19.2% 48.7%
December 2015 23.27 84.55% 115.56% 10.6% 31.5% 57.8% 33.0% 17.8% 49.2%
January 2016 22.87 82.61% 110.62% 10.9% 30.8% 58.3% 35.9% 16.8% 47.3%
February 2016 22.25 79.54% 103.19% 10.9% 30.7% 58.4% 36.7% 16.3% 47.0%
March 2016 23.07 83.92% 106.76% 11.3% 29.9% 58.8% 33.4% 19.0% 47.6%
April 2016 23.37 83.65% 110.61% 11.3% 29.9% 58.8% 32.5% 18.8% 48.7%
May 2016 23.78 82.90% 112.17% 11.4% 29.9% 58.8% 31.3% 18.5% 50.2%
June 2016 24.21 84.77% 115.18% 11.6% 30.0% 58.5% 30.7% 17.3% 52.0%
July 2016 23.83 86.40% 117.49% 11.8% 29.9% 58.2% 30.1% 19.0% 50.8%
August 2016 24.68 89.40% 117.12% 11.9% 30.7% 57.4% 29.6% 19.3% 51.1%
September 2016 23.86 91.21% 115.16% 11.2% 30.1% 58.7% 28.6% 18.4% 53.0%
October 2016 24.07 91.41% 117.93% 11.2% 30.2% 58.6% 28.4% 18.5% 53.2%
November 2016 24.2 92.55% 119.16% 11.0% 30.3% 58.7% 28.0% 17.8% 54.2%
December 2016 24.56 93.20% 121.14% 10.5% 31.1% 58.4% 28.0% 17.6% 54.4%
January 2017 24.8 93.57% 121.72% 9.5% 32.8% 57.7% 26.5% 17.0% 56.5%
February 2017 25.54 80.97% 111.6% 8.9% 33.4% 57.7% 25.1% 17.9% 57

 

Valuation of the Dow

Each month ModernGraham takes a look at the Dow Jones Industrial Average, listing out each individual component in an easy to read table, and calculates a value for the index that is based on the ModernGraham valuation model’s estimates for intrinsic values for each component.  Over time this figure can be useful for determining whether the market as a whole is undervalued or overvalued.
^DJI Chart

^DJI data by YCharts

At the time of writing, the Dow Jones Industrial Average (DJIA) was at 20,071.46. The ModernGraham Valuation of the DJIA was 18,997.63. As a result, the DJIA was trading at 105.65% of its estimated value. This figure is within the ModernGraham margin of error, and therefore it appears the DJIA is presently fairly valued.

To see the individual valuation articles, please click on the company name in the table below.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Dividend Yield
AXP American Express Company D 5/19/2016 $117.34 $78.04 66.51% 15.33 1.49%
AAPL Apple Inc. S 1/24/2017 $231.48 $129.05 55.75% 16.17 1.69%
BA Boeing Co E 6/13/2016 $201.69 $162.40 80.52% 22.10 2.35%
CAT Caterpillar Inc. S 8/27/2016 $0.00 $93.28 N/A 21.15 3.30%
CSCO Cisco Systems, Inc. D 1/11/2017 $37.19 $31.32 84.22% 15.66 3.16%
CVX Chevron Corporation S 8/18/2016 $0.00 $113.57 N/A 24.27 3.77%
DD E I Du Pont De Nemours And Co E 8/28/2016 $36.35 $76.43 210.26% 23.23 1.99%
DIS Walt Disney Co S 12/10/2015 $157.29 $110.30 70.13% 23.82 1.24%
GE General Electric Company S 7/21/2016 $0.26 $29.70 11423.08% 33.37 3.10%
GS Goldman Sachs Group Inc S 6/20/2016 $174.21 $240.95 138.31% 17.82 1.08%
HD Home Depot Inc S 11/10/2015 $166.55 $137.98 82.85% 31.87 1.71%
IBM International Business Machines Corp. S 11/10/2015 $200.54 $175.82 87.67% 13.06 2.96%
INTC Intel Corporation D 5/20/2016 $26.44 $36.52 138.12% 16.99 2.68%
JNJ Johnson & Johnson E 1/16/2017 $105.81 $113.64 107.40% 20.62 2.73%
JPM JPMorgan Chase & Co. D 7/24/2016 $96.69 $87.18 90.16% 16.14 2.06%
KO The Coca-Cola Co S 7/28/2016 $10.76 $41.54 386.06% 23.34 3.23%
MCD McDonald’s Corporation S 11/20/2016 $49.98 $124.24 248.58% 24.31 2.87%
MMM 3M Co E 12/13/2016 $135.24 $175.04 129.43% 23.18 2.49%
MRK Merck & Co., Inc. E 8/29/2016 $26.80 $64.29 239.89% 26.35 2.85%
MSFT Microsoft Corporation E 2/2/2017 $15.97 $63.68 398.75% 28.68 2.31%
NKE Nike Inc E 11/19/2016 $59.52 $52.36 87.97% 26.31 1.22%
PFE Pfizer Inc. S 8/16/2016 $27.24 $32.09 117.80% 18.23 3.61%
PG Procter & Gamble Co S 7/8/2016 $17.20 $87.41 508.20% 25.41 3.03%
TRV Travelers Companies Inc D 12/1/2016 $320.65 $117.78 36.73%