We are now up to the second half of valuing the holdings of Berkshire Hathaway via the DCF valuation method, Ben Graham formula as outlined in the Intelligent Investor, and a simple multiples valuation based on PE, cash flow, sales and other metrics compared to the competition and industry.
Of the 10 companies I go through in this post, I’ll be passing on Moody’s, M&T Bank, Sun Trusts Banks and Torchmark as I do not know how to value financial stocks.
Warren Buffett Stock Holdings : 21-30
NRG Energy (NRG)
Wholesale power generation company. Owns more than 189 active operating generation units at 48 power generation plants.
Intrinsic Value Estimate
Nalco Holding (NLC)
Provider of integrated water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits.
Intrinsic Value Estimate
Nike (NKE)
Sells athletic footwear, apparel and sports products.
Intrinsic Value Estimate
NKE Intrinsic Value Graph
Norfolk Southern Corp (NSC)
Rail company. Another rail company in the portfolio along with Burlington Northern Santa Fe (BNI).
Intrinsic Value Estimate
FCF growth is at 22.8% but if you look at how the value of the company has tracked the share price over the past 5-7 years, the company has been growing at the rate of its CROIC. i.e. the cash returns of its invested capital.
NSC Intrinsic Value
Procter & Gamble (PG)
Sells consumer good that you use everyday.
Intrinsic Value Estimate
Included a 10 year version of the intrinsic value graph to show how price and value end up meeting.
PG Intrinsic Value
Sanofi Aventis (SNY)
Pharmaceutical company.
Intrinsic Value Estimate
Not quite sure about what future products the company has but from the current snapshot of the company, I get the following figures.
SNY Intrinsic Value
Disclosure
No positions in any stock mentioned
Jae Jun
http://www.oldschoolvalue.com/
Of the 10 companies I go through in this post, I’ll be passing on Moody’s, M&T Bank, Sun Trusts Banks and Torchmark as I do not know how to value financial stocks.
Warren Buffett Stock Holdings : 21-30
M&T Bank Corporation (MTB) (outside of circle of competence)
Moody’s (MCO) (outside of circle of competence)
NRG Energy (NRG, Financial)
Nalco Holding (NLC, Financial)
Nike (NKE, Financial)
Norfolk Southern Corp (NSC, Financial)
Procter & Gamble (PG, Financial)
Sanofi Aventis (SNY, Financial)
Sun Trusts Banks Inc. (STI) (outside of circle of competence)
Torchmark Corp (TMK) (outside of circle of competence)
NRG Energy (NRG)
Wholesale power generation company. Owns more than 189 active operating generation units at 48 power generation plants.
Had a big year in 2008
Big margins increase in 2008 and since 2005
Increase in short term and long term debt
Company is able to make money but its returns are ont he low side.
Mean ROA and CROIC of 2.7% and 5% respectively. Lower than competition
FCF isn’t consistent.
Huge increase in capex in 2008
Large amount of taxes deferred.
Still converts 12% of sales into FCF
Intrinsic Value Estimate
Current Price:Â $27.76
DCF Stock Value:Â $37.11
Graham Stock Value:Â $34
Competitor and Peer Comparison:Â $58
Nalco Holding (NLC)
Provider of integrated water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits.
Needs to improve efficiency. 40+% margins but negative net income or low single digits at best isn’t good
Decrease in intangibles suggests bad acquisitions and mistakes by management
Long term debt is steady
Been buying back stock
FCF isn’t reliable. Lots of cash come from “other” income
Low returns, cash and earnings growth
Doesn’t look like something Buffett would buy
Intrinsic Value Estimate
Numbers aren’t reliable enough for a proper valuation.
Current Price:Â $17.52
DCF Stock Value:Â N/A
Graham Stock Value:Â N/A
Competitor and Peer Comparison:Â $22
Nike (NKE)
Sells athletic footwear, apparel and sports products.
Great company, leader, innovator, huge moat
Drop in margins in 2008 but increased inventory turnover
Low debt with plenty of cash
Can pay off debt with FCF easily
Don’t have to go in detail with numbers. They are just too good.
Intrinsic Value Estimate
Stability and predictability makes it easy to value.
Current Price:Â $56.18
DCF Stock Value:Â $65
Graham Stock Value:Â $77
Competitor and Peer Comparison:Â fairly valued at $56Â (trades at a premium to competition)
NKE Intrinsic Value Graph
Norfolk Southern Corp (NSC)
Rail company. Another rail company in the portfolio along with Burlington Northern Santa Fe (BNI).
Looks to be a better company than BNI
Good top line growth
Decrease in gross profit but managed to increase net margins
Lots of FCF and excellent FCF growth
Low end for CROIC at 4%
Debt can be handled with FCF rather than taking on additional debt
Intrinsic Value Estimate
FCF growth is at 22.8% but if you look at how the value of the company has tracked the share price over the past 5-7 years, the company has been growing at the rate of its CROIC. i.e. the cash returns of its invested capital.
Current Price:Â $46.91
DCF Stock Value:Â $61
Graham Stock Value:Â $120Â - high value due to excellent earnings growth
Competitor and Peer Comparison:Â $54
NSC Intrinsic Value
Procter & Gamble (PG)
Sells consumer good that you use everyday.
Wrote about PG briefly in the Best Stocks to retire list
FCF growth above 18%
CROIC at 60%! Mindblowing.
Only negative is big drops in tangible shareholders equity
Stable margins. Net margins even increased in 2008
Good stable dividend
Intrinsic Value Estimate
Included a 10 year version of the intrinsic value graph to show how price and value end up meeting.
Current Price:Â $53.19
DCF Stock Value:Â $76 - increased from my previous DCF valuation
Graham Stock Value:Â $97Â -Â slightly down from previous Graham calculation
Competitor and Peer Comparison:Â $67
PG Intrinsic Value
Sanofi Aventis (SNY)
Pharmaceutical company.
Stats look good but some metrics are quite erratic
FCF growth is up and down
Top line isn’t so consistent
FCF and earnings growth is relatively low
Has outstanding returns and converts it to plenty of FCF
Debt is not an issue
Maybe MRK or PFE would be better?
Intrinsic Value Estimate
Not quite sure about what future products the company has but from the current snapshot of the company, I get the following figures.
Current Price:Â $34.53
DCF Stock Value:Â $47
Graham Stock Value:Â $18
Competitor and Peer Comparison:Â $36
SNY Intrinsic Value
Disclosure
No positions in any stock mentioned
Jae Jun
http://www.oldschoolvalue.com/
