Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic values and inherent risks.
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. 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 E. I. du Pont de Nemours & Co. (DD, Financial) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): E. I. du Pont de Nemours is a science and technology-based company. The company consists of over 10 businesses aggregated into six segments: Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Materials and Safety & Protection.
Its products include corn hybrids and soybean varieties, herbicides, fungicides and insecticides in the Agriculture segment; photopolymers and electronic materials in the Electronics & Communications segment; enzymes and bio-based materials in the Industrial Biosciences segment; cultures, emulsifiers, texturants, natural sweeteners and soy-based food ingredients in the Nutrition & Health segment; engineering polymers, packaging and industrial polymers, films and elastomers in the Performance Materials segment and nonwovens, aramids and solid surfaces in the Safety & Protection segment.
It is also involved in other businesses, such as precommercial programs, nonaligned businesses and pharmaceuticals in other.
Here is a downloadable PDF version of this valuation.
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 six of the following seven tests. | Â | Â | ||
| Â | 1. Adequate Size of the Enterprise | Market Cap > $2 billion | $60,385,212,650 | Pass |
| Â | 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.16 | Pass |
| Â | 3. Earnings Stability | Positive EPS for 10 years prior | Â | Pass |
| Â | 4. Dividend Record | Dividend Payments for 10 years prior | Â | Pass |
| Â | 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 25.61% | Fail |
| Â | 6. Moderate PEmg Ratio | PEmg < 20 | 21.16 | Fail |
| Â | 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 5.92 | Fail |
| Â | Â | Â | Â | Â |
| Â | Â | Â | Â | Â |
| Enterprising Investor; must pass four out of the following five tests, or be suitable for the Defensive Investor. | Â | Â | ||
| Â | 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 2.16 | Pass |
| Â | 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.00 | Pass |
| Â | 3. Earnings Stability | Positive EPS for five years prior | Â | Pass |
| Â | 4. Dividend Record | Currently Pays Dividend | Â | Pass |
| Â | 5. Earnings Growth | EPSmg greater than five years ago | Â | Pass |
Stage 2: Determination of intrinsic value
| EPSmg | $3.29 |
| MG Growth Estimate | 1.27% |
| MG Value | $36.35 |
| Opinion | Overvalued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $47.72 |
| MG Value based on 0% Growth | $27.98 |
| Market Implied Growth Rate | 6.33% |
| Current Price | $69.65 |
| % of Intrinsic Value | 191.60% |
E. I. du Pont de Nemours & Co. 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 10 years and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.03 in 2012 to an estimated $3.29 for 2016. This level of demonstrated earnings growth does not support the market's implied estimate of 6.33% annual earnings growth over the next seven to 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 E. I. du Pont de Nemours & Co. revealed the company was trading above its Graham Number of $28.57. The company pays a dividend of $1.52 per share for a yield of 2.2%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 21.16, which was below the industry average of 25.72, 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 $-15.74.
E. I. du Pont de Nemours & Co. receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for further research
| Net Current Asset Value (NCAV) | -$15.74 |
| Graham Number | $28.57 |
| PEmg | 21.16 |
| Current Ratio | 2.16 |
| PB Ratio | 5.92 |
| Current Dividend | $1.52 |
| Dividend Yield | 2.18% |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful links
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most recent balance sheet figures
| Balance Sheet Information | 6/1/2016 |
| Total Current Assets | $18,091,000,000 |
| Total Current Liabilities | $8,378,000,000 |
| Long-Term Debt | $0 |
| Total Assets | $42,266,000,000 |
| Intangible Assets | $8,212,000,000 |
| Total Liabilities | $31,929,000,000 |
| Shares Outstanding (Diluted Average) | 879,179,000 |
Earnings per share history
| Next Fiscal Year Estimate | $3.14 |
| Dec. 2015 | $2.16 |
| Dec. 2014 | $3.92 |
| Dec. 2013 | $5.18 |
| Dec. 2012 | $2.91 |
| Dec. 2011 | $3.77 |
| Dec. 2010 | $3.28 |
| Dec. 2009 | $1.92 |
| Dec. 2008 | $2.20 |
| Dec. 2007 | $3.22 |
| Dec. 2006 | $3.38 |
| Dec. 2005 | $2.07 |
| Dec. 2004 | $1.77 |
| Dec. 2003 | $0.96 |
| Dec. 2002 | -$1.11 |
| Dec. 2001 | $4.16 |
| Dec. 2000 | $2.19 |
| Dec. 1999 | $6.99 |
| Dec. 1998 | $3.90 |
| Dec. 1997 | $2.08 |
| Dec. 1996 | $3.18 |
Earnings per share - ModernGraham history
| Next Fiscal Year Estimate | $3.29 |
| Dec. 2015 | $3.44 |
| Dec. 2014 | $3.99 |
| Dec. 2013 | $3.82 |
| Dec. 2012 | $3.03 |
| Dec. 2011 | $3.02 |
| Dec. 2010 | $2.70 |
| Dec. 2009 | $2.46 |
| Dec. 2008 | $2.66 |
| Dec. 2007 | $2.69 |
| Dec. 2006 | $2.09 |
| Dec. 2005 | $1.48 |
| Dec. 2004 | $1.32 |
| Dec. 2003 | $1.61 |
| Dec. 2002 | $2.37 |
| Dec. 2001 | $4.03 |
| Dec. 2000 | $3.86 |
Recommended reading
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclosure:Â 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.
Start a free seven-day trial of Premium Membership to GuruFocus.
