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Here is a look at how Comcast Corporation (CMCSA) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value$76.38
MG OpinionUndervalued
Value Based on 3% Growth$28.77
Value Based on 0% Growth$16.86
Market Implied Growth Rate9.24%
NCAV-$35.74
PEmg26.99
Current Ratio0.72
PB Ratio2.82

Balance Sheet - 9/30/2013

Current Assets$13,407,000,000
Current Liabilities$18,666,000,000
Total Debt$44,188,000,000
Total Assets$156,595,000,000
Intangible Assets$103,777,000,000
Total Liabilities$106,877,000,000
Outstanding Shares2,615,430,000

Earnings Per Share

2013 (estimate)$2.46
2012$2.28
2011$1.50
2010$1.29
2009$1.26
2008$0.86
2007$0.83
2006$0.70
2005$0.28
2004$0.29
2003-$0.07
2002-$0.28

Earnings Per Share - ModernGraham

2013 (estimate)$1.98
2012$1.64
2011$1.27
2010$1.10
2009$0.93
2008$0.70

Conclusion:

Comcast Corporation appears to present a very good value opportunity, but may present too much risk for investors seeking to follow Benjamin Graham's value investing strategies. The company is not suitable for either the Defensive Investor or the Enterprising Investor. For the Defensive Investor, the company's current ratio is too low, the company does not have a long enough recent history of paying dividends, and the company is trading at high PEmg and PB ratios. For the Enterprising Investor, the company holds too much debt relative to its current assets. As a result, the company presents a little more risk than we like to see, and investors may wish to seek other opportunities, perhaps beginning with a review of ModernGraham's analysis of Verizon Communications (VZ). As for the valuation, the company has grown EPSmg (normalized earnings) from $0.70 in 2008 to an estimated $1.98 for 2013. This is a solid level of growth that outpaces the market's implied estimate of 9.24%, and the company would therefore seem to be undervalued.

What do you think? Do you agree that Comcast Corporation undervalued? What would be your assessment? Is the company not suitable for Defensive Investors or Enterprising Investors?

Disclosure: The author did not hold a position in Comcast Corporation (CMCSA) at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Valuation Of Comcast Corporation