ModernGraham Quarterly Valuation Of Dover Corporation

Feb.25.14 | About: Dover Corp (DOV)

Sometimes a company can see a stock price rise and remain undervalued, because the intrinsic value of the company is not related to the price at which it trades. Rather, the value of a company results from solid fundamentals. Benjamin Graham taught investors to analyze the company's financial statements to determine an intrinsic value for the company, then compare the price to the value. 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 investment opportunity. 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 specific look at how Dover Corporation (NYSE:DOV) fares in the ModernGraham valuation model.

DOV Chart

DOV data by YCharts

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

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  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 - PASS
  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 - PASS
  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 = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  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

Key Data:

Recent Price $89.54
MG Value $124.80
MG Opinion Undervalued
Value Based on 3% Growth $66.58
Value Based on 0% Growth $39.03
Market Implied Growth Rate 5.50%
NCAV -$13.07
PEmg 19.50
Current Ratio 2.01
PB Ratio 2.83
Click to enlarge

Balance Sheet - 12/31/2013

Current Assets $3,240,200,000
Current Liabilities $1,615,600,000
Total Debt $2,599,200,000
Total Assets $10,838,200,000
Intangible Assets $5,855,400,000
Total Liabilities $5,460,800,000
Outstanding Shares 169,910,000
Click to enlarge

Earnings Per Share

2013 $5.57
2012 $4.53
2011 $4.48
2010 $3.74
2009 $1.99
2008 $3.67
2007 $3.30
2006 $2.90
2005 $2.12
2004 $1.77
2003 $1.33
2002 $1.02
Click to enlarge

Earnings Per Share - ModernGraham

2013 $4.59
2012 $3.96
2011 $3.60
2010 $3.14
2009 $2.83
2008 $3.08
Click to enlarge

Dividend History

DOV Dividend Chart

DOV Dividend data by YCharts


Dover Corporation appears suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor's sole gripe is the high PB ratio, and the Enterprising Investor's only issue is the high level of debt relative to the company's current assets. However, these things alone are not enough to eliminate the company from contention for investment by the Intelligent Investor. Value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel very comfortable proceeding with further research, including a review of 5 Low PEmg Companies for the Defensive Investor.

From a valuation perspective, the company appears to be undervalued after growing EPSmg (normalized earnings) from $2.83 in 2009 to $4.59 for 2013. This level of growth outpaces the market's implied estimate for earnings growth of 5.5%, and the ModernGraham valuation model returns an intrinsic value estimate that is above the market price, though it is barely outside our margin of safety.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Dover Corporation? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author held a long position in Dover Corporation (DOV) at the time of publication and had no intention of changing that position within the next 72 hours.