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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. 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 Cameron International Corporation fares in the ModernGraham valuation model.

CAM Chart

CAM data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 4/7

  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 - PASS

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 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - FAIL
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price$63.15
MG Value$38.88
MG OpinionOvervalued
Value Based on 3% Growth$38.08
Value Based on 0% Growth$22.32
Market-Implied Growth Rate7.77%
NCAV-$1.03
PEmg24.05
Current Ratio1.92
PB Ratio2.39

Balance Sheet - 12/31/2013

Current Assets$8,168,600,000
Current Liabilities$4,260,500,000
Total Debt$2,562,800,000
Total Assets$14,248,500,000
Intangible Assets$3,828,500,000
Total Liabilities$8,396,600,000
Outstanding Shares221,430,000

Earnings Per Share

2013$2.87
2012$3.02
2011$2.09
2010$2.27
2009$2.15
2008$2.60
2007$2.16
2006$1.36
2005$0.76
2004$0.44

Earnings Per Share - ModernGraham

2013$2.63
2012$2.48
2011$2.22
2010$2.23
2009$2.07
2008$1.85

Conclusion:

Cameron International is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is turned away by the company's lack of dividend payments, high PEmg ratio, and the current ratio is just below the investor type's requirement. Since the company only fails the Enterprising Investor's dividend payment requirement, however, that investor type should feel comfortable researching the company further, including through a review of ModernGraham's valuation of National Oilwell Varco (NYSE:NOV) and looking through a list of 5 Outstanding Dow Components.

From a valuation side of things, the company appears to be slightly overvalued, having grown its EPSmg (normalized earnings) from $2.07 in 2009 to only $2.63 for 2013. This low level of historically demonstrated growth does not support the market's implied estimate for 7.77% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that falls below the current price.

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 Cameron International Corporation? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Cameron International Corporation (NYSE:CAM) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Quarterly Valuation Of Cameron International Corporation