E. I. Du Pont De Nemours and Co. (NYSE:DD) should attract all Enterprising Investors, particularly due to the company's consistent earnings growth over the last few years. That said, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to determine a potential investment's merits. Here is an updated look at how the company fares in the ModernGraham valuation model.
This model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.
In addition, Graham strongly suggested that investors avoid speculation, in order to remove the subjective elements of emotion. This is best achieved 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.
Defensive Investor - Must pass at least 6 of the following 7 tests: Score = 5/7
Enterprising Investor - Must pass at least 4 of the following 5 tests, or be suitable for a Defensive Investor: Score = 5/5
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$57.82|
|Value Based on 0% Growth||$33.89|
|Market Implied Growth Rate||5.30%|
|Net Current Asset Value (NCAV)||-$16.21|
Balance Sheet - December 2014
Earnings Per Share
Earnings Per Share - ModernGraham
E. I. Du Pont De Nemours should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio and the high PB ratio, while the Enterprising Investor has no initial concerns. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company's intrinsic value.
From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $2.70 in 2010 to $3.99 for 2014. This is a strong and impressive level of demonstrated growth, which is in line with the market's implied estimate for earnings growth of 5.3% over the next 7-10 years. The ModernGraham valuation model, therefore, returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.
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