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 or by reviewing the 5 Most Undervalued Companies for the Defensive Investor - July 2015.  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 & Company (DD) fares in the ModernGraham valuation model.

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 = 5/5

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 - PASS
5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Balance Sheet - March 2015

Earnings Per Share

Earnings Per Share - ModernGraham

Dividend History

Free Cash Flow
 

Conclusion:

E I du Pont de Nemours & Company qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only initially concerned with the high PB ratio.  The Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.99 in 2011 to an estimated $3.64 for 2015.  This level of demonstrated earnings growth supports the market's implied estimate of 3.16% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the 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 E I du Pont de Nemours & Company?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment below and share it to our Facebook page or  @ModernGraham on Twitter to discuss.