NEW YORK (TheStreet) -- Earnings should be a key driver of any fundamental valuation. This week, a large number of companies will be releasing their quarterly earnings results. Here are three companies found to be undervalued by the ModernGraham valuation model and suitable for either the defensive investor (one who is not willing to undertake substantial research) or the enterprising investor (one who is willing to undertake substantial research).
Freeport-McMoRan Copper & Gold (FCX) is set to release its earnings premarket Thursday, and according to its latest ModernGraham valuation, the company does not pass the requirements of the defensive investor, as it has not consistently paid dividends over the last 10 years, and it has not shown earnings stability over the last 10 years. But it does pass the requirements of the enterprising investor, though it has a higher level of debt relative to current assets than the investor type likes to see.
From a valuation perspective, the ModernGraham valuation is affected significantly by the large earnings loss in 2008, which has caused the EPSmg (normalized earnings) -- EPSmg is a 5 year weighted average of the annual earnings per share figures -- figure for 2009 to be very low in relation to 2013. As it stands, the EPSmg have grown from a loss of $1.67 to a gain of $3.48, indicating a high level of growth that would appear to significantly outpace the market's implied estimate of 0.45% earnings growth. This has led the model to return an intrinsic value estimate that is well above the market price, and the overall result that the company is undervalued is supported by the valuation based on only 3% growth. If the company can demonstrate earnings greater than cents for the first quarter, this valuation should be even better.
(GCI) is scheduled to release its earnings premarket Wednesday, and in the latest ModernGraham valuation, the company was found to be suitable for Enterprising Investors, after having passed every requirement of the investor type except the debt to current assets requirement. The company does not qualify for defensive investors, however, because of the current ratio being too low, and the lack of earnings stability or sufficient growth over the 10 year period. From purely a valuation standpoint, the company appears undervalued, after growing EPSmg (normalized earnings) from a loss of $6.63 in 2008 to a gain of $1.94 for 2013. This level of growth significantly outpaces the market's current implied estimate of growth (2.70%), and the ModernGraham valuation model indicates a value around $74. If the company beats 44 cents, this valuation will be even higher.
KLAC data by YCharts
At the time of publication the author held no positions in any of the stocks mentioned. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV