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 SCANA Corporation fares in the ModernGraham valuation model.
SCG data by YCharts
Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
- Earnings Stability - positive earnings per share for at least 10 straight years - PASS
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- 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 - FAIL
- Moderate PEmg ratio - PEmg is less than 20 - PASS
- 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 = 3/5
- Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
- Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
Valuation Summary
Key Data:
| Recent Price | $49.18 |
| MG Value | $38.13 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $45.68 |
| Value Based on 0% Growth | $26.78 |
| Market Implied Growth Rate | 3.56% |
| NCAV | -$64.54 |
| PEmg | 15.61 |
| Current Ratio | 1.12 |
| PB Ratio | 1.50 |
Balance Sheet - 9/30/2013
| Current Assets | $1,351,000,000 |
| Current Liabilities | $1,203,000,000 |
| Total Debt | $5,431,000,000 |
| Total Assets | $14,997,000,000 |
| Intangible Assets | $230,000,000 |
| Total Liabilities | $10,399,000,000 |
| Outstanding Shares | 140,200,000 |
Earnings Per Share
| 2013 | $3.39 |
| 2012 | $3.15 |
| 2011 | $2.97 |
| 2010 | $2.98 |
| 2009 | $2.83 |
| 2008 | $2.95 |
| 2007 | $2.74 |
| 2006 | $2.63 |
| 2005 | $2.75 |
| 2004 | $2.30 |
| 2003 | $2.54 |
Earnings Per Share - ModernGraham
| 2013 | $3.15 |
| 2012 | $3.01 |
| 2011 | $2.93 |
| 2010 | $2.88 |
| 2009 | $2.81 |
| 2008 | $2.76 |
Dividend History
SCG Dividend data by YCharts
Conclusion:
SCANA Corporation is not suitable for either the Defensive Investor or the Enterprising Investor. The company fails the Defensive Investor's requirements by having a low current ratio and insufficient earnings growth over the ten year historical period. In addition, the company has too much debt relative to its current assets for the Enterprising Investor to be interested. As a result, value investors following the ModernGraham approach based on Benjamin Graham's methods should research other opportunities, such as by reviewing a list of 5 Low PEmg Companies for the Enterprising Investor and a list of 5 Undervalued Companies for the Enterprising Investor.
From a valuation standpoint, the company has grown its EPSmg (normalized earnings) from $2.81 in 2009 to $3.15 for 2013. This is a low level of demonstrated growth that does not support the market's current estimate of earnings growth in the amount of 3.56%. The ModernGraham valuation model accordingly returns an intrinsic value estimate that is below the market price, and the company would appear to be overvalued.
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 SCANA 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 SCANA Corporation (SCG) 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.
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