One of the keys to value investing, as opposed to just buying whatever’s cheap, is looking for details in places that other people aren’t, whether that be an unloved sector or a region in turmoil, and finding the diamonds in the rough. If spinning of businesses with different valuation multiples is part of the standard activist playbook, it stands to reason that big conglomerates may be especially unpopular right now, and according to the recent issue of Value Investor Insight, Graham Holdings Co (NYSE:GHC) is worth taking a look at.

Boyar’s sum-of-parts valuation

With so many different lines of business under its belt Graham Holdings Co (NYSE:GHC) – known as the Washington Post before selling its eponymous newspaper to Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos – you have to build up your valuation piece by piece and Value Investor Insight points to the sum-of-parts valuation done by Mark Boyar of Boyar’s Intrinsic Value Research as a good starting point.

Graham Holdings

Boyar argues that Cable ONE should get an 8x multiple to its 2016E EBITDA based on transactions in the sector, giving it a value of $2.7 billion. He then gives Graham Holdings Co (NYSE:GHC)’s TV stations a 10x multiple on blended 2015E and 2016E EBITDA, for another $1.9 billion. He values the for-profit educational service Kaplan at $1.1 billion, which seems reasonable based on last year’s $151 million EBITDA, but when you consider that Kaplan only had $12 million in EBITDA in 2012 you have to wonder whether the business is a reliable source of earnings.

After that he adds on another $1.4 billion for cash and securities, $1.2 billion in pension over-funding, and other assets, and takes out debt and corporate overhead to arrive at a value of $7.4 billion compared to a market cap of about $4.5 billion.

Risks to Boyar’s valuation of Graham Holdings

If you agree with Boyar’s assessment that’s a pretty good deal with a sizeable margin of safety, but there are a couple of important risks to keep an eye on. Right off the bat, any valuation based on forward estimates instead of past earnings is a bit suspect, so you would want to do your own sum-of-parts valuation using recent earnings. Over-funded pensions are a classic source of extra value, but considering the ultra-low rates and full market valuations we’re seeing these days a lot of pensions seem to be setting unrealistic return targets, so that over-funding might dissipate. Finally, for-profit education companies have fallen out of favor politically and could get hit with new regulations. Even though for-profit universities would be the main target, Kaplan (whose earnings appear volatile anyways) could get swept up in any changes.

And while you shouldn’t base your investment decisions on what other people do, it’s worth noting that Warren Buffett exited the stock earlier this year.