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The Best Companies of the Business Support Industry – November 2015

The Best Companies of the Business Support Industry – November 2015

Best Companies of the Business Support IndustryWhile ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself. With that in mind, this article will take a brief look at the best companies of the business support industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 550 companies reviewed by ModernGraham, 15 were identified as being closely related to the business support industry. Of those, none are suitable for the Defensive Investor, five are suitable for the Enterprising Investor, and the remaining ten are considered speculative at this time. Excluding any extreme outliers, the average company was rated as being priced at 123.36% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 22.69. The industry as a whole, therefore would appear to be undervalued, particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Robert Half International Inc. (RHI)

Robert Half International Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.84 in 2011 to an estimated $2.13 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.16% 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 above the price. (See the full valuation)

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

Accenture Plc (ACN)

Accenture PLC qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios. The Enterprising Investor is only initially concerned by the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.82 in 2011 to an estimated $4.50 for 2015. This level of demonstrated earnings growth supports the market’s implied estimate of 6.54% 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. (See the full valuation)

Cintas Corporation (CTAS)

Cintas Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2012 to an estimated $3.33 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.17% 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 above the price. (See the full valuation)

The Full List

To view the MG Value and PEmg information, you must be logged in as a premium member. Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ACN Accenture Plc E 9/11/2015 $108.15 2.03%
ADP Automatic Data Processing E 9/25/2015 $87.28 2.43%
ADS Alliance Data Systems Corporation S 10/5/2015 $287.42 N/A
APOL Apollo Education Group Inc S 8/22/2015 $7.57 N/A
AVY Avery Dennison Corp S 1/23/2015 $66.20 2.24%
CTAS Cintas Corporation E 8/24/2015 $91.38 1.15%
ECL Ecolab Inc. S 2/21/2015 $118.54 1.11%
FISV Fiserv Inc S 6/2/2015 $97.00 N/A
OMC Omnicom Group Inc. S 3/27/2015 $73.49 2.72%
PAYX Paychex, Inc. E 11/18/2015 $54.44 3.09%
PBI Pitney Bowes Inc. S 3/1/2015 $21.16 3.54%
RHI Robert Half International Inc. E 11/6/2015 $51.22 1.56%
URI United Rentals, Inc. S 7/16/2015 $76.26 N/A
WU The Western Union Company S 8/6/2015 $19.08 3.25%
XRX Xerox Corp S 1/19/2015 $10.56 2.65%

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer.