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ModernGraham Valuation: National Presto Industries (NPK)

moneyCompany Profile (obtained from Google Finance): National Presto Industries, Inc. (National Presto) operates through three business segments: Housewares/Small Appliance Segment, Defense Products Segment and Absorbent Products Segment. The Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical appliances, including pressure cookers and canners, kitchen electrics, and comfort appliances. The Defense Products segment manufactures 40 millimeter ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridge cases, performs Load, Assemble and Pack operations on ordnance-related products primarily for the United States Government and prime contractors, produces and sells a range of less-lethal products and support accessories, and provides training for the use of less-lethal products. The Absorbent Products segment manufactures and sells private label adult incontinence products and diapers. On November 1, 2011, it purchased the assets of ALS Technologies, Inc.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

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 – FAIL
  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 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  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 – FAIL

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $50.96
MG Opinion Overvalued
Value Based on 3% Growth $93.72
Value Based on 0% Growth $54.94
Market-implied growth rate 1.70%
NCAV $29.65
PEmg 11.89
Current Ratio 5.01
PB Ratio 1.81

Balance Sheet – 9/30/2013 

Current Assets $284,800,000
Current Liabilities $56,900,000
Total Debt $0
Total Assets $379,400,000
Intangible Assets $17,200,000
Total Liabilities $64,200,000
Outstanding Shares 7,440,000

Earnings Per Share – Diluted

2013 (estimate) $5.16
2012 $5.64
2011 $6.98
2010 $9.26
2009 $9.13
2008 $6.45
2006 $5.65
2006 $4.09
2005 $2.40
2004 $2.26
2003 $2.27
2002 $1.27

Earnings Per Share – Modern Graham (Calculating EPSmg)

2013 (estimate) $6.46
2012 $7.24
2011 $7.86
2010 $7.84
2009 $6.60
2008 $4.95

Conclusion:

National Presto Industries is one of my personal favorite companies.  The balance sheet is amazingly strong, with a current ratio of 5.01 and no long term debt.  The company passes all of the requirements of the Defensive Investor, with the exception of the market cap is lower than the Defensive Investor would prefer.  The company also passes all of the requirements of the Enterprising Investor except the earnings growth over the last five years has slowed, giving a slight pause to Enterprising Investors.  However, as it stands now the company remains suitable to both the Defensive Investor and the Enterprising Investor, and they should feel comfortable continuing with further research of the company.  From a valuation standpoint, National Presto Industries appears overvalued at this time based on the ModernGraham valuation model.  The market is implying a growth rate of only 1.7%, but the historical earnings growth does not quite support that.  While earnings are well above where they were ten years ago, it would be nice if the company could return to the levels of 2009-10.  As a result, Defensive Investors and Enterprising Investors should keep a close eye on National Presto Industries to see if the price comes down to a more attractive point or if the earnings rise to improve the valuation.

What do you think?  Is National Presto Industries overvalued?  Is the company suitable for either Defensive Investors or Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in National Presto Industries at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

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