B&G Foods Inc. Quarterly Valuation – June 2014 $BGS

bg-foods-logoBenjamin 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 or by reviewing the 5 Undervalued Companies for the Defensive Investor.  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 B&G Foods Inc. (BGS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): B&G Foods, Inc. (B&G Foods) manufactures, sells and distributes a range of branded shelf-stable food and household products across the United States, Canada and Puerto Rico. The Company complements its branded product retail sales with institutional and food service sales and limited private labels sales. On October 31, 2012,the Company acquired New York Style, Devonsheer, JJ Flats and Old London brands from Chipita America, Inc. The Company’s Ortega brand and its products span the shelf-stable Mexican food segment including taco shells, tortillas, seasonings, dinner kits, taco sauces, peppers, refried beans, salsas and related food products. The Company new product offerings include Ortega whole grain corn taco shells and Ortega reduced sodium taco seasoning. In October 2013, B&G Foods Inc acquired Rickland Orchards LLC. In April 2014, B&G Foods Inc acquired Specialty Brands of America, Inc, and related entities from affiliates of American Capital, Ltd.

BGS Chart

BGS data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  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 – FAIL
  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 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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 – FAIL
  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 – PASS

Valuation Summary

Key Data:

Recent Price $33.67
MG Value $46.89
MG Opinion Undervalued
Value Based on 3% Growth $17.66
Value Based on 0% Growth $10.35
Market Implied Growth Rate 9.57%
NCAV $1.69
PEmg 27.64
Current Ratio 1.96
PB Ratio 4.80

Balance Sheet – 3/29/2014

Current Assets $185,400,000
Current Liabilities $94,600,000
Total Debt $852,200,000
Total Assets $1,483,000,000
Intangible Assets $1,161,200,000
Total Liabilities $1,106,600,000
Outstanding Shares 53,650,000

Earnings Per Share

2014 (estimate) $1.60
2013 $0.98
2012 $1.20
2011 $1.04
2010 $0.67
2009 $0.44
2008 $0.27
2007 $0.54
2006 $0.42
2005 $0.29
2004 $0.18

Earnings Per Share – ModernGraham

2014 (estimate) $1.22
2013 $0.97
2012 $0.89
2011 $0.69
2010 $0.49
2009 $0.40

Dividend History
BGS Dividend Chart

BGS Dividend data by YCharts

Conclusion:

B&G Foods is intriguing to Enterprising Investors but does not qualify for the Defensive Investor.  The Defensive Investor has some major concerns and in fact the only requirements of the investor type which the company passes are the earnings stability and earnings growth.  The Enterprising Investor, on the other hand, only has an issue with the level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.49 in 2010 to an estimated $1.22 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 9.57% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value exceeding the market price.

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 B&G Foods Inc. (BGS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of B&G Foods Inc. (BGS)!

Disclaimer:  The author did not hold a position in B&G Foods Inc. (BGS) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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