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 or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – February 2015. 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 Bemis Company Inc. (BMS) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Bemis Company, Inc. is a manufacturer of packaging products and pressure sensitive materials. The Company’s business activities are organized around three reportable business segments, U.S. Packaging (59 percent of 2013 net sales), Global Packaging (30 percent) and Pressure Sensitive Materials (11 percent). The majority of the Company’s products are sold to customers in the food industry. In February 2014, the Company announced that it has completed the sale of its Paper Packaging Division. The Company’s flexible packaging businesses have a technical base in polymer chemistry, film extrusion, coating, laminating, printing, and converting. On August 22, 2012, the Company acquired two flexible packaging businesses in Australia and New Zealand.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- 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 – FAIL
- 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
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- 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
|Value Based on 3% Growth||$26.97|
|Value Based on 0% Growth||$15.81|
|Market Implied Growth Rate||8.87%|
Balance Sheet – December 2014
Earnings Per Share
Earnings Per Share – ModernGraham
Bemis Company Inc. is suitable for the Enterprising Investor but not for the Defensive Investor. The Defensive Investor is concerned by the low earnings growth over the last ten years, along with the high PEmg and PB ratios, while the Enterprising Investor is only concerned 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 very comfortable proceeding with further research and comparing the company to other opportunities. From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.65 in 2010 to only $1.86 for 2014. This level of demonstrated growth does not support the market’s implied estimate of 8.87% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.
Be sure to check out previous ModernGraham valuations of Bemis Company Inc. (BMS) for greater perspective!
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 Bemis Company Inc. (BMS)? 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.
Disclaimer: The author did not hold a position in Bemis Company Inc. (BMS) 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 for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.