Food Processing Stocks

B&G Foods Inc. Analysis – September 2015 Update $BGS

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 10 Most Undervalued Companies for the Defensive Investor – August 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 stock analysis showing 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) is a holding company that manufactures, sells and distributes a range of shelf-stable food and household products across the United States, Canada and Puerto Rico. Its products include hot cereals, fruit spreads, canned meats and beans, bagel chips, spices, seasonings, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-style sauces, dry soups, taco shells and kits, salsas, pickles, peppers, tomato-based products, puffed corn and rice snacks, nut clusters and other specialty products. The Company’s products are marketed under a range of brands, including Ac’cent, B&G, B&M, Baker’s Joy, Bear Creek Country Kitchens, Brer Rabbit, Canoleo, Cary’s, Cream of Rice, Cream of Wheat, Devonsheer, Don Pepino, Emeril’s, Grandma’s Molasses, JJ Flats, Joan of Arc, Las Palmas, MacDonald’s, Maple Grove Farms of Vermont and Molly McButter, among others.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BGS – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,117,890,716 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.26 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 157.14% Pass
6. Moderate PEmg Ratio PEmg < 20 33.27 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.44 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.26 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.79 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

BGS value Chart September 2015

EPSmg $1.10
MG Growth Estimate 9.06%
MG Value $29.22
Opinion Overvalued
MG Value based on 3% Growth $15.92
MG Value based on 0% Growth $9.33
Market Implied Growth Rate 12.38%
Current Price $36.53
% of Intrinsic Value 125.02%

B&G Foods Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned by the short dividend history, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by 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 overvalued after growing its EPSmg (normalized earnings) from $0.68 in 2011 to an estimated $1.10 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 12.38% 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 below the 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.

Stage 3: Information for Further Research

BGS Charts September 2015

Net Current Asset Value (NCAV) -$17.28
Graham Number $15.97
PEmg 33.27
Current Ratio 3.26
PB Ratio 4.44
Dividend Yield 3.72%
Number of Consecutive Years of Dividend Growth 5

 

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Most Recent Balance Sheet Figures

Total Current Assets $289,559,000
Total Current Liabilities $88,769,000
Long-Term Debt $961,947,000
Total Assets $1,734,903,000
Intangible Assets $1,313,138,000
Total Liabilities $1,268,942,000
Shares Outstanding (Diluted Average) 56,683,000

Earnings Per Share History

Next Fiscal Year Estimate $1.41
Dec14 $0.76
Dec13 $0.98
Dec12 $1.20
Dec11 $1.04
Dec10 $0.67
Dec09 $0.44
Dec08 $0.27
Dec07 $0.54
Dec06 $0.42
Dec05 $0.29
Dec04 $0.51
Dec03 $0.00
Dec02 $0.30
Dec01 -$0.38
Dec00 -$0.92

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.10
Dec14 $0.94
Dec13 $0.97
Dec12 $0.89
Dec11 $0.68
Dec10 $0.49
Dec09 $0.40
Dec08 $0.39
Dec07 $0.42
Dec06 $0.34
Dec05 $0.25
Dec04 $0.12
Dec03 -$0.12
Dec02 -$0.19
Dec01 -$0.37
Dec00 -$0.31

Recommended Reading:

Other ModernGraham posts about the company

The 8 Best Stocks For Value Investors This Week – 6/27/15
B&G Foods Analysis – June 2015 Update $BGS
The Best Companies of the Food Processing Industry – June 2015
18 Companies in the Spotlight This Week – 3/21/15
B&G Foods Inc. Quarterly Valuation – March 2015 $BGS

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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; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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