Packaging Stocks

WestRock Co Valuation – January 2016 Update $WRK

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 – November 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 WestRock Co (WRK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): WestRock Company, formerly Rome-Milan Holdings, Inc., is a packaging company. The Company provides paper and packaging solutions in consumer and corrugated markets. The Company includes customers across the world from around 275 operating and business locations spanning North America, South America, Europe and Asia-Pacific. The Company’s products and services include consumer packaging, corrugated packaging, merchandising displays, containerboard, kraft paper, pulp, paperboard, recycling and waste solutions, and specialty paperboard. The Company’s consumer packaging includes the manufacturing of folding cartons and production of coated paperboard and serves markets, such as printing and converting, solid bleached sulfate and coated recycled board. Its corrugated packaging is engaged in the manufacturing of containerboard, containers, pre-print and microflute packaging, retail displays and automated packaging systems. Rock-Tenn Company is a subsidiary of WestRock Co.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of WRK

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 $8,253,958,468 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.92 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 89.52% Pass
6. Moderate PEmg Ratio PEmg < 20 9.79 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.73 Pass
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 1.92 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.78 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

WRK value chart January 2016

EPSmg $3.28
MG Growth Estimate 10.01%
MG Value $93.49
Opinion Undervalued
MG Value based on 3% Growth $47.54
MG Value based on 0% Growth $27.87
Market Implied Growth Rate 0.64%
Current Price $32.08
% of Intrinsic Value 34.31%

WestRock Co qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor’s only initial concern is the level of debt relative to the net current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.97 in 2012 to an estimated $3.28 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.64% 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.

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 WestRock Co (WRK)?  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

WRK charts January 2016

Net Current Asset Value (NCAV) -$36.00
Graham Number $56.96
PEmg 9.79
Current Ratio 1.92
PB Ratio 0.73
Dividend Yield 3.34%
Number of Consecutive Years of Dividend Growth 4

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $4,160,400,000
Total Current Liabilities $2,163,200,000
Long-Term Debt $5,558,300,000
Total Assets $25,356,800,000
Intangible Assets $9,246,700,000
Total Liabilities $13,705,000,000
Shares Outstanding (Diluted Average) 265,100,000

Earnings Per Share History

Next Fiscal Year Estimate $3.18
Sep2015 $2.93
Sep2014 $3.29
Sep2013 $4.98
Sep2012 $1.73
Sep2011 $1.39
Sep2010 $2.85
Sep2009 $2.86
Sep2008 $1.07
Sep2007 $1.04
Sep2006 $0.39
Sep2005 $0.25
Sep2004 $0.25
Sep2003 $0.42
Sep2002 $0.39
Sep2001 $0.46
Sep2000 -$0.23
Sep1999 $0.57
Sep1998 $0.60
Sep1997 $0.24
Sep1996 $0.75

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.28
Sep2015 $3.17
Sep2014 $3.14
Sep2013 $2.97
Sep2012 $1.97
Sep2011 $2.00
Sep2010 $2.09
Sep2009 $1.51
Sep2008 $0.76
Sep2007 $0.56
Sep2006 $0.33
Sep2005 $0.31
Sep2004 $0.32
Sep2003 $0.34
Sep2002 $0.32
Sep2001 $0.30
Sep2000 $0.28

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – December 2015
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – November 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – November 2015
15 Best Stocks For Value Investors This Week – 9/4/15
WestRock Co. Analysis – Initial Coverage $WRK

Other ModernGraham posts about related companies

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WestRock Co. Analysis – Initial Coverage $WRK
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Bemis Company Analysis – June 2015 Update $BMS
MeadWestvaco Corporation Analysis – June 2015 Quarterly Update $MWV
International Paper Stock Analysis – May 2015 Quarterly Update $IP
Sealed Air Corporation Annual Valuation – 2015 $SEE
Bemis Company Inc. Quarterly Valuation – March 2015 $BMS

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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