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 Companies Benjamin Graham Would Invest In Today – June 2016. 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 Owens-Illinois Inc (OI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Owens-Illinois, Inc. is engaged in the manufacturing of glass containers. The Company’s principal product lines are glass containers for the food and beverage industries. Its segments include Europe, North America, Latin America and Asia Pacific. It produces glass containers for alcoholic beverages, including beer, flavored malt beverages, spirits and wine. It also produces glass packaging for a range of food items, soft drinks, teas, juices and pharmaceuticals. The Europe segment produces glass containers for the beer, wine, champagne, spirits and food markets. The North America segment has over 20 glass container manufacturing plants and over one distribution facility in the United States and Canada. The Latin America segment produces glass containers for beer, non-alcoholic beverages, spirits, flavored malt beverages, wine, food and pharmaceutical markets. The Asia Pacific segment primarily produces glass containers for the beer, wine, food and non-alcoholic beverage markets.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$3,233,858,095||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.31||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|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||-78.68%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||21.25||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||10.80||Fail|
|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||1.31||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||9.60||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$13.58|
|MG Value based on 0% Growth||$7.96|
|Market Implied Growth Rate||6.37%|
|% of Intrinsic Value||55.18%|
Owens-Illinois Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.29 in 2012 to an estimated $0.94 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.38% 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 above the price.
Owens-Illinois Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$42.73|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2016|
|Total Current Assets||$2,476,000,000|
|Total Current Liabilities||$1,886,000,000|
|Shares Outstanding (Diluted Average)||161,793,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.25|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.94|
Other ModernGraham posts about the company
|27 Companies in the Spotlight This Week – 2/14/15|
|Owens-Illinois Inc. Annual Valuation – 2015 $OI|
|15 Companies in the Spotlight This Week – 2/8/14|
|Owens-Illinois Inc. (OI) Annual Valuation|
Other ModernGraham posts about related companies
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.