Food Processing Stocks

Seneca Foods Corp Valuation – Initial Coverage $SENEA

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 Stocks for Using A Benjamin Graham Value Investing Strategy – December 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 Seneca Foods Corp (SENEA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Seneca Foods Corporation is a provider of packaged fruits and vegetables. The Company manages its business through two segments: packaging and sale of fruits and vegetables, and packaging and sale of chip products. Its product offerings include canned fruits and vegetables, frozen vegetables and other food products, frozen and bottled produce, and snack chips. Its products are sold under private label, as well as national and regional brands that the Company owns or licenses, including Seneca, Libby’s, Green Valley, Aunt Nellie’s, READ, Cherryman and Seneca Farms. The Company packs Green Giant, Le Sueur and other brands of canned vegetables, as well as select Green Giant frozen vegetables for B&G Foods North America (B&G) under a contract packing agreement. Its two segments constitute the food operation. The non-food operation is primarily related to the sale of cans and ends, and the Company’s trucking and aircraft operations.

SENEA Chart

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SENEA – December 2016

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 $399,368,682 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.90 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 50.10% Pass
6. Moderate PEmg Ratio PEmg < 20 14.87 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.97 Pass
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 2.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.60 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.72
MG Growth Estimate 8.55%
MG Value $69.62
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $39.44
MG Value based on 0% Growth $23.12
Market Implied Growth Rate 3.19%
Current Price $40.45
% of Intrinsic Value 58.10%

Seneca Foods Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.73 in 2012 to an estimated $2.72 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.19% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Seneca Foods Corp revealed the company was trading below its Graham Number of $69.2. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 14.87, which was below the industry average of 24.74, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $16.89.

Seneca Foods Corp performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $16.89
Graham Number $69.20
PEmg 14.87
Current Ratio 2.90
PB Ratio 0.97
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $905,029,000
Total Current Liabilities $312,466,000
Long-Term Debt $354,905,000
Total Assets $1,148,714,000
Intangible Assets $0
Total Liabilities $738,474,000
Shares Outstanding (Diluted Average) 9,862,000

Earnings Per Share History

Next Fiscal Year Estimate $5.09
Mar2015 $0.90
Mar2014 $1.23
Mar2013 $3.57
Mar2012 $0.92
Mar2011 $1.45
Mar2010 $3.96
Mar2009 $1.53
Mar2008 $0.65
Mar2007 $2.63
Mar2006 $1.96
Mar2005 $0.70
Mar2004 $1.17
Mar2003 $0.88
Mar2002 $0.11
Mar2001 $0.08
Mar2000 $0.42
Mar1999 $0.85
Mar1998 -$0.87
Mar1997 $1.25
Mar1996 -$1.81

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.72
Mar2015 $1.56
Mar2014 $2.00
Mar2013 $2.36
Mar2012 $1.73
Mar2011 $2.11
Mar2010 $2.34
Mar2009 $1.52
Mar2008 $1.48
Mar2007 $1.75
Mar2006 $1.20
Mar2005 $0.74
Mar2004 $0.69
Mar2003 $0.45
Mar2002 $0.20
Mar2001 $0.28
Mar2000 $0.24

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Saputo Inc Valuation – Initial Coverage $SAP
Best Stocks to Invest In: the Food Processing Industry – August 2016
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Hormel Foods Corp Valuation – August 2016 $HRL
J.M. Smucker Co Valuation – August 2016 $SJM
General Mills Inc Valuation – August 2016 $GIS
Archer Daniels Midland Co – August 2016 $ADM
Coca-Cola Co Valuation – July 2016 $KO

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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