Household Goods Stocks

Leggett & Platt Inc Valuation – March 2017 $LEG

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 – March 2017.  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 Leggett & Platt Inc (LEG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Leggett & Platt, Incorporated is a manufacturer that conceives, designs and produces a range of engineered components and products found in homes, offices and automobiles. The Company operates in four segments: Residential Furnishings, Commercial Products, Industrial Materials and Specialized Products. Its brands include ComfortCore, Mira-Coil, VertiCoil, Quantum, Nanocoil, Lura-Flex and Active Support Technology, which includes mattress innersprings; Semi-Flex, which includes box spring components and foundations; Spuhl, which includes mattress innerspring manufacturing machines; Wall Hugger, which includes recliner chair mechanisms; Super Sagless, which includes motion and sofa sleeper mechanisms; No-Sag, which includes wire forms used in seating; LPSense, which includes capacitive sensing; Hanes, which includes fabric materials; Schukra, Pullmaflex and Flex-O-Lator, which includes automotive seating products, and Gribetz and Porter, which includes quilting and sewing machines.

LEG Chart

LEG data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LEG – March 2017

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 $6,663,320,747 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.88 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 209.31% Pass
6. Moderate PEmg Ratio PEmg < 20 22.37 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.42 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 1.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.55 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

EPSmg $2.24
MG Growth Estimate 10.67%
MG Value $66.81
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $32.46
MG Value based on 0% Growth $19.03
Market Implied Growth Rate 6.94%
Current Price $50.09
% of Intrinsic Value 74.97%

Leggett & Platt, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 $1.31 in 2013 to an estimated $2.24 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.94% 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 Leggett & Platt, Inc. revealed the company was trading above its Graham Number of $21.87. The company pays a dividend of $1.34 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.37, which was below the industry average of 25.38, 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 $-4.05.

Leggett & Platt, Inc. fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.05
Graham Number $21.87
PEmg 22.37
Current Ratio 1.88
PB Ratio 6.42
Current Dividend $1.34
Dividend Yield 2.68%
Number of Consecutive Years of Dividend Growth 20

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Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $1,324,900,000
Total Current Liabilities $706,600,000
Long-Term Debt $956,200,000
Total Assets $2,984,100,000
Intangible Assets $956,200,000
Total Liabilities $1,892,500,000
Shares Outstanding (Diluted Average) 140,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.60
Dec2016 $2.76
Dec2015 $2.28
Dec2014 $0.68
Dec2013 $1.34
Dec2012 $1.70
Dec2011 $1.04
Dec2010 $1.15
Dec2009 $0.70
Dec2008 $0.62
Dec2007 -$0.06
Dec2006 $1.61
Dec2005 $1.30
Dec2004 $1.45
Dec2003 $1.05
Dec2002 $1.17
Dec2001 $0.94
Dec2000 $1.32
Dec1999 $1.45
Dec1998 $1.24
Dec1997 $1.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.24
Dec2016 $1.96
Dec2015 $1.51
Dec2014 $1.14
Dec2013 $1.31
Dec2012 $1.21
Dec2011 $0.87
Dec2010 $0.79
Dec2009 $0.69
Dec2008 $0.78
Dec2007 $0.93
Dec2006 $1.39
Dec2005 $1.25
Dec2004 $1.21
Dec2003 $1.12
Dec2002 $1.18
Dec2001 $1.19

Recommended Reading:

Other ModernGraham posts about the company

Leggett & Platt Inc Stock Valuation – February 2016 $LEG
15 Companies in the Spotlight This Week – 12/27/14
Leggett & Platt Inc. Annual Valuation – 2014 $LEG
17 Companies in the Spotlight This Week – 9/27/2014
Leggett & Platt Inc. Quarterly Valuation – September 2014 $LEG

Other ModernGraham posts about related companies

Newell Brands Inc Valuation – February 2017 $NWL
Clorox Company Valuation – January 2017 $CLX
Select Comfort Corp Valuation – Initial Coverage $SCSS
Leggett & Platt Inc Valuation – August 2016 $LEG
National Presto Industries Inc Valuation – July 2016 $NPK
Leggett & Platt Inc Stock Valuation – February 2016 $LEG
National Presto Industries Valuation – January 2016 Update $NPK
Newell Rubbermaid Inc. Valuation – October 2015 Update $NWL
National Presto Industries Inc. Valuation – October 2015 Update $NPK
Clorox Company Analysis – September 2015 Update $CLX

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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