Food Processing Stocks

Mondelez International Inc Valuation – March 2017 $MDLZ

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 Mondelez International Inc (MDLZ) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Mondelez International, Inc. is a snack company. The Company manufactures and markets snack food and beverage products for consumers. It operates through four segments: Latin America, Asia, Middle East, and Africa (AMEA), Europe and North America. As of December 31, 2016, its brands spanned five product categories: Biscuits (including cookies, crackers and salted snacks); Chocolate; Gum and candy; Beverages (including coffee and powdered beverages), and Cheese and grocery. Itsportfolio includes various snack brands, including Nabisco, Oreo, LU and belVita biscuits; Cadbury, Milka, Cadbury Dairy Milk and Toblerone chocolate; Trident gum; Halls candy, and Tang powdered beverages. The Company sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and retail food outlets. As of December 31, 2016, it sold its products to consumers in approximately 165 countries.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MDLZ – 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 $66,121,306,719 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.59 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 18.20% Fail
6. Moderate PEmg Ratio PEmg < 20 20.30 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.72 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 0.59 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.23 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 $2.14
MG Growth Estimate 0.75%
MG Value $21.46
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $31.10
MG Value based on 0% Growth $18.23
Market Implied Growth Rate 5.90%
Current Price $43.53
% of Intrinsic Value 202.80%

Mondelez International 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 growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Overvalued after growing its EPSmg (normalized earnings) from $2.04 in 2013 to an estimated $2.14 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.9% 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 below the price.

At the time of valuation, further research into Mondelez International Inc revealed the company was trading above its Graham Number of $26.94. The company pays a dividend of $0.72 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 20.3, which was below the industry average of 34.94, 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 $-17.73.

Mondelez International Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.73
Graham Number $26.94
PEmg 20.30
Current Ratio 0.59
PB Ratio 2.72
Current Dividend $0.72
Dividend Yield 1.65%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $8,480,000,000
Total Current Liabilities $14,417,000,000
Long-Term Debt $13,217,000,000
Total Assets $61,538,000,000
Intangible Assets $38,377,000,000
Total Liabilities $36,377,000,000
Shares Outstanding (Diluted Average) 1,573,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.98
Dec2016 $1.05
Dec2015 $4.44
Dec2014 $1.28
Dec2013 $2.19
Dec2012 $1.71
Dec2011 $2.01
Dec2010 $2.39
Dec2009 $2.03
Dec2008 $1.90
Dec2007 $1.62
Dec2006 $1.85
Dec2005 $1.55
Dec2004 $1.55
Dec2003 $2.01
Dec2002 $1.96
Dec2001 $1.17
Dec2000 $1.38
Dec1999 $1.20
Dec1998 $1.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.14
Dec2016 $2.20
Dec2015 $2.62
Dec2014 $1.78
Dec2013 $2.04
Dec2012 $1.98
Dec2011 $2.07
Dec2010 $2.06
Dec2009 $1.86
Dec2008 $1.75
Dec2007 $1.68
Dec2006 $1.74
Dec2005 $1.67
Dec2004 $1.69
Dec2003 $1.69
Dec2002 $1.48
Dec2001 $1.15

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – July 2015
Mondelez International Inc. Analysis – 2015 Update $MDLZ
Mondelez International Annual Valuation – 2014 $MDLZ

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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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