ModernGraham Valuation: B&G Foods, Inc. (BGS)

moneyCompany Profile (obtained from Google Finance): B&G Foods, Inc. (B&G Foods) manufactures, sells and distributes a range of branded shelf-stable food and household products across the United States, Canada and Puerto Rico. The Company complements its branded product retail sales with institutional and food service sales and limited private labels sales. On October 31, 2012,the Company acquired New York Style, Devonsheer, JJ Flats and Old London brands from Chipita America, Inc. The Company’s Ortega brand and its products span the shelf-stable Mexican food segment including taco shells, tortillas, seasonings, dinner kits, taco sauces, peppers, refried beans, salsas and related food products. The Company new product offerings include Ortega whole grain corn taco shells and Ortega reduced sodium taco seasoning. In July 2013, B&G Foods Inc announced that it has completed the acquisition of Robert’s American Gourmet Food, LLC dba Pirate Brands from VMG Partners. In October 2013, B&G Foods Inc acquired Rickland Orchards LLC.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $38.63
MG Opinion Fairly Valued
Value Based on 3% Growth $14.55
Value Based on 0% Growth $8.53
Market Implied Growth Rate 12.34%
NCAV $1.40
PEmg 33.18
Current Ratio 1.63
PB Ratio 5.06

Balance Sheet – 9/30/2013 

Current Assets $192,800,000
Current Liabilities $118,600,000
Total Debt $815,800,000
Total Assets $1,420,800,000
Intangible Assets $1,100,400,000
Total Liabilities $1,072,700,000
Outstanding Shares 52,870,000

Earnings Per Share

2013 (estimate) $1.07
2012 $1.20
2011 $1.04
2010 $0.67
2009 $0.44
2008 $0.27
2007 $0.54
2006 $0.42
2005 $0.29
2004 $0.18
2003 $0.07
2002 $0.13

Earnings Per Share – Modern Graham 

2013 (estimate) $1.00
2012 $0.89
2011 $0.69
2010 $0.49
2009 $0.40
2008 $0.37

Conclusion:

B&G Foods Inc. is not a company for the Defensive Investor, after having passed only two of the seven requirements for the investor type.  The company isn’t large enough, does not have a long enough dividend history, the current ratio isn’t high enough, and the company is trading at high PEmg and PB ratios.  As a result, there is too much risk involved for the Defensive Investor; however, the Enterprising Investor is willing to take on a little more risk because he is able to do further research.  The company does pass enough of the requirements of the Enterprising Investor to qualify as a potential investment.  On the valuation side, the company has achieved significant growth in EPSmg (normalized earnings), from $0.37 in 2008 to an estimated $1.00 for 2013.  This growth would seem to support the current price and the company appears to be fairly valued.  Enterprising Investors should proceed with further research to determine if B&G Foods Inc. is suitable for their individual portfolios.

What do you think?  Do you agree that B&G Foods, Inc. is fairly valued?  Is the company suitable only for Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in B&G Foods, Inc. (BGS) at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill


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