Owens-Illinois Inc. (OI) Annual Valuation
Conceptually, an established glass container manufacturer should have good fundamentals.  After all, they have had plenty of time to pay down start-up costs and build up a profit, especially if they do not pay dividends as is the case for Owens-Illinois.  Practically, that may not always be true, and Intelligent Investors will take the time to complete fundamental analysis before speculating blindly jumping into an investment.  Only through comparing the company’s intrinsic value to the market place can an investor truly get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how Owens-Illinois, Inc. fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Owens-Illinois, Inc. is a manufacturer of glass containers with 81 glass manufacturing plants in 21 countries. It produces glass containers for beer, ready-to-drink low alcohol refreshers, spirits, wine, food, tea, juice and pharmaceuticals. The Company also produces glass containers for soft drinks and other non-alcoholic beverages outside the United States. It manufactures these products in a range of sizes, shapes and colors. It has four geographical segments: Europe, North America, South America, and Asia Pacific. On September 1, 2010, it completed the acquisition of Brazilian glassmaker Companhia Industrial de Vidros (CIV). On December 23, 2010, the Company acquired Hebei Rixin Glass Group Co., Ltd. On December 7, 2010, the Company acquired the majority interest in Zhaoqing Jiaxin Glasswork Co., LTD. On March 11, 2010, the Company acquired the majority interest in Cristalerias Rosario.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- 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 – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- 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 = 1/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – FAIL
- Dividend Record – currently pays a dividend – FAIL
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| MG Value | $11.05 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $12.34 |
| Value Based on 0% Growth | $7.24 |
| Market Implied Growth Rate | 14.08% |
| Net Current Asset Value (NCAV) | -$27.83 |
| PEmg | 36.66 |
| Current Ratio | 1.28 |
| PB Ratio | 4.25 |
Balance Sheet – 9/30/2013
| Current Assets | $2,672,000,000 |
| Current Liabilities | $2,087,000,000 |
| Total Debt | $3,298,000,000 |
| Total Assets | $8,472,000,000 |
| Intangible Assets | $2,059,000,000 |
| Total Liabilities | $7,262,000,000 |
| Outstanding Shares | 164,940,000 |
Earnings Per Share
| 2013 | $2.72 |
| 2012 | $1.12 |
| 2011 | -$3.12 |
| 2010 | $1.55 |
| 2009 | $0.95 |
| 2008 | $1.48 |
| 2007 | $1.78 |
| 2006 | -$0.32 |
| 2005 | -$4.26 |
| 2004 | $1.00 |
| 2003 | -$6.89 |
Earnings Per Share – ModernGrahamÂ
| 2013 | $0.85 |
| 2012 | $0.08 |
| 2011 | -$0.12 |
| 2010 | $1.28 |
| 2009 | $0.74 |
| 2008 | $0.40 |
Conclusion:
Owens-Illinois Inc. fares very poorly in the ModernGraham analysis, having passed only one requirement of the Defensive Investor and only one requirement of the Enterprising Investor.  As such, the company presents a risk level that is too great for value investors following the ModernGraham approach based on Benjamin Graham’s methods, and they should seek other opportunities by reviewing companies that pass the ModernGraham requirements.  From the valuation side of things, the company has failed to achieve much growth in its EPSmg (normalized earnings), having gone from $0.40 in 2008 to $0.85 for 2013.  The market is currently implying a growth estimate of over 14%, which is clearly not supported by the historical growth rate.  Even if the company were to achieve a modest level of growth, 3% annually, the intrinsic value based on the current EPSmg would remain considerably less than the market’s price level.  As a result, the company appears to be overvalued at the present time.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Owens-Illinois, Inc. (OI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page 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: Â The author did not hold a position in Owens-Illinois, Inc. (OI) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.
