Regal-Beloit Corporation (RBC) Quarterly Valuation

RBClogoBenjamin 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.  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 Regal-Beloit fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Regal Beloit Corporation is a global manufacturer of electric motors and controls, electric generators and controls, and mechanical motion control products. The Company operates in two segments: Electrical and Mechanical. Its electrical products include motors used in commercial and residential heating, ventilation, air conditioning ( HVAC) applications, a full line of alternating current ( AC) and direct current ( DC) commercial and industrial electric motors, electric generators and controls, high-performance drives and controls, and capacitors. Its mechanical products include primarily gears and gearboxes, marine transmissions, automotive transmissions, manual valve actuators, and electrical connectivity devices. In February 2014, Regal Beloit Corp acquired Hy-Bon Engineering Company, Inc.

RBC Chart

RBC data by YCharts

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

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  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 – PASS
  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 – PASS

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

  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 – PASS
  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

Key Data:

Recent Price $76.09
MG Value $41.45
MG Opinion Overvalued
Value Based on 3% Growth $51.70
Value Based on 0% Growth $30.31
Market-Implied Growth Rate 6.42%
NCAV $3.07
PEmg 21.34
Current Ratio 2.46
PB Ratio 1.67

Balance Sheet – 12/28/2013

Current Assets $1,725,900,000
Current Liabilities $700,900,000
Total Debt $609,000,000
Total Assets $3,643,500,000
Intangible Assets $1,326,100,000
Total Liabilities $1,587,300,000
Outstanding Shares 45,100,000

Earnings Per Share

2013 $2.64
2012 $4.65
2011 $3.79
2010 $3.84
2009 $2.63
2008 $3.87
2007 $3.49
2006 $3.28
2005 $2.25
2004 $1.22
2003 $1.00

Earnings Per Share – ModernGraham 

2013 $3.57
2012 $3.94
2011 $3.56
2010 $3.44
2009 $3.19
2008 $3.26

Dividend History

RBC Dividend Chart

RBC Dividend data by YCharts


Regal-Beloit Corporation is suitable for either the Defensive Investor or Enterprising Investor.  The only test for either investor type that the company did not pass was the Defensive Investor’s PEmg requirement.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of 5 Outstanding Dow Components and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation standpoint, the company does not fare as well after poor growth in EPSmg (normalized earnings) from $3.19 in 2009 to $3.57 for 2013.  This low level of historically demonstrated growth does not support the market’s current implied estimate of growth of 6.42%, leading the ModernGraham valuation model to return an estimate of intrinsic value that trails the current price.

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 Regal-Beloit Corporation (RBC)?  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:  The author did not hold a position in Regal-Beloit Corporation (RBC) 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.

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