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. 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 B&G Foods fares in the ModernGraham valuation model.
Company 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 Investor – must pass at least 6 of the following 7 tests: Score = 2/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- 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 – PASS
- 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 = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- 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 – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$14.11|
|Value Based on 0% Growth||$8.27|
|Market Implied Growth Rate||11.07%|
Balance Sheet – 12/28/2013
Earnings Per Share
Earnings Per Share – ModernGraham
B&G Foods is not suitable for the Defensive Investor, having only passed the investor type’s requirements regarding earnings stability and earnings growth. The Enterprising Investor, being willing to do much more research into the company, does not have such strict requirements, and the company qualifies for further research. As a result, Enterprising Investors should feel comfortable proceeding with their research, beginning with a review of a Glance at the Dow and 5 Low PEmg Companies for the Enterprising Investor. From a valuation side of things, the company appears to be fairly valued. EPSmg (normalized earnings) have grown from $0.40 in 2009 to $0.97 for 2013, a level of demonstrated growth that supports the market’s implied estimate of 11.07% earnings growth. The ModernGraham valuation model has returned an estimate of intrinsic value that falls within a margin of safety in relation to the 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 B&G Foods Inc. (BGS)? 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.
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Disclaimer: The author did not hold a position in B&G Foods Inc. (BGS) 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.