Vulcan Materials Company (VMC) Annual Valuation – 2014

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 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows.  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 Vulcan Materials Company (VMC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Vulcan Materials Company, is a producer of construction aggregates primarily crushed stone, sand, and gravel. The Company is a producer of aggregates-based construction materials including asphalt and ready-mixed concrete. The Company produces these materials from natural deposits such as granite, limestone and trap rock. The Company operates in four segments: Aggregates, Concrete, Asphalt Mix, And Cement. The Company has 341 active aggregates facilities. The Company also is a producer of asphalt mix and ready-mixed concrete, as well as a producer of cement in Florida. The Company is a construction materials business in the country with aggregates operations. In March 2014, Vulcan Materials Co Completed the sale of the Company’s cement and concrete businesses in the Florida area to Cementos Argos.

VMC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

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 – FAIL
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 – FAIL
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 = 2/5

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 – FAIL
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Balance Sheet – 12/31/2013

Current Assets	$951,500,000
Current Liabilities	$299,100,000
Total Debt	$2,522,200,000
Total Assets	$8,259,100,000
Intangible Assets	$3,779,100,000
Total Liabilities	$4,321,000,000
Outstanding Shares	130,200,000

Earnings Per Share

2013	$0.16
2012	-$0.42
2011	-$0.58
2010	-$0.80
2009	$0.16
2008	-$0.02
2007	$4.66
2006	$4.79
2005	$3.30
2004	$2.52

Earnings Per Share – ModernGraham

2013	-$0.27
2012	-$0.43
2011	-$0.07
2010	$0.71
2009	$1.84
2008	$2.80

Dividend History

VMC Dividend data by YCharts

Conclusion:

Vulcan Materials Company is not suitable for either the Defensive Investor or the Enterprising Investor.  The company only satisfies the Defensive Investor’s requirements regarding size, current ratio, and a long dividend history (though it should be noted the company is currently barely paying a dividend).  The Enterprising Investor has serious concerns with the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Low PEmg Companies for the Defensive Investor or 5 Low PEmg Companies for the Enterprising Investor.  From a valuation side of things, the company appears significantly overvalued due to the drop in EPSmg (normalized earnings) from $1.84 in 2009 to -$0.27 for 2013.  This demonstrated lack of growth leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the market 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 Vulcan Materials Company (VMC)?  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 Vulcan Materials Company (VMC) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.