Molson Coors Brewing Co. (TAP) Quarterly Valuation – May 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 Molson Coors Brewing Co. (TAP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Molson Coors Brewing Company (MCBC) is a holding company. The Company operates in five business segments: Canada, the U.S., Central Europe, the U.K., and Molson Coors International (MCI). The Company is a brewer and has a portfolio of owned and partner brands, including signature brands Coors Light, Molson Canadian, Carling and Staropramen, as well as craft and specialty beers such as Blue Moon, Creemore Springs, Cobra and Doom Bar. Its other subsidiaries include: Molson Coors Canada (MCC), operating in Canada; MillerCoors LLC (MillerCoors) operating in the United States (U.S.); Molson Coors Brewing Company (UK) Limited (MCBC-UK, operating in the United Kingdom (U.K.) and the Republic of Ireland; Molson Coors International (MCI) operating in various other countries; and its other non-operating subsidiaries. In June 15, 2012, the Company acquired StarBev. In January 2013, it acquired Ireland’s Franciscan Well brewery.

TAP 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 – 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 – 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 – PASS
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 = 3/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
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

Key Data:

Recent Price	$61.95
MG Value	$32.63
MG Opinion	Overvalued
Value Based on 3% Growth	$48.27
Value Based on 0% Growth	$28.29
Market Implied Growth Rate	5.06%
Net Current Asset Value (NCAV)	-$32.40
PEmg	18.61
Current Ratio	0.72
PB Ratio	1.17

Balance Sheet – 3/31/2014

Current Assets	$1,484,300,000
Current Liabilities	$2,071,800,000
Total Debt	$3,162,300,000
Total Assets	$15,365,800,000
Intangible Assets	$9,047,000,000
Total Liabilities	$6,764,900,000
Outstanding Shares	163,000,000

Earnings Per Share

2014 (estimate)	$3.91
2013	$3.07
2012	$2.43
2011	$3.62
2010	$3.57
2009	$3.92
2008	$2.16
2007	$2.84
2006	$2.16
2005	$1.44
2004	$2.59

Earnings Per Share – ModernGraham

2014 (estimate)	$3.33
2013	$3.13
2012	$3.16
2011	$3.42
2010	$3.19
2009	$2.83

Dividend History

TAP Dividend data by YCharts

Conclusion:

Molson Coors Brewing Co. satisfies the requirements of the Defensive Investor, though the low current ratio is a concern.  As a result, the company qualifies for both the Defensive Investor and the Enterprising Investor.  Value investors should feel very comfortable proceeding with further research into the company and comparing it to other opportunities through a review of 5 Undervalued Dow Components and 5 Low PEmg Companies for the Enterprising Investor.  As fora valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.19 in 2010 to only an estimated $3.33 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 5.06% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls 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 Molson Coors Brewing Co. (TAP)?  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 Molson Coors Brewing Co. (TAP) or in 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.