Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 5 Lowest PEmg Comapnies for Defensive Investors.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a specific look at how Bemis Company (BMS)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance):Â Bemis Company, Inc. is a manufacturer of packaging products and pressure sensitive materials. The Company’s business activities are organized around its three reportable business segments, U.S. Packaging , Global Packaging and Pressure Sensitive Materials. The majority of the Companyâ€™s products are sold to customers in the food industry. Other customers include companies businesses, such as chemical, agribusiness, medical, pharmaceutical, personal care, electronics, automotive, construction, graphic industries and other consumer goods. In April 2014, the Company announced that it has completed the sale of its Paper Packaging Division.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- 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 – PASS
- 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 – PASS
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
|Value Based on 3% Growth||$29.45|
|Value Based on 0% Growth||$17.27|
|Market Implied Growth Rate||5.77%|
Balance Sheet – 3/31/2014
Earnings Per Share
Earnings Per Share – ModernGraham
Bemis Company is suitable for the Enterprising Investor but not the Defensive Investor. Â The Defensive Investor is concerned with the lack of sufficient earnings growth over the last ten years as well as the high PEmg ratio. Â The Enterprising Investor’s only concern is the high level of debt relative to the current assets. Â As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors through a review of ModernGraham’s valuation of Sealed Air Corp (SEE) and ModernGraham’s valuation of Avery Denison (AVY). Â From a valuation standpoint, the company appears overvalued after growing its EPSmg (normalized earnings) from $1.67 in 2010 to only an estimated $2.03 for 2014. Â This low level of demonstrated growth does not support the market’s implied estimate of 5.77% 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. Â What do you think? Â What value would you put on Bemis Company (BMS)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Be sure to review the previousÂ ModernGraham Valuations of Bemis Company (BMS)!
Disclaimer: Â The author did not hold a position in Bemis Company (BMS) or any other company mentioned in this 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.