National Presto Industries Quarterly Valuation – June 2014 $NPK

national-presto-industries_200x200Benjamin 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 the 5 Undervalued Companies for the Enterprising Investor.  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 National Presto Industries (NPK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): National Presto Industries, Inc. (National Presto) operates through three business segments: Housewares/Small Appliance Segment, Defense Products Segment and Absorbent Products Segment. The Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical appliances, including pressure cookers and canners, kitchen electrics, and comfort appliances. The Defense Products segment manufactures 40 millimeter ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridge cases, performs Load, Assemble and Pack operations on ordnance-related products primarily for the United States Government and prime contractors, produces and sells a range of less-lethal products and support accessories, and provides training for the use of less-lethal products. The Absorbent Products segment manufactures and sells private label adult incontinence products and diapers. On November 1, 2011, it purchased the assets of ALS Technologies, Inc.

NPK Chart

NPK 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 – FAIL
  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 - 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 = 4/5

  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 - FAIL

Valuation Summary

Key Data:

Recent Price $72.34
MG Value $13.44
MG Opinion Overvalued
Value Based on 3% Growth $89.68
Value Based on 0% Growth $52.57
Market-implied growth rate 1.60%
NCAV $22.80
PEmg 11.70
Current Ratio 4.77
PB Ratio 1.78

Balance Sheet – 3/30/2014

Current Assets $223,200,000
Current Liabilities $46,800,000
Total Debt $0
Total Assets $356,300,000
Intangible Assets $33,700,000
Total Liabilities $53,600,000
Outstanding Shares 7,440,000

Earnings Per Share

2014 (estimate) $5.75
2013 $5.97
2012 $5.64
2011 $6.98
2010 $9.26
2009 $9.13
2008 $6.45
2006 $5.65
2006 $4.09
2005 $2.40
2004 $2.26

Earnings Per Share – ModernGraham

2014 (estimate) $6.18
2013 $6.73
2012 $7.24
2011 $7.86
2010 $7.84
2009 $6.60

Dividend History
NPK Dividend Chart

NPK Dividend data by YCharts

Conclusion:

National Presto Industries qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only major concern with the company is the fact that it is smaller than the investor type’s requirement, while the company passes all of the Enterprising Investor’s requirements.  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 comparing it to other opportunities.  As for the valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $7.84 in 2010 to only an estimated $6.18 for 2014.  This demonstrated drop in earnings does not support the market’s implied estimate of 1.6% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value falling well below the market price.

Be sure to check out the previous ModernGraham valuations of National Presto Industries (NPK) for more perspective!

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 National Presto Industries (NPK)?  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.

Disclaimer:  The author did not hold a position in National Presto Industries (NPK) or in 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.


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