Bemis Company Quarterly Valuation – August 2014 $BMS

200px-Bemis_logo.svgBenjamin 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 Bemis Company (BMS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): 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 Company’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.
BMS Chart

BMS 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 - 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 - FAIL
  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 – 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 $40.36
MG Value $31.13
MG Opinion Overvalued
Value Based on 3% Growth $29.70
Value Based on 0% Growth $17.41
Market Implied Growth Rate 5.60%
NCAV -$8.64
PEmg 19.71
Current Ratio 2.59
PB Ratio 2.38

Balance Sheet – 6/30/2014

Current Assets $1,594,400,000
Current Liabilities $615,900,000
Total Debt $1,465,100,000
Total Assets $4,153,000,000
Intangible Assets $1,235,700,000
Total Liabilities $2,457,700,000
Outstanding Shares 99,900,000

Earnings Per Share

2014 (estimate) $2.45
2013 $2.05
2012 $1.66
2011 $1.73
2010 $1.83
2009 $1.47
2008 $1.65
2007 $1.74
2006 $1.65
2005 $1.51
2004 $1.67

Earnings Per Share – ModernGraham

2014 (estimate) $2.05
2013 $1.81
2012 $1.69
2011 $1.69
2010 $1.67
2009 $1.60

Dividend History

BMS Dividend Chart

BMS Dividend data by YCharts

Conclusion:

Bemis Company is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the insufficient earnings growth over the last ten years, while the Enterprising Investor’s only initial concern is with the high level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.67 in 2010 to an estimated $2.05 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.60% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Bemis Company (BMS) 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 Bemis Company (BMS)?  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 Bemis Company (BMS) 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 for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.


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