MeadWestvaco Co. Quarterly Valuation – November 2014 $MWV

MeadWestvaco_logoBenjamin 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 Most Undervalued Companies for the Defensive Investor – November 2014.  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 MeadWestvaco Co. (MWV) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MeadWestvaco Corporation (MWV) is a global packaging company providing solutions to the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and agricultural industries. The Company also produces specialty chemicals for the automotive, energy, and infrastructure industries and maximizes the value of its land holdings through forestry operations, property development and land sales. MWV’s reporting segments are Food & Beverage; Industrial; Specialty Chemicals, and Community Development and Land Management. On December 11, 2012, MWV acquired the remaining 50% interest in Resitec Industria Quimica, Ltda. In December 2013, Meadwestvaco Corp completed the sale of U.S. forestlands to Plum Creek Timber Company. In June, 2014, ASG acquired the Bydgoszcz, Poland-based beauty and personal care folding carton business of MeadWestvaco Corporation.

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 = 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 $44.87
MG Value $88.76
MG Opinion Undervalued
Value Based on 3% Growth $33.43
Value Based on 0% Growth $19.60
Market Implied Growth Rate 5.48%
Net Current Asset Value (NCAV) -$24.27
PEmg 19.46
Current Ratio 1.91
PB Ratio 2.19

Balance Sheet – September 2014

Current Assets $2,028,000,000
Current Liabilities $1,064,000,000
Total Debt $1,799,000,000
Total Assets $9,704,000,000
Intangible Assets $704,000,000
Total Liabilities $6,192,000,000
Outstanding Shares 171,600,000

Earnings Per Share

2014 (estimate) $1.80
2013 $4.66
2012 $1.16
2011 $1.42
2010 $0.62
2009 $1.30
2008 $0.52
2007 $1.56
2006 $0.52
2005 $0.14
2004 -$3.95

Earnings Per Share – ModernGraham

2014 (estimate) $2.31
2013 $2.32
2012 $1.10
2011 $1.07
2010 $0.90
2009 $0.96

Dividend History


MeadWestvaco Co. is suitable for the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, and the Enterprising Investor is also concerned with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.90 in 2010 to an estimated $2.31 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.48% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the 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 MeadWestvaco Co. (MWV)?  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 MeadWestvaco Co. (MWV) 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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