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 the 5 Most Undervalued Companies for the Defensive Investor – December 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 B&G Foods Inc. (BGS) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): B&G Foods, Inc. (B&G Foods) is a holding company whose principal assets are the shares of capital stock of its subsidiaries. The Company manufactures, sells and distributes a range of shelf-stable food and household products across the United States, Canada and Puerto Rico. Its products include hot cereals, fruit spreads, canned meats and beans, bagel chips, spices, seasonings, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-style sauces, dry soups, taco shells and kits, salsas, pickles, peppers, tomato-based products, puffed corn and rice snacks, nut clusters, Greek yogurt coated granola bars and bites and other specialty products. Some of the Company’s brands include Ac’cent, B&G, B&M, Baker’s Joy, Canoleo, Cary’s, Cream of Rice, Emeril’s, Molly McButter, Mrs. Dash, New York Style, Old London, Ortega, Pirate’s Booty, Polaner, Regina, Rickland Orchards, Sa-son, Sclafani, Spring Tree, Sugar Twin, Trappey’s, TrueNorth, Underwood, Vermont Maid and Wright’s.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- 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 – FAIL
- 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
- 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 – FAIL
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||$17.42|
|Value Based on 0% Growth||$10.21|
|Market Implied Growth Rate||8.06%|
Balance Sheet – September 2014
Earnings Per Share
Earnings Per Share – ModernGraham
B&G Foods Inc. qualifies for the Enterprising Investor but not for the Defensive Investor. The Defensive Investor is concerned by the small size, low current ratio, short dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned by the high level of debt relative to the net current assets. As a result, Enterprising 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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.49 in 2010 to an estimated $1.20 for 2014. This level of demonstrated growth is greater than the market’s implied estimate of 8.06% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.
Be sure to check out previous ModernGraham valuations of B&G Foods Inc. (BGS) for greater 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 B&G Foods Inc. (BGS)? 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 B&G Foods Inc. (BGS) 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.