Household Goods Stocks

National Presto Industries Inc. Quarterly Valuation – March 2015 $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 Most Undervalued Companies for the Defensive Investor – March 2015.  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 Inc. (NPK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): National Presto Industries, Inc. (National Presto) manufactures pressure cookers and canners, ammunition and label diapers. The Company operates in three business segments, which include Housewares/small appliance segment, Defense 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 (mm) ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridge cases, performs Load, Assemble and Pack (LAP) operations on ordnance-related products primarily for the United States Government and prime contractors. The absorbent products segment manufactures and sells private label adult incontinence products and diapers.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  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 - FAIL
  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 - 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 $63.03
MG Value $0.00
MG Opinion #DIV/0!
Value Based on 3% Growth $80.35
Value Based on 0% Growth $47.10
Market-implied growth rate 1.44%
NCAV $29.57
PEmg 11.37
Current Ratio 5.29
PB Ratio 1.34

Balance Sheet - December 2014

Current Assets $256,900,000
Current Liabilities $48,600,000
Total Debt $0
Total Assets $378,400,000
Intangible Assets $22,100,000
Total Liabilities $52,900,000
Outstanding Shares 6,900,000

Earnings Per Share

2014 $3.82
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 $5.54
2013 $6.73
2012 $7.24
2011 $7.86
2010 $7.84
2009 $6.60

Dividend History

Conclusion:

National Presto Industries Inc. (NPK) is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the inconsistend dividend record over the last ten years, along with the insufficient earnings growth over the last ten years.  The Enterprising Investor is only initially concerned by the lack of earnings growth over the last five years.  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.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $7.84 in 2010 to only $5.54 for 2014.  This lack of demonstrated growth does not support the market’s implied estimate of 1.44% 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 previous ModernGraham valuations of National Presto Industries Inc. (NPK) 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 National Presto Industries Inc. (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 Inc. (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 for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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