Masco Corporation Annual Valuation – 2015 $MAS

Masco_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 – February 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 Masco Corporation (MAS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Masco Corporation manufactures, distributes and installs home improvement and building products, with a focus on brand-name consumer products and services. The Company manufacturers home improvement and building products, including faucets, cabinets, architectural coatings and windows, and it also installs insulation for new home construction. The Company provides product offerings in a variety of styles and distributes products through multiple channels, including directly to homebuilders and wholesale and retail channels. The Company has five business segments which include Cabinets and Related Products, Plumbing Products, Installation and Other Services, Decorative Architectural Products and Other Specialty Products. Approximately 81% of its 2013 sales were generated by its North American operations.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  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 - FAIL
  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 - FAIL
  7. 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 = 3/5

  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 - FAIL
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $26.82
MG Value $19.99
MG Opinion Overvalued
Value Based on 3% Growth $7.53
Value Based on 0% Growth $4.41
Market Implied Growth Rate 21.57%
Net Current Asset Value (NCAV) -$6.82
PEmg 51.64
Current Ratio 1.75
PB Ratio 10.13

Balance Sheet – February 2015

Current Assets $3,863,000,000
Current Liabilities $2,211,000,000
Total Debt $2,919,000,000
Total Assets $7,167,000,000
Intangible Assets $2,029,000,000
Total Liabilities $6,243,000,000
Outstanding Shares 349,000,000

Earnings Per Share

2014 $2.38
2013 $0.80
2012 -$0.33
2011 -$1.66
2010 -$3.00
2009 -$0.53
2008 -$1.13
2007 $1.03
2006 $1.22
2005 $2.19
2004 $2.04

Earnings Per Share – ModernGraham

2014 $0.52
2013 -$0.59
2012 -$1.30
2011 -$1.54
2010 -$1.15
2009 $0.04

Dividend History


Masco Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years along with the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the net current assets and lack of earnings stability over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued despite growing its EPSmg (normalized earnings) from a loss of $1.15 in 2010 to only $0.52 for 2014.  This level of growth does not support the market’s implied estimate of 21.57% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

Be sure to check out previous ModernGraham valuations of Masco Corporation (MAS) 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 Masco Corporation (MAS)?  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 Masco Corporation (MAS) 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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