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Machinery Stocks

Pall Corporation Analysis – August 2015 Update $PLL

pll 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 – July 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 stock analysis showing a specific look at how Pall Corporation (PLL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Pall Corporation is a filtration, separation and purification company. The Company is a supplier of filtration, separation and purification technologies, principally made by the Company using its engineering capability and fluid management, filter media, and other fluid clarification and separations equipment for the removal of solid, liquid and gaseous contaminants from a variety of liquids and gases. The Company serves customers through two businesses globally: Life Sciences and Industrial. The Life Sciences business group is focused on developing, manufacturing and selling products to customers in the Medical, BioPharmaceuticals and Food & Beverage markets. The Industrial business group is focused on developing, manufacturing and selling products to customers in the Process Technologies, Aerospace and Microelectronics markets.
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Downloadable PDF version of this valuation:

ModernGraham Valuation of Pall Corporation – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 3.64
MG Growth Estimate 11.47%
MG Value $114.40
Opinion Overvalued
MG Value based on 3% Growth $52.76
MG Value based on 0% Growth $30.93
Market Implied Growth Rate 13.15%
Current Price $126.63
% of Intrinsic Value 110.69%

Pall Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.06 in 2011 to only an estimated $3.64 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 13.15% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below 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 Pall Corporation (PLL)?  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.

Stage 3: Information for Further Research

PLL charts August 2015

Net Current Asset Value (NCAV) $0.71
PEmg 34.80
Current Ratio 1.69
PB Ratio 8.41
Dividend Yield 0.94%
Number of Consecutive Years of Dividend Growth 6

Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $2,182,730,000
Total Current Liabilities $1,292,549,000
Long-Term Debt $373,472,000
Total Assets $3,740,373,000
Intangible Assets $699,359,000
Total Liabilities $2,105,816,000
Outstanding Shares 108,557,000

Earnings Per Share History

Next Fiscal Year Estimate $3.68
Jul14 $3.25
Jul13 $5.03
Jul12 $2.71
Jul11 $2.67
Jul10 $2.03
Jul09 $1.64
Jul08 $1.76
Jul07 $1.02
Jul06 $0.41
Jul05 $0.91
Jul04 $0.98
Jul03 $0.83
Jul02 $0.59
Jul01 $0.95
Jul00 $1.18
Jul99 $0.41
Jul98 $0.75
Jul97 $0.53
Jul96 $1.13

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.64
Jul14 $3.46
Jul13 $3.31
Jul12 $2.36
Jul11 $2.06
Jul10 $1.63
Jul09 $1.34
Jul08 $1.13
Jul07 $0.82
Jul06 $0.73
Jul05 $0.87
Jul04 $0.87
Jul03 $0.81
Jul02 $0.79
Jul01 $0.85
Jul00 $0.80

 

Disclaimer:

The author did not hold a position in any 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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