Alexander & Baldwin Inc Analysis – Initial Coverage $ALEX

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 – 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 Alexander & Baldwin Inc (ALEX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Alexander & Baldwin, Inc. (A&B) is a company engaged in real estate development, real estate leasing, materials and construction, and agribusiness. The Company operates in four segments: Real Estate Development and Sales, Real Estate Leasing, Materials and Construction, and Agribusiness. The Real Estate Development and Sales segment generates its revenues through a program of land stewardship, planning, entitlement, development, real estate investment and sale of land and commercial and residential properties in Hawaii. The Real Estate Leasing segment owns, operates, and manages a portfolio of 60 retail, office and industrial properties in Hawaii and on the Mainland totaling 5.1 million square feet of gross leasable area (GLA). The Materials and Construction segment performs asphalt paving as prime contractor and subcontractor. The Agribusiness segment produces bulk raw sugar, specialty food grade sugars and molasses.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ALEX – 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; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
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 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
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 Fail

Stage 2: Determination of Intrinsic Value

EPSmg 0.90
MG Growth Estimate -1.44%
MG Value $5.03
Opinion Overvalued
MG Value based on 3% Growth $12.99
MG Value based on 0% Growth $7.62
Market Implied Growth Rate 16.53%
Current Price $37.23
% of Intrinsic Value 740.01%

Alexander & Baldwin Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the small size, low current ratio, short history, and the high PEmg ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets and the lack of earnings growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.99 in 2011 to an estimated $0.90 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 16.53% 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 Alexander & Baldwin Inc. (ALEX)?  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

ALEX charts August 2015

Net Current Asset Value (NCAV) -$17.19
PEmg 41.55
Current Ratio 1.35
PB Ratio 1.49
Dividend Yield 0.51%
Number of Consecutive Years of Dividend Growth 3


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Most Recent Balance Sheet Figures

Total Current Assets $183,300,000
Total Current Liabilities $136,200,000
Long-Term Debt $568,600,000
Total Assets $2,269,600,000
Intangible Assets $161,100,000
Total Liabilities $1,032,400,000
Outstanding Shares 49,400,000

Earnings Per Share History

Next Fiscal Year Estimate $0.93
Dec14 $1.25
Dec13 $0.76
Dec12 $0.48
Dec11 $0.55
Dec10 $2.22
Dec09 $1.08

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.90
Dec14 $0.94
Dec13 $0.86
Dec12 $0.89
Dec11 $0.99
Dec10 $1.03
Dec09 $0.36

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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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