Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 5 Most Undervalued Companies for the Defensive Investor – July 2015.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Alexander & Baldwin Inc (ALEX)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ 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.
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 aÂ 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:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-1.44%|
|MG Value based on 3% Growth||$12.99|
|MG Value based on 0% Growth||$7.62|
|Market Implied Growth Rate||16.53%|
|% of Intrinsic Value||740.01%|
Alexander & Baldwin Inc.Â is not suitable for the more conservative Defensive Investor orÂ the Enterprising Investor. Â The Defensive Investor is concerned with the small size, low current ratio,Â short history, and the high PEmg ratio. Â 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. Â As a result, all value investorsÂ 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,Â the company appears to be overvalued after seeingÂ itsÂ EPSmg (normalized earnings) decline from $0.99 in 2011 to an estimated $0.90 for 2015. Â This level of demonstrated earnings growth does not supportÂ the market’s implied estimate of 16.53% annual earnings growth over the next 7-10 years.Â As a result, the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value belowÂ the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Alexander & Baldwin Inc. (ALEX)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$17.19|
|Number of Consecutive Years of Dividend Growth||3|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Total Current Assets||$183,300,000|
|Total Current Liabilities||$136,200,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.93|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.90|
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.