Ashland Inc. Analysis – Initial Coverage $ASH

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 10 Most Undervalued Companies for the Defensive Investor – August 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 Ashland Inc. (ASH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Ashland Inc. (Ashland) is a specialty chemical company that provides products, services and solutions to industries. The Company’s segments are: Ashland Specialty Ingredients offers products, technologies and resources in key markets including personal and home care, pharmaceutical, food and beverage, coatings, construction, energy and other industries; Ashland Water Technologies is a supplier of specialty chemicals and services to the pulp, paper, mining, food and beverage, power generation, refining, chemical processing, general manufacturing and municipal markets. Ashland Performance Materials helps customers to create substitutes for traditional materials through higher performing, cost-efficient resin and adhesive technologies that improve the manufacturing, fabrication and design process, and Ashland Consumer Markets delivers premium-branded automotive, commercial and industrial lubricants, automotive chemicals and car-care products.


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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 ASH – 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 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
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 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 Pass
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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg 5.13
MG Growth Estimate 10.80%
MG Value $154.25
Opinion Undervalued
MG Value based on 3% Growth $74.33
MG Value based on 0% Growth $43.57
Market Implied Growth Rate 6.02%
Current Price $105.26
% of Intrinsic Value 68.24%

Ashland Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the high PEmg ratio while the Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.98 in 2011 to an estimated $5.13 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.02% 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 above 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 Ashland Inc. (ASH)?  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

ASH Charts August 2015

Net Current Asset Value (NCAV) -$54.35
PEmg 20.53
Current Ratio 2.25
PB Ratio 2.26
Dividend Yield 1.34%
Number of Consecutive Years of Dividend Growth 6



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Most Recent Balance Sheet Figures

Total Current Assets $3,092,000,000
Total Current Liabilities $1,374,000,000
Long-Term Debt $3,362,000,000
Total Assets $9,955,000,000
Intangible Assets $3,689,000,000
Total Liabilities $6,788,000,000
Shares Outstanding (Diluted Average) 68,000,000

Earnings Per Share History

Next Fiscal Year Estimate $6.67
Sep14 $3.00
Sep13 $8.57
Sep12 $0.33
Sep11 $5.17
Sep10 $1.78
Sep09 $0.96
Sep08 $2.63
Sep07 $3.60
Sep06 $5.64
Sep05 $26.85
Sep04 $5.25
Sep03 $1.10
Sep02 $1.67
Sep01 $5.93
Sep00 $0.98
Sep99 $3.89
Sep98 $2.63
Sep97 $3.64
Sep96 $2.96
Sep95 $0.08

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.13
Sep14 $4.16
Sep13 $4.28
Sep12 $2.15
Sep11 $2.98
Sep10 $2.23
Sep09 $4.28
Sep08 $6.89
Sep07 $8.85
Sep06 $10.35
Sep05 $11.19
Sep04 $3.23
Sep03 $2.39
Sep02 $3.03
Sep01 $3.61
Sep00 $2.57
Sep99 $3.13

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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.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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