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 – November 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 Genuine Parts Co (GPC) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Genuine Parts Company is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. The Company operates through four segments: Automotive Parts Group, which distributes automotive parts and accessory items; Industrial Parts Group, which distributes industrial replacement parts and related supplies; Office Products Group, which is engaged in the wholesale distribution of a line of office and other business related products, and Electrical/Electronic Materials Group, which distributes materials to more than 20,000 electrical and electronic manufacturers, as well as industrial assembly and specialty wire and cable markets in North America. In 2014, the Company’s business was conducted from approximately 2,600 locations throughout the United States, Canada, Mexico, Australia and New Zealand.
[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
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.
[/level-free]
[not-level-free]
Downloadable PDF version of this valuation:
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 | $12,566,109,997 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.49 | 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 | 56.47% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 19.52 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 4.15 | Fail | |
| Score | ||||
| 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 | 1.49 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.27 | 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 | $4.41 |
| MG Growth Estimate | 6.48% |
| MG Value | $94.75 |
| Opinion | Fairly Valued |
| MG Value based on 3% Growth | $63.99 |
| MG Value based on 0% Growth | $37.51 |
| Market Implied Growth Rate | 5.51% |
| Current Price | $86.17 |
| % of Intrinsic Value | 90.95% |
Genuine Parts Co qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio along with the high PB ratio.  The Enterprising Investor is only initially concerned by the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.08 in 2011 to an estimated $4.41 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.51% 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 within a margin of safety relative to 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 Genuine Parts Co (GPC)?  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
| Net Current Asset Value (NCAV) | $3.81 |
| Graham Number | $46.26 |
| PEmg | 19.52 |
| Current Ratio | 1.49 |
| PB Ratio | 4.15 |
| Dividend Yield | 2.81% |
| Number of Consecutive Years of Dividend Growth | 20 |
[/not-level-free]
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | Sep2015 |
| Total Current Assets | $5,623,482,000 |
| Total Current Liabilities | $3,764,068,000 |
| Long-Term Debt | $500,000,000 |
| Total Assets | $8,203,128,000 |
| Intangible Assets | $1,328,431,000 |
| Total Liabilities | $5,044,342,000 |
| Shares Outstanding (Diluted Average) | 152,143,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $4.54 |
| Dec2014 | $4.61 |
| Dec2013 | $4.40 |
| Dec2012 | $4.14 |
| Dec2011 | $3.58 |
| Dec2010 | $3.00 |
| Dec2009 | $2.50 |
| Dec2008 | $2.92 |
| Dec2007 | $2.98 |
| Dec2006 | $2.76 |
| Dec2005 | $2.50 |
| Dec2004 | $2.25 |
| Dec2003 | $1.91 |
| Dec2002 | -$0.16 |
| Dec2001 | $1.71 |
| Dec2000 | $2.20 |
| Dec1999 | $2.11 |
| Dec1998 | $1.98 |
| Dec1997 | $1.90 |
| Dec1996 | $1.81 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $4.41 |
| Dec2014 | $4.22 |
| Dec2013 | $3.85 |
| Dec2012 | $3.46 |
| Dec2011 | $3.08 |
| Dec2010 | $2.83 |
| Dec2009 | $2.74 |
| Dec2008 | $2.80 |
| Dec2007 | $2.66 |
| Dec2006 | $2.28 |
| Dec2005 | $1.91 |
| Dec2004 | $1.60 |
| Dec2003 | $1.37 |
| Dec2002 | $1.26 |
| Dec2001 | $1.97 |
| Dec2000 | $2.07 |
| Dec1999 | $1.85 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
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.  See my current holdings here.  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.  Please be sure to review our detailed disclaimer.
Â
Leave a Reply