Martin Marietta Materials Inc Valuation – February 2016 Update $MLM

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 Companies Benjamin Graham Would Invest In Today – February 2016.  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 Martin Marietta Materials Inc (MLM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Martin Marietta Materials, Inc. is a supplier of aggregates products (crushed stone, sand, and gravel) and heavy building materials (cement) for the construction industry, including infrastructure, non-residential, residential, railroad ballast, agricultural and chemical grade stone used in environmental applications. The Company operates through three businesses: Aggregates Business, Cement Business and Magnesia Specialties Business. The Company’s Aggregates Business is engaged in mining, processing and selling granite, limestone, sand, gravel and other aggregate products. The Company’s Cement Business is engaged in producing Portland and specialty cements, such as masonry and oil well cements. The Company’s Magnesia Specialties Business includes magnesia-based chemicals and dolomitic lime businesses.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of MLM – February 2016

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 $8,015,139,929 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.85 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 -38.83% Fail
6. Moderate PEmg Ratio PEmg < 20 41.48 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.96 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 2.85 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.46 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

MLM value Chart February 2016

EPSmg $3.00
MG Growth Estimate 3.03%
MG Value $43.68
Opinion Overvalued
MG Value based on 3% Growth $43.51
MG Value based on 0% Growth $25.51
Market Implied Growth Rate 16.49%
Current Price $124.47
% of Intrinsic Value 284.97%

Martin Marietta Materials Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PB ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, Enterprising 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 overvalued after growing its EPSmg (normalized earnings) from $2.50 in 2011 to an estimated $3.00 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 16.49% 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.

Stage 3: Information for Further Research

MLM Charts February 2016

Net Current Asset Value (NCAV) -$23.03
Graham Number $77.75
PEmg 41.48
Current Ratio 2.85
PB Ratio 1.96
Dividend Yield 1.29%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $1,641,971,000
Total Current Liabilities $575,392,000
Long-Term Debt $1,557,616,000
Total Assets $7,438,448,000
Intangible Assets $2,131,200,000
Total Liabilities $3,187,566,000
Shares Outstanding (Diluted Average) 67,108,000

Earnings Per Share History

Next Fiscal Year Estimate $4.18
Dec2014 $2.71
Dec2013 $2.61
Dec2012 $1.83
Dec2011 $1.78
Dec2010 $2.10
Dec2009 $1.91
Dec2008 $4.18
Dec2007 $6.06
Dec2006 $5.29
Dec2005 $4.08
Dec2004 $2.66
Dec2003 $1.91
Dec2002 $1.77
Dec2001 $2.19
Dec2000 $2.39
Dec1999 $2.68
Dec1998 $2.48
Dec1997 $2.13
Dec1996 $1.71

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.00
Dec2014 $2.34
Dec2013 $2.12
Dec2012 $2.04
Dec2011 $2.50
Dec2010 $3.21
Dec2009 $3.94
Dec2008 $4.79
Dec2007 $4.73
Dec2006 $3.76
Dec2005 $2.83
Dec2004 $2.20
Dec2003 $2.04
Dec2002 $2.17
Dec2001 $2.38
Dec2000 $2.41
Dec1999 $2.21

Recommended Reading:

Other ModernGraham posts about the company

Martin Marietta Materials Inc. Valuation – October 2015 Update $MLM
Martin Marietta Materials Inc. Analysis – Initial Coverage $MLM

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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.  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.

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