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 Airgas Inc (ARG) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Airgas, Inc. is a supplier of industrial, medical and specialty gases, and hard goods, such as welding equipment and related products. The Company is also a producer of atmospheric gases, carbon dioxide, dry ice and nitrous oxide and a supplier of safety products, refrigerants, ammonia products and process chemicals. It operates through two segments: Distribution and All Other Operations. The Distribution segment offers a portfolio of related gas and hard goods products and services to the end customers. The All Other Operations segment consists of five business units which manufacture or distribute carbon dioxide, dry ice, nitrous oxide, ammonia and refrigerant gases. It also offers supply chain management services and solutions, and product and process technical support across many customer segments. It markets its products and services through multiple sales channels, including branch-based sales representatives, retail stores and strategic customer account programs, among others.
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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 | $10,158,106,313 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.12 | 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 | 84.42% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 30.24 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 5.19 | 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 | 1.12 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 12.51 | 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 | $4.63 |
| MG Growth Estimate | 6.86% |
| MG Value | $102.95 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $67.17 |
| MG Value based on 0% Growth | $39.38 |
| Market Implied Growth Rate | 10.87% |
| Current Price | $140.10 |
| % of Intrinsic Value | 136.08% |
Airgas, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.18 in 2012 to an estimated $4.63 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.87% 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. Airgas, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$37.90 |
| Graham Number | $53.59 |
| PEmg | 30.24 |
| Current Ratio | 1.12 |
| PB Ratio | 5.19 |
| Dividend Yield | 1.83% |
| Number of Consecutive Years of Dividend Growth | 13 |
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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 | Dec2015 |
| Total Current Assets | $1,434,447,000 |
| Total Current Liabilities | $1,278,350,000 |
| Long-Term Debt | $1,953,450,000 |
| Total Assets | $6,180,874,000 |
| Intangible Assets | $1,618,861,000 |
| Total Liabilities | $4,205,404,000 |
| Shares Outstanding (Diluted Average) | 73,112,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $4.67 |
| Mar2015 | $4.85 |
| Mar2014 | $4.68 |
| Mar2013 | $4.35 |
| Mar2012 | $4.00 |
| Mar2011 | $2.94 |
| Mar2010 | $2.34 |
| Mar2009 | $3.12 |
| Mar2008 | $2.66 |
| Mar2007 | $1.92 |
| Mar2006 | $1.57 |
| Mar2005 | $1.20 |
| Mar2004 | $1.07 |
| Mar2003 | $0.94 |
| Mar2002 | -$0.15 |
| Mar2001 | $0.42 |
| Mar2000 | $0.54 |
| Mar1999 | $0.72 |
| Mar1998 | $0.57 |
| Mar1997 | $0.34 |
| Mar1996 | $0.60 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $4.63 |
| Mar2015 | $4.46 |
| Mar2014 | $4.07 |
| Mar2013 | $3.62 |
| Mar2012 | $3.18 |
| Mar2011 | $2.71 |
| Mar2010 | $2.50 |
| Mar2009 | $2.42 |
| Mar2008 | $1.94 |
| Mar2007 | $1.50 |
| Mar2006 | $1.17 |
| Mar2005 | $0.88 |
| Mar2004 | $0.67 |
| Mar2003 | $0.48 |
| Mar2002 | $0.30 |
| Mar2001 | $0.53 |
| Mar2000 | $0.57 |
Recommended Reading:
Other ModernGraham posts about the company
27 Companies in the Spotlight This Week – 12/20/14
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.
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