Williams Companies Inc Valuation – June 2016 $WMB

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 – March 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 Williams Companies Inc (WMB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Williams Companies, Inc. is an energy infrastructure company focused on connecting North America’s hydrocarbon resource plays to markets for natural gas, natural gas liquids and olefins. The Company’s segments include Williams Partners, Williams NGL & Petchem Services, and Other. Its Williams Partners segment consists of its consolidated partnership in Williams Partners L.P., including gas pipeline, which consists of interstate natural gas pipelines and pipeline joint project investments, and midstream business, which provides natural gas gathering, treating, processing and compression services. Its Canadian midstream operations include an oilsands off gas processing plant, NGL/olefin fractionation facility and the Boreal Pipeline. The Williams NGL & Petchem Services segment consists of Texas Belle pipeline, domestic olefins pipeline assets and Canadian growth projects under development. Its Other segment includes corporate operations and Canadian construction services company.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of WMB – June 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 $16,612,988,233 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.45 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -49.12% Fail
6. Moderate PEmg Ratio PEmg < 20 36.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.91 Fail
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 0.45 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -15.51 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

WMB value chart June 2016

EPSmg $0.60
MG Growth Estimate 4.05%
MG Value $9.99
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $8.73
MG Value based on 0% Growth $5.12
Market Implied Growth Rate 14.06%
Current Price $22.04
% of Intrinsic Value 220.53%

Williams Companies 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, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. 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 $0.47 in 2012 to an estimated $0.6 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.06% 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.

Williams Companies Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

WMB charts June 2016

Net Current Asset Value (NCAV) -$55.78
Graham Number $4.89
PEmg 36.61
Current Ratio 0.45
PB Ratio 2.91
Current Dividend $2.51
Dividend Yield 11.39%
Number of Consecutive Years of Dividend Growth 13


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,261,000,000
Total Current Liabilities $2,789,000,000
Long-Term Debt $23,701,000,000
Total Assets $48,807,000,000
Intangible Assets $9,928,000,000
Total Liabilities $43,116,000,000
Shares Outstanding (Diluted Average) 750,332,000

Earnings Per Share History

Next Fiscal Year Estimate $0.14
Dec2015 -$0.76
Dec2014 $2.92
Dec2013 $0.62
Dec2012 $1.37
Dec2011 $0.63
Dec2010 -$1.88
Dec2009 $0.49
Dec2008 $2.40
Dec2007 $1.63
Dec2006 $0.51
Dec2005 $0.53
Dec2004 $0.31
Dec2003 -$1.01
Dec2002 -$1.63
Dec2001 -$0.96
Dec2000 $1.17
Dec1999 $0.50
Dec1998 $0.28
Dec1997 $0.80
Dec1996 $1.07

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.60
Dec2015 $0.87
Dec2014 $1.37
Dec2013 $0.48
Dec2012 $0.47
Dec2011 $0.24
Dec2010 $0.24
Dec2009 $1.23
Dec2008 $1.43
Dec2007 $0.76
Dec2006 $0.13
Dec2005 -$0.22
Dec2004 -$0.54
Dec2003 -$0.77
Dec2002 -$0.48
Dec2001 $0.18
Dec2000 $0.76

Recommended Reading:

Other ModernGraham posts about the company

34 Companies in the Spotlight This Week – 2/7/15
Williams Companies Annual Valuation – 2015 $WMB
15 Companies in the Spotlight This Week – 2/1/14
Williams Companies (WMB) Annual Valuation

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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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