Kellogg Company Valuation – July 2016 $K

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 - June 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 Kellogg Company (K) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Kellogg Company is a manufacturer and marketer of ready-to-eat cereal and convenience foods. The Company’s products include cookies, crackers, savory snacks, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles and veggie foods. Its segments include U.S. Morning Foods; U.S. Snacks; U.S. Specialty; North America Other; Europe; Latin America, and Asia Pacific. The U.S. Morning Foods operating segment includes cereal, toaster pastries, health and wellness bars, and beverages. The U.S. Snacks segment includes cookies, crackers, cereal bars, savory snacks and fruit-flavored snacks. Its U.S. Specialty segment primarily represents food away from home channels, including food service, convenience, vending, Girl Scouts and food manufacturing. The North America Other segment includes the U.S. Frozen, Kashi and Canada operating segments. The Company’s Asia Pacific segment includes Sub-Saharan Africa, Australia and other Asian and Pacific markets.


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.


Downloadable PDF version of this valuation:

ModernGraham Valuation of K – July 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 $30,448,637,687 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.62 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 -20.43% Fail
6. Moderate PEmg Ratio PEmg < 20 29.92 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 14.91 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 0.62 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.22 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 Fail

Stage 2: Determination of Intrinsic Value

K value chart July 2016

EPSmg $2.85
MG Growth Estimate -1.07%
MG Value $18.11
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $41.35
MG Value based on 0% Growth $24.24
Market Implied Growth Rate 10.71%
Current Price $85.32
% of Intrinsic Value 471.00%

Kellogg Company 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 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 growth 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 seeing its EPSmg (normalized earnings) decline from $3.07 in 2012 to an estimated $2.85 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.71% 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.

Kellogg Company scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

K charts July 2016

Net Current Asset Value (NCAV) -$28.30
Graham Number $21.74
PEmg 29.92
Current Ratio 0.62
PB Ratio 14.91
Current Dividend $1.99
Dividend Yield 2.33%
Number of Consecutive Years of Dividend Growth 12


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 3/1/2016
Total Current Assets $3,219,000,000
Total Current Liabilities $5,162,000,000
Long-Term Debt $6,256,000,000
Total Assets $15,297,000,000
Intangible Assets $7,267,000,000
Total Liabilities $13,266,000,000
Shares Outstanding (Diluted Average) 355,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.62
Dec2015 $1.72
Dec2014 $1.75
Dec2013 $4.94
Dec2012 $2.67
Dec2011 $3.38
Dec2010 $3.30
Dec2009 $3.16
Dec2008 $2.99
Dec2007 $2.76
Dec2006 $2.51
Dec2005 $2.36
Dec2004 $2.14
Dec2003 $1.92
Dec2002 $1.75
Dec2001 $1.16
Dec2000 $1.45
Dec1999 $0.83
Dec1998 $1.23
Dec1997 $1.32
Dec1996 $1.25

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.85
Dec2015 $2.61
Dec2014 $3.11
Dec2013 $3.69
Dec2012 $3.07
Dec2011 $3.22
Dec2010 $3.08
Dec2009 $2.89
Dec2008 $2.69
Dec2007 $2.47
Dec2006 $2.27
Dec2005 $2.05
Dec2004 $1.83
Dec2003 $1.59
Dec2002 $1.38
Dec2001 $1.19
Dec2000 $1.21

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – February 2015
27 Companies in the Spotlight This Week – 2/14/15
Kellogg Company Annual Valuation – 2015 $K
15 Companies in the Spotlight This Week – 2/8/14
Kellogg Company (K) Annual Valuation

Other ModernGraham posts about related companies

Hershey Co Valuation – July 2016 $HSY
PepsiCo Inc Valuation – July 2016 $PEP
Mead Johnson Nutrition Valuation – June 2016 $MJN
B&G Foods Inc Valuation – March 2016 $BGS
Hormel Foods Corp Stock Valuation – February 2016 $HRL
J.M. Smucker Co Valuation – February 2016 $SJM
Archer-Daniels Midland Co Valuation – February 2016 $ADM
Keurig Green Mountain Inc Valuation – January 2016 Update $GMCR
Hormel Foods Corp Stock Valuation – February 2016 $HRL
J.M. Smucker Co Valuation – February 2016 $SJM


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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.