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 Stocks for Using A Benjamin Graham Value Investing Strategy – August 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 Sanmina Corp (SANM) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Sanmina Corporation is a provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. The Company provides these offerings primarily to original equipment manufacturers (OEMs), in the communications networks, computing and storage, multimedia, industrial and semiconductor capital equipment, defense and aerospace, medical, clean technology (CleanTech) and automotive industries. Its operations are managed as two businesses such as Integrated Manufacturing Solutions (IMS) and Components, Products and Services (CPS). The Company’s services include product design and engineering, including initial development, detailed design, prototyping, validation, preproduction services and manufacturing design release; manufacturing of components, subassemblies and complete systems; final system assembly and test, direct order fulfillment and logistics services, and after-market product service and support, and global supply chain management.
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Downloadable PDF version of this valuation:
moderngraham-valuation-of-sanm-december-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 | $2,523,838,015 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.70 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -264.80% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 12.14 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.64 | 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 | 1.70 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.45 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.75 |
| MG Growth Estimate | 15.00% |
| MG Value | $106.05 |
| Opinion | Undervalued |
| MG Grade | B+ |
| MG Value based on 3% Growth | $39.94 |
| MG Value based on 0% Growth | $23.41 |
| Market Implied Growth Rate | 1.82% |
| Current Price | $33.45 |
| % of Intrinsic Value | 31.54% |
Sanmina Corp is suitable for the Enterprising Investor but not 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 poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.14 in 2013 to an estimated $2.75 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Sanmina Corp revealed the company was trading below its Graham Number of $36.05. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 12.14, which was below the industry average of 22.64, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.57.
Sanmina Corp performs fairly well in the ModernGraham grading system, scoring a B+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $4.57 |
| Graham Number | $36.05 |
| PEmg | 12.14 |
| Current Ratio | 1.70 |
| PB Ratio | 1.64 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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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 | 9/16/2016 |
| Total Current Assets | $2,375,652,000 |
| Total Current Liabilities | $1,401,263,000 |
| Long-Term Debt | $434,059,000 |
| Total Assets | $3,625,222,000 |
| Intangible Assets | $0 |
| Total Liabilities | $2,015,419,000 |
| Shares Outstanding (Diluted Average) | 78,787,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $2.62 |
| Sep2016 | $2.38 |
| Sep2015 | $4.41 |
| Sep2014 | $2.27 |
| Sep2013 | $0.93 |
| Sep2012 | $2.16 |
| Sep2011 | $0.83 |
| Sep2010 | $1.48 |
| Sep2009 | -$1.67 |
| Sep2008 | -$5.52 |
| Sep2007 | -$12.90 |
| Sep2006 | -$1.62 |
| Sep2005 | -$11.94 |
| Sep2004 | -$0.60 |
| Sep2003 | -$1.61 |
| Sep2002 | -$33.60 |
| Sep2001 | $0.72 |
| Sep2000 | $3.90 |
| Sep1999 | $2.10 |
| Sep1998 | $0.84 |
| Sep1997 | $1.38 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $2.75 |
| Sep2016 | $2.69 |
| Sep2015 | $2.60 |
| Sep2014 | $1.65 |
| Sep2013 | $1.14 |
| Sep2012 | $0.65 |
| Sep2011 | -$1.26 |
| Sep2010 | -$2.88 |
| Sep2009 | -$5.62 |
| Sep2008 | -$7.24 |
| Sep2007 | -$7.31 |
| Sep2006 | -$6.30 |
| Sep2005 | -$8.89 |
| Sep2004 | -$6.99 |
| Sep2003 | -$8.69 |
| Sep2002 | -$9.89 |
| Sep2001 | $1.90 |
Recommended Reading:
Other ModernGraham posts about the company
None. Â This is the first time ModernGraham has covered 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.
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