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 Canfor Corporation (TSE:CFP) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Canfor Corporation is a Canada-based integrated forest products company. The Company is engaged in the production of softwood lumber, pulp and paper products, remanufactured lumber products, engineered wood products, wood pellets and energy. The Company operates through two segments: Lumber, and Pulp and Paper. Its Lumber segment includes logging operations, and manufacture and sale of various grades, widths and lengths of lumber, engineered wood products, wood chips and wood pellets. The Company’s Pulp and Paper segment includes purchase of residual fiber, and production and sale of pulp and paper products, including Northern Bleached Softwood Kraft (NBSK) and Bleached Chemi-Thermo Mechanical Pulp (BCTMP), as well as energy production. The Pulp and Paper segment includes its interest of Canfor Pulp Products Inc. (CPPI). The Company’s subsidiaries include Canadian Forest Products Ltd, New South Companies, Inc and Anthony Forest Products Co.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of TSE-CFP – 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 | $278,791,507 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.71 | 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 | -142.39% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 20.68 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.57 | 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 | 1.71 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 1.04 | 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 | $0.81 |
| MG Growth Estimate | 15.00% |
| MG Value | $31.34 |
| Opinion | Undervalued |
| MG Grade | B- |
| MG Value based on 3% Growth | $11.80 |
| MG Value based on 0% Growth | $6.92 |
| Market Implied Growth Rate | 6.09% |
| Current Price | $16.83 |
| % of Intrinsic Value | 53.70% |
Canfor Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. 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 $-0.16 in 2012 to an estimated $0.81 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.09% 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 Canfor Corporation revealed the company was trading above its Graham Number of $14.31. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.68, which was below the industry average of 24.45, 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 $-6.5.
Cornerstone Progressive Return Fund performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$6.50 |
| Graham Number | $14.31 |
| PEmg | 20.68 |
| Current Ratio | 1.71 |
| PB Ratio | 1.57 |
| 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 | $1,019,200,000 |
| Total Current Liabilities | $594,900,000 |
| Long-Term Debt | $441,600,000 |
| Total Assets | $3,304,400,000 |
| Intangible Assets | $767,900,000 |
| Total Liabilities | $1,882,800,000 |
| Shares Outstanding (Diluted Average) | 132,805,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $0.85 |
| Dec2015 | $0.18 |
| Dec2014 | $1.28 |
| Dec2013 | $1.61 |
| Dec2012 | $0.18 |
| Dec2011 | -$0.40 |
| Dec2010 | $0.57 |
| Dec2009 | -$0.50 |
| Dec2008 | -$2.42 |
| Dec2007 | -$2.53 |
| Dec2006 | $3.31 |
| Dec2005 | $0.67 |
| Dec2004 | $3.22 |
| Dec2003 | $1.65 |
| Dec2002 | $0.07 |
| Dec2001 | $0.19 |
| Dec2000 | $1.28 |
| Dec1999 | $1.66 |
| Dec1998 | -$3.49 |
| Dec1997 | -$0.56 |
| Dec1996 | -$0.97 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $0.81 |
| Dec2015 | $0.72 |
| Dec2014 | $0.88 |
| Dec2013 | $0.55 |
| Dec2012 | -$0.16 |
| Dec2011 | -$0.57 |
| Dec2010 | -$0.54 |
| Dec2009 | -$0.83 |
| Dec2008 | -$0.52 |
| Dec2007 | $0.71 |
| Dec2006 | $2.15 |
| Dec2005 | $1.43 |
| Dec2004 | $1.64 |
| Dec2003 | $0.89 |
| Dec2002 | $0.32 |
| Dec2001 | $0.23 |
| Dec2000 | $0.03 |
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
| First Solar Inc. Valuation – November 2015 Update $FSLR | |
| First Solar Inc. Annual Valuation – 2014 $FSLR |
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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