Commercial Metals Company Valuation – Initial Coverage $CMC

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 – January 2017.  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 Commercial Metals Company (CMC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Commercial Metals Company, together with its subsidiaries, manufactures, recycles and markets steel and metal products, related materials and services through a network. The Company’s Americas Recycling segment processes scrap metals for use as a raw material by manufacturers of new metal products. The Americas Mills segment consists of steel mills, commonly referred to as minimills that produce reinforcing bar (rebar), angles, flats and rounds. Its Americas Fabrication segment consists of its steel fabrication facilities that bend, weld, cut and fabricate steel, primarily rebar. Its International Mill segment consists of its mill, recycling and fabrication operations located in Poland. Its International Marketing and Distribution segment includes international operations for the sales, distribution and processing of primary and secondary metals, fabricated metals, semi-finished, long and flat steel products, and other industrial products.

CMC Chart

CMC data by YCharts

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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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CMC – January 2017

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 $2,283,218,139 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.58 Pass
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 411.76% Pass
6. Moderate PEmg Ratio PEmg < 20 32.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.79 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 2.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.64 Pass
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 $0.63
MG Growth Estimate 15.00%
MG Value $24.26
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $9.14
MG Value based on 0% Growth $5.36
Market Implied Growth Rate 11.92%
Current Price $20.38
% of Intrinsic Value 84.02%

Commercial Metals Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg ratio. The Enterprising Investor has no initial concerns. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.24 in 2013 to an estimated $0.63 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 11.92% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Commercial Metals Company revealed the company was trading above its Graham Number of $12.47. The company pays a dividend of $0.48 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 32.35, which was below the industry average of 35.02, 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 $2.06.

Commercial Metals Company performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.06
Graham Number $12.47
PEmg 32.35
Current Ratio 2.58
PB Ratio 1.79
Current Dividend $0.48
Dividend Yield 2.36%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2016
Total Current Assets $1,912,670,000
Total Current Liabilities $740,451,000
Long-Term Debt $755,161,000
Total Assets $3,002,580,000
Intangible Assets $66,114,000
Total Liabilities $1,672,647,000
Shares Outstanding (Diluted Average) 116,605,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.60
Aug2016 $0.47
Aug2015 $0.67
Aug2014 $0.95
Aug2013 $0.66
Aug2012 $1.78
Aug2011 -$1.12
Aug2010 -$1.81
Aug2009 $0.18
Aug2008 $1.97
Aug2007 $2.92
Aug2006 $2.89
Aug2005 $2.32
Aug2004 $1.11
Aug2003 $0.17
Aug2002 $0.36
Aug2001 $0.23
Aug2000 $0.39
Aug1999 $0.40
Aug1998 $0.35
Aug1997 $0.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.63
Aug2016 $0.73
Aug2015 $0.77
Aug2014 $0.58
Aug2013 $0.24
Aug2012 $0.09
Aug2011 -$0.36
Aug2010 $0.42
Aug2009 $1.71
Aug2008 $2.40
Aug2007 $2.37
Aug2006 $1.85
Aug2005 $1.17
Aug2004 $0.54
Aug2003 $0.28
Aug2002 $0.34
Aug2001 $0.33

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Allegheny Technologies Inc. Valuation – November 2015 Update $ATI
Nucor Corporation Analysis – September 2015 Update $NUE
Cliffs Natural Resources Inc. Analysis – August 2015 Update $CLF
Nucor Corporation Analysis – June 2015 Update $NUE
Nucor Corporation Quarterly Valuation – March 2015 $NUE
United States Steel Corporation Annual Valuation – 2015 $X


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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