Compass Minerals International Inc Valuation – Initial Coverage $CMP

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 Compass Minerals International Inc (CMP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Compass Minerals International, Inc. is a holding company. The Company, through its subsidiaries, is engaged in producing and marketing essential minerals, including salt, sulfate of potash (SOP) specialty fertilizer, magnesium chloride and micronutrients. It operates through two segments, which include salt and plant nutrition. The salt segment mines, produces, processes, distributes and markets sodium chloride and magnesium chloride in North America and sodium chloride in the United Kingdom. The salt segment products include rock salt, mechanically evaporated and solar evaporated salt, and brine and flake magnesium chloride. The plant nutrition segment includes sales of SOP and micronutrients. It sells micronutrient products under Wolf Trax brand. Its SOP product is marketed under the brand name Protassium+. The Company operates over 10 production and packaging facilities, including the rock salt mines in Goderich, Ontario, Canada, and in the United Kingdom in Winsford, Cheshire.

CMP Chart

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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 CMP – 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 $2,770,630,871 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.41 Pass
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 15.30% Fail
6. Moderate PEmg Ratio PEmg < 20 19.41 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.12 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 6.41 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.66 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 Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.20
MG Growth Estimate 0.94%
MG Value $43.55
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $60.84
MG Value based on 0% Growth $35.67
Market Implied Growth Rate 5.46%
Current Price $81.45
% of Intrinsic Value 187.02%

Compass Minerals International, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 Overvalued after growing its EPSmg (normalized earnings) from $3.95 in 2012 to an estimated $4.2 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.46% 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 below the price.

At the time of valuation, further research into Compass Minerals International, Inc. revealed the company was trading above its Graham Number of $35.83. The company pays a dividend of $2.75 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.41, which was below the industry average of 22.46, 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 $-17.

Compass Minerals International, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.00
Graham Number $35.83
PEmg 19.41
Current Ratio 6.41
PB Ratio 4.12
Current Dividend $2.75
Dividend Yield 3.37%
Number of Consecutive Years of Dividend Growth 13


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $860,800,000
Total Current Liabilities $134,300,000
Long-Term Debt $1,204,100,000
Total Assets $2,102,400,000
Intangible Assets $145,800,000
Total Liabilities $1,435,100,000
Shares Outstanding (Diluted Average) 33,789,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.89
Dec2015 $4.69
Dec2014 $6.44
Dec2013 $3.88
Dec2012 $2.65
Dec2011 $4.45
Dec2010 $4.51
Dec2009 $4.92
Dec2008 $4.81
Dec2007 $2.43
Dec2006 $1.69
Dec2005 $0.97
Dec2004 $1.57
Dec2003 $1.01
Dec2002 $0.23
Dec2001 $8.17
Dec2000 -$890,562.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.20
Dec2015 $4.71
Dec2014 $4.61
Dec2013 $3.82
Dec2012 $3.95
Dec2011 $4.47
Dec2010 $4.21
Dec2009 $3.70
Dec2008 $2.82
Dec2007 $1.73
Dec2006 $1.29
Dec2005 $1.52
Dec2004 -$59,368.89
Dec2003 -$118,739.60
Dec2002 -$178,110.19
Dec2001 -$237,480.54
Dec2000 -$296,854.08

Recommended Reading:

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

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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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