KLX Inc Valuation – Initial Coverage $KLXI

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 – February 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 KLX Inc (KLXI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLX Inc. (KLX) is the distributor and service provider of aerospace fasteners and consumables. The Company offers ranges of aerospace hardware and consumables and inventory management services across the world. The Company operates through two segments: Aerospace Solutions Group (ASG) and Energy Services Group (ESG). The Company’s ASG segment service offerings include inventory management and replenishment, creative and differential supply chain solutions, such as third-party logistics programs, special packaging and bar-coding, parts kitting, quality assurance testing and a range of purchasing assistance programs, plus the electronic data interchange capability. The Company’s ESG segment products and services include onshore completion services, wireline services, fishing services and tools, down-hole completion and production services, pressure control, accommodations and related surface rental equipment, and remanufacturing shops.

KLXI Chart

KLXI data by YCharts

[level-free]
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. 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.

[otw_shortcode_button href=”https://www.moderngraham.com/moderngraham-stocks-screens/” size=”medium” icon_position=”left” shape=”square”]Learn More About Premium Membership[/otw_shortcode_button]

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of KLXI – February 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 $2,676,977,126 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 7.44 Pass
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 -16066.67% Fail
6. Moderate PEmg Ratio PEmg < 20 -53.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.18 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 7.44 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.69 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg -$0.94
MG Growth Estimate -4.25%
MG Value $9.53
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$13.69
MG Value based on 0% Growth -$8.02
Market Implied Growth Rate -31.10%
Current Price $50.70
% of Intrinsic Value 532.07%

KLX Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. 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 $0 in 2012 to an estimated $-0.94 for 2017. This level of negative earnings does not support a positive valuation.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 KLX Inc revealed the company was trading above its Graham Number of $29.7. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -53.71, which was below the industry average of 22.25, 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 $9.53.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $9.53
Graham Number $29.70
PEmg -53.71
Current Ratio 7.44
PB Ratio 1.18
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

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 10/1/2016
Total Current Assets $1,988,500,000
Total Current Liabilities $267,300,000
Long-Term Debt $1,181,300,000
Total Assets $3,728,600,000
Intangible Assets $1,313,600,000
Total Liabilities $1,491,100,000
Shares Outstanding (Diluted Average) 52,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.92
Jan2016 -$7.39
Dec2014 $1.68
Dec2013 $2.88

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.94
Jan2016 -$1.44
Dec2014 $1.33
Dec2013 $0.96

Recommended Reading:

Other ModernGraham posts about the company

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

Other ModernGraham posts about related companies

AGCO Corporation Valuation – February 2017 $AGCO
PACCAR Inc Valuation – February 2017 $PCAR
Kaman Corporation Valuation – Initial Coverage $KAMN
John Bean Technologies Corp Valuation – Initial Coverage $JBT
W. W. Grainger Inc Valuation – January 2017 $GWW
Allegion PLC Valuation – January 2017 $ALLE
Xylem Inc Valuation – January 2017 $XYL
Clarcor Inc Valuation – Initial Coverage $CLC
Caterpillar Inc Valuation – August 2016 $CAT
Regal Beloit Corp Valuation – August 2016 $RBC

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.

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.