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 Spire Inc (SR) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Spire Inc., formerly The Laclede Group, Inc., is engaged to transform its business and pursue growth by growing its gas utility business through prudent investment in infrastructure upgrades and organic growth initiatives; acquire and integrate gas utilities; modernize its gas assets, and invest in innovation. The Company has two business segments, which include gas utility and gas marketing. The gas utility segment includes the regulated operations of Laclede Gas Company (Laclede Gas), Alabama Gas Corporation (Alagasco) and EnergySouth, Inc. (EnergySouth). The gas marketing segment includes Laclede Energy Resources, Inc. (LER), a subsidiary engaged in the marketing of natural gas and related activities on a non-regulated basis. Laclede Gas is engaged in the purchase, retail distribution and sale of natural gas, serving residential, commercial and industrial customers, through Missouri Gas Energy (MGE), Kansas City and western Missouri.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SR – 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 | $2,931,309,753 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.61 | Fail | |
| 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 | 11.24% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 20.48 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.62 | 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 | 0.61 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -3.46 | 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 | $3.11 |
| MG Growth Estimate | 3.62% |
| MG Value | $48.96 |
| Opinion | Overvalued |
| MG Grade | D+ |
| MG Value based on 3% Growth | $45.10 |
| MG Value based on 0% Growth | $26.44 |
| Market Implied Growth Rate | 5.99% |
| Current Price | $63.70 |
| % of Intrinsic Value | 130.11% |
Spire Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 growing its EPSmg (normalized earnings) from $2.51 in 2013 to an estimated $3.11 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.99% 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 Spire Inc revealed the company was trading above its Graham Number of $55.62. The company pays a dividend of $1.96 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.48, which was below the industry average of 23.36, 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 $-80.91.
Spire 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) | -$80.91 |
| Graham Number | $55.62 |
| PEmg | 20.48 |
| Current Ratio | 0.61 |
| PB Ratio | 1.62 |
| Current Dividend | $1.96 |
| Dividend Yield | 3.08% |
| Number of Consecutive Years of Dividend Growth | 14 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2016 |
| Total Current Assets | $815,600,000 |
| Total Current Liabilities | $1,342,200,000 |
| Long-Term Debt | $1,821,300,000 |
| Total Assets | $6,310,100,000 |
| Intangible Assets | $1,161,400,000 |
| Total Liabilities | $4,513,400,000 |
| Shares Outstanding (Diluted Average) | 45,700,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $3.50 |
| Sep2016 | $3.24 |
| Sep2015 | $3.16 |
| Sep2014 | $2.35 |
| Sep2013 | $2.02 |
| Sep2012 | $2.79 |
| Sep2011 | $2.86 |
| Sep2010 | $2.43 |
| Sep2009 | $2.89 |
| Sep2008 | $3.58 |
| Sep2007 | $2.31 |
| Sep2006 | $2.30 |
| Sep2005 | $0.02 |
| Sep2004 | $0.02 |
| Sep2003 | $1.82 |
| Sep2002 | $1.18 |
| Sep2001 | $1.61 |
| Sep2000 | $1.37 |
| Sep1999 | $1.43 |
| Sep1998 | $1.58 |
| Sep1997 | $1.84 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $3.11 |
| Sep2016 | $2.85 |
| Sep2015 | $2.65 |
| Sep2014 | $2.42 |
| Sep2013 | $2.51 |
| Sep2012 | $2.80 |
| Sep2011 | $2.81 |
| Sep2010 | $2.76 |
| Sep2009 | $2.69 |
| Sep2008 | $2.27 |
| Sep2007 | $1.51 |
| Sep2006 | $1.10 |
| Sep2005 | $0.64 |
| Sep2004 | $1.03 |
| Sep2003 | $1.52 |
| Sep2002 | $1.39 |
| Sep2001 | $1.52 |
Recommended Reading:
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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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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