Packaging Stocks

Schweitzer-Mauduit International Inc Valuation – Initial Coverage $SWM

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 – March 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 Schweitzer-Mauduit International Inc (SWM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Schweitzer-Mauduit International, Inc. is a producer of specialty papers and resin-based products. The Company manufactures and sells lightweight specialty papers, which are used in manufacturing ventilated cigarettes, reconstituted tobacco used in producing blended cigarettes and banded papers used in the production of lower ignition propensity (LIP) cigarettes. The Company operates through two segments: Engineered Papers, and Advanced Materials and Structures. Its Engineered Papers segment produces both tobacco-related papers and non-tobacco-related papers. The Company’s tobacco-related papers include various porous papers used to wrap parts of a cigarette, such as tobacco column and filter, and reconstituted tobacco leaf (RTL), which is blended with virgin tobacco in a cigarette. It manufactures and sells a range of engineered resin-based, rolled goods, such as films, nets, foams and other non-wovens. The Company operates approximately 20 production locations.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SWM – March 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 $1,244,152,264 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.68 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 205.21% Pass
6. Moderate PEmg Ratio PEmg < 20 13.92 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.43 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 2.68 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.91 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 $2.91
MG Growth Estimate 3.73%
MG Value $46.47
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $42.20
MG Value based on 0% Growth $24.74
Market Implied Growth Rate 2.71%
Current Price $40.51
% of Intrinsic Value 87.18%

Schweitzer-Mauduit International, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the small size. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value 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 $2.33 in 2013 to an estimated $2.91 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 2.71% 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 Schweitzer-Mauduit International, Inc. revealed the company was trading above its Graham Number of $34.35. The company pays a dividend of $1.62 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.92, which was below the industry average of 28.3, 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 $-9.88.

Schweitzer-Mauduit International, Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.88
Graham Number $34.35
PEmg 13.92
Current Ratio 2.68
PB Ratio 2.43
Current Dividend $1.62
Dividend Yield 4.00%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $364,300,000
Total Current Liabilities $135,800,000
Long-Term Debt $437,400,000
Total Assets $1,173,700,000
Intangible Assets $411,400,000
Total Liabilities $665,400,000
Shares Outstanding (Diluted Average) 30,463,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.15
Dec2016 $2.70
Dec2015 $2.94
Dec2014 $2.93
Dec2013 $2.42
Dec2012 $2.51
Dec2011 $2.73
Dec2010 $1.76
Dec2009 $1.10
Dec2008 $0.02
Dec2007 $0.11
Dec2006 -$0.03
Dec2005 $0.63
Dec2004 $1.18
Dec2003 $1.11
Dec2002 $1.09
Dec2001 $0.82
Dec2000 $0.91
Dec1999 $0.98
Dec1998 $0.96
Dec1997 $1.39

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.91
Dec2016 $2.76
Dec2015 $2.76
Dec2014 $2.61
Dec2013 $2.33
Dec2012 $2.06
Dec2011 $1.61
Dec2010 $0.90
Dec2009 $0.43
Dec2008 $0.19
Dec2007 $0.39
Dec2006 $0.62
Dec2005 $0.94
Dec2004 $1.07
Dec2003 $1.01
Dec2002 $0.96
Dec2001 $0.93

Recommended Reading:

Other ModernGraham posts about the company

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

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Bemis Company Inc. Analysis – September 2015 Update $BMS
WestRock Co. Analysis – Initial Coverage $WRK
International Paper Company Analysis – September 2015 Update $IP
Ball Corporation Analysis – 2015 Update $BLL

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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