Machinery Stocks

Lindsay Corp Valuation – Initial Coverage $LNN

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 Lindsay Corp (LNN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lindsay Corporation, along with its subsidiaries, provides a range of water management and road infrastructure products and services. The Company operates through two segments: Irrigation Segment and Infrastructure Segment. The Irrigation Segment includes the manufacture and marketing of center pivot, lateral move, and hose reel irrigation systems, which are used primarily in the agricultural industry. The Infrastructure Segment includes the manufacture and marketing of moveable barriers, specialty barriers, crash cushions and end terminals, road marking and road safety equipment, large diameter steel tubing, and railroad signals and structures. It also manufactures and markets hose reel travelers under the Perrot and Greenfield brands in Europe and South Africa. It produces or markets chemical injection systems, variable rate irrigation systems, flow meters, weather stations, soil moisture sensors, and remote monitoring and control systems, which it sells under its GrowSmart brand.

LNN Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LNN – 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 $864,649,807 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.25 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 -5.09% Fail
6. Moderate PEmg Ratio PEmg < 20 32.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.47 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 3.25 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.61 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 Fail

Stage 2: Determination of Intrinsic Value

EPSmg $2.47
MG Growth Estimate -4.25%
MG Value $3.95
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $35.80
MG Value based on 0% Growth $20.98
Market Implied Growth Rate 12.12%
Current Price $80.84
% of Intrinsic Value 2046.47%

Lindsay Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. 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 seeing its EPSmg (normalized earnings) decline from $3.64 in 2013 to an estimated $2.47 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.12% 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 Lindsay Corporation revealed the company was trading above its Graham Number of $31.56. The company pays a dividend of $1.14 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 32.75, which was above the industry average of 22.25. Finally, the company was trading above its Net Current Asset Value (NCAV) of $3.95.

Lindsay Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $3.95
Graham Number $31.56
PEmg 32.75
Current Ratio 3.25
PB Ratio 3.47
Current Dividend $1.14
Dividend Yield 1.41%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2016
Total Current Assets $274,888,000
Total Current Liabilities $84,597,000
Long-Term Debt $116,926,000
Total Assets $480,943,000
Intangible Assets $122,560,000
Total Liabilities $232,755,000
Shares Outstanding (Diluted Average) 10,666,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.90
Aug2016 $1.85
Aug2015 $2.22
Aug2014 $4.00
Aug2013 $5.47
Aug2012 $3.38
Aug2011 $2.90
Aug2010 $1.98
Aug2009 $1.11
Aug2008 $3.20
Aug2007 $1.31
Aug2006 $1.00
Aug2005 $0.41
Aug2004 $0.78
Aug2003 $1.08
Aug2002 $0.76
Aug2001 $0.67
Aug2000 $1.06
Aug1999 $0.96
Aug1998 $1.61
Aug1997 $1.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.47
Aug2016 $2.96
Aug2015 $3.54
Aug2014 $3.99
Aug2013 $3.64
Aug2012 $2.66
Aug2011 $2.23
Aug2010 $1.84
Aug2009 $1.65
Aug2008 $1.72
Aug2007 $0.96
Aug2006 $0.79
Aug2005 $0.71
Aug2004 $0.86
Aug2003 $0.90
Aug2002 $0.88
Aug2001 $1.00

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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