Deltic Timber Corp Valuation – Initial Coverage $DEL

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 Deltic Timber Corp (DEL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Deltic Timber Corporation is a vertically integrated natural resources company. The Company is engaged in the growing and harvesting of timber and the manufacturing and marketing of lumber and medium density fiberboard (MDF). It operates through four segments: Woodlands, which manages all aspects of the Company’s timberlands; Manufacturing, which consists of its approximately two sawmills that manufacture a range of softwood lumber products and the Del-Tin Fiber plant that produces MDF; Real Estate, which includes the Company’s four real estate developments and a related country club operation, and Corporate. It is also engaged in real estate development in central Arkansas. As of December 31, 2016, it developed and operated its own seed orchard. Its sawmills are located at Ola in central Arkansas and at Waldo in south Arkansas. It is engaged in developing the Chenal Valley, which is an upscale planned community, with approximately 4,300 acres of residential and commercial properties.

DEL Chart

DEL data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DEL – August 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 $844,434,262 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.48 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 1.22% Fail
6. Moderate PEmg Ratio PEmg < 20 84.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.33 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 1.48 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 23.92 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 Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.82
MG Growth Estimate -3.55%
MG Value $1.14
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $11.86
MG Value based on 0% Growth $6.95
Market Implied Growth Rate 38.10%
Current Price $69.29
% of Intrinsic Value 6086.16%

Deltic Timber Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  small size, low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years.  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 $1.07 in 2013 to an estimated $0.82 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 38.1% 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 Deltic Timber Corp revealed the company was trading above its Graham Number of $17.89.  The company pays a dividend of $0.4 per share, for a yield of 0.6%  Its PEmg (price over earnings per share – ModernGraham) was 84.71, which was above the industry average of 14.59.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-22.53.

Deltic Timber Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$22.53
Graham Number $17.89
PEmg 84.71
Current Ratio 1.48
PB Ratio 3.33
Current Dividend $0.40
Dividend Yield 0.58%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $31,092,000
Total Current Liabilities $21,022,000
Long-Term Debt $240,846,000
Total Assets $556,147,000
Intangible Assets $0
Total Liabilities $303,980,000
Shares Outstanding (Diluted Average) 12,111,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.69
Dec2016 $0.76
Dec2015 $0.21
Dec2014 $1.55
Dec2013 $2.05
Dec2012 $0.73
Dec2011 $0.21
Dec2010 $0.99
Dec2009 $0.30
Dec2008 $0.35
Dec2007 $0.89
Dec2006 $0.89
Dec2005 $1.17
Dec2004 $0.91
Dec2003 $0.69
Dec2002 -$1.33
Dec2001 $0.65
Dec2000 $0.93
Dec1999 $0.69
Dec1998 $0.48
Dec1997 $1.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.82
Dec2016 $0.94
Dec2015 $1.00
Dec2014 $1.30
Dec2013 $1.07
Dec2012 $0.56
Dec2011 $0.50
Dec2010 $0.66
Dec2009 $0.57
Dec2008 $0.75
Dec2007 $0.94
Dec2006 $0.79
Dec2005 $0.64
Dec2004 $0.37
Dec2003 $0.18
Dec2002 $0.04
Dec2001 $0.75

Recommended Reading:

Other ModernGraham posts about the company

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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