Conglomerates Stocks

Raven Industries Inc Valuation – September 2017 $RAVN

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 Undervalued Stocks for the Enterprising Investor – August 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 Raven Industries Inc (RAVN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Raven Industries, Inc. is a diversified technology company providing a range of products to customers within the industrial, agricultural, energy, construction and defense markets. The Company operates through three segments: Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films) and Aerostar Division (Aerostar). The Applied Technology segment designs, manufactures, sells and services precision agriculture products and information management tools for growers. The Engineered Films segment produces plastic films and sheeting for energy, agricultural, construction, geomembrane and industrial applications. The Aerostar segment designs and manufactures products, including balloons, tethered aerostats and radar processing systems. It conducts business through its subsidiaries, including Aerostar International, Inc. (Aerostar), Vista Research, Inc. (Vista), Raven International Holding Company BV (Raven Holdings) and Raven Industries Canada, Inc.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of RAVN – September 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 $1,045,046,248 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.91 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 -37.68% Fail
6. Moderate PEmg Ratio PEmg < 20 40.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.86 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 4.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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 $0.71
MG Growth Estimate -4.25%
MG Value $3.06
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $10.31
MG Value based on 0% Growth $6.05
Market Implied Growth Rate 15.99%
Current Price $28.80
% of Intrinsic Value 940.13%

Raven Industries, Inc. 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 $1.25 in 2014 to an estimated $0.71 for 2018.  This level of demonstrated earnings growth does not support the market’s implied estimate of 15.99% 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 Raven Industries, Inc. revealed the company was trading above its Graham Number of $12.91.  The company pays a dividend of $0.52 per share, for a yield of 1.8%  Its PEmg (price over earnings per share – ModernGraham) was 40.49, which was above the industry average of 26.48.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $3.06.

Raven Industries, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $3.06
Graham Number $12.91
PEmg 40.49
Current Ratio 4.91
PB Ratio 3.86
Current Dividend $0.52
Dividend Yield 1.81%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 7/1/2017
Total Current Assets $156,109,000
Total Current Liabilities $31,777,000
Long-Term Debt $0
Total Assets $317,196,000
Intangible Assets $52,069,000
Total Liabilities $44,129,000
Shares Outstanding (Diluted Average) 36,554,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.03
Jan2017 $0.56
Jan2016 $0.13
Jan2015 $0.86
Jan2014 $1.17
Jan2013 $1.44
Jan2012 $1.39
Jan2011 $1.12
Jan2010 $0.79
Jan2009 $0.85
Jan2008 $0.77
Jan2007 $0.70
Jan2006 $0.67
Jan2005 $0.49
Jan2004 $0.39
Jan2003 $0.30
Jan2002 $0.23
Jan2001 $0.16
Jan2000 $0.13
Jan1999 $0.11
Jan1998 $0.14

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.71
Jan2017 $0.65
Jan2016 $0.79
Jan2015 $1.15
Jan2014 $1.25
Jan2013 $1.24
Jan2012 $1.08
Jan2011 $0.90
Jan2010 $0.78
Jan2009 $0.75
Jan2008 $0.66
Jan2007 $0.58
Jan2006 $0.49
Jan2005 $0.37
Jan2004 $0.28
Jan2003 $0.22
Jan2002 $0.17

Recommended Reading:

Other ModernGraham posts about the company

Raven Industries Inc Valuation – January 2016 Update $RAVN
Raven Industries Inc. Analysis – October 2015 Update $RAVN
Raven Industries Inc. Analysis – Initial Coverage $RAVN

Other ModernGraham posts about related companies

E I du Pont de Nemours & Co Valuation – August 2016 $DD
3M Company Valuation – August 2016 $MMM
General Electric Co Valuation – July 2016 $GE
Illinois Tool Works Inc Valuation – July 2016 $ITW
Raven Industries Inc Valuation – July 2016 $RAVN
E.I. du Pont de Nemours Valuation – February 2016 $DD
Honeywell International Inc Valuation – February 2016 $HON
3M Company Valuation – February 2016 Update $MMM
Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW

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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