Chemicals Stocks

Quaker Chemical Corp Valuation – March 2018 $KWR

Company Profile (obtained from Marketwatch): Quaker Chemical Corp. engages in the business of developing, producing and marketing formulated chemical specialty products. It provides process fluids, chemical specialties, and technical expertise to a range of industries, including steel, aluminum, automotive, mining, aerospace, tube and pipe, cans, and others. The company was founded in 1918 and is headquartered in Conshohocken, PA.

KWR Chart

KWR data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of KWR – March 2018

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 $2,062,454,228 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.63 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 39.97% Pass
6. Moderate PEmg Ratio PEmg < 20 41.06 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.05 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 2.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.24 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 $3.78
MG Growth Estimate -0.69%
MG Value $26.90
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $54.77
MG Value based on 0% Growth $32.11
Market Implied Growth Rate 16.28%
Current Price $155.08
% of Intrinsic Value 576.54%

Quaker Chemical Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with 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 $3.96 in 2014 to an estimated $3.78 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.28% 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 Quaker Chemical Corp revealed the company was trading above its Graham Number of $58.41. The company pays a dividend of $1.4 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 41.06, which was above the industry average of 31.55. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.94.

Quaker Chemical Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $6.94
Graham Number $58.41
PEmg 41.06
Current Ratio 2.63
PB Ratio 5.05
Current Dividend $1.40
Dividend Yield 0.90%
Number of Consecutive Years of Dividend Growth 10

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $406,586,000
Total Current Liabilities $154,743,000
Long-Term Debt $61,068,000
Total Assets $722,126,000
Intangible Assets $156,537,000
Total Liabilities $314,454,000
Shares Outstanding (Diluted Average) 13,270,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.95
Dec2017 $1.52
Dec2016 $4.63
Dec2015 $3.84
Dec2014 $4.26
Dec2013 $4.27
Dec2012 $3.63
Dec2011 $3.66
Dec2010 $2.80
Dec2009 $1.47
Dec2008 $1.05
Dec2007 $1.52
Dec2006 $1.18
Dec2005 $0.17
Dec2004 $0.90
Dec2003 $1.52
Dec2002 $1.51
Dec2001 $0.84
Dec2000 $1.93
Dec1999 $1.74
Dec1998 $1.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.78
Dec2017 $3.36
Dec2016 $4.23
Dec2015 $4.00
Dec2014 $3.96
Dec2013 $3.59
Dec2012 $3.01
Dec2011 $2.50
Dec2010 $1.82
Dec2009 $1.24
Dec2008 $1.07
Dec2007 $1.08
Dec2006 $0.92
Dec2005 $0.86
Dec2004 $1.25
Dec2003 $1.45
Dec2002 $1.43

Recommended Reading:

Other ModernGraham posts about the company

Quaker Chemical Corp Valuation – Initial Coverage $KWR

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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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