Innophos Holdings Inc Valuation – March 2018 $IPHS

Company Profile (obtained from Marketwatch): Innophos Holdings, Inc. engages in the production of specialty ingredients solutions for the food, health, nutrition, and industrial markets. It operates through three segments: Specialty Phosphates U.S. & Canada, Specialty Phosphates Mexico, and GTSP & Other. The Specialty Phosphates are categorized into Specialty Ingredients which includes specialty phosphate salts, specialty phosphoric acids, and other mineral, enzyme and botanical-based specialty ingredients; Food and Technical Grade Purified Phosphoric Acid (PPA) refers to high purity forms of PPA used in fertilizer production; and Sodium Tripolyphosphate and Detergent Grade PPA which are used in cleaners, and automatic dishwashing and consumer laundry detergents. The GTSP & Other segment comprises fertilizer co-products Granular Triple Super Phosphate, and other non-specialty phosphates products, which is used agricultural sector to increase crop yeilds. Innophos Holdings was founded on August15, 2004 and is headquartered in Cranbury, NJ.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of IPHS – 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 $831,935,072 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.64 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 -27.52% Fail
6. Moderate PEmg Ratio PEmg < 20 20.56 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.53 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 2.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.66 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 $2.07
MG Growth Estimate -4.15%
MG Value $0.41
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $30.04
MG Value based on 0% Growth $17.61
Market Implied Growth Rate 6.03%
Current Price $42.60
% of Intrinsic Value 10338.87%

Innophos Holdings, Inc. 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, 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 net 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 $2.86 in 2014 to an estimated $2.07 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.03% 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 Innophos Holdings, Inc. revealed the company was trading above its Graham Number of $32.51. The company pays a dividend of $1.92 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.56, which was below the industry average of 31.55, 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 $-7.63.

Innophos Holdings, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.63
Graham Number $32.51
PEmg 20.56
Current Ratio 2.64
PB Ratio 2.53
Current Dividend $1.92
Dividend Yield 4.51%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $300,256,000
Total Current Liabilities $113,533,000
Long-Term Debt $310,005,000
Total Assets $785,169,000
Intangible Assets $257,069,000
Total Liabilities $451,610,000
Shares Outstanding (Diluted Average) 19,847,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.75
Dec2017 $1.13
Dec2016 $2.44
Dec2015 $1.29
Dec2014 $2.91
Dec2013 $2.21
Dec2012 $3.30
Dec2011 $3.83
Dec2010 $2.02
Dec2009 $2.87
Dec2008 $9.54
Dec2007 -$0.27
Dec2006 -$1.01
Dec2005 -$0.95
Dec2004 -$0.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.07
Dec2017 $1.82
Dec2016 $2.25
Dec2015 $2.34
Dec2014 $2.86
Dec2013 $2.84
Dec2012 $3.54
Dec2011 $3.64
Dec2010 $3.24
Dec2009 $3.25
Dec2008 $2.78
Dec2007 -$0.55
Dec2006 -$0.59
Dec2005 -$0.32
Dec2004 -$0.01

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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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