Household Goods Stocks

Newell Brands Inc Valuation – March 2018 $NWL

Company Profile (obtained from Marketwatch): Newell Brands, Inc. engages in the manufacture, marketing, and sale of consumer and commercial products. It operates through the following segments: Writing, Home Solutions, Tools, Commercial Products, Baby & Parenting, Branded Consumables, Consumer Solutions, Outdoor Solutions, and Process Solutions. The Writing segment includes markers and highlighters; pens and pencils; art products; activity-based adhesive and cutting products; fine writing instruments; and labeling solutions. The Home Solutions segment consists of indoor and outdoor organization, food storage, and home storage products; durable beverage containers; gourmet cookware, bakeware, and cutlery; and hair care accessories. The Tools segment offers hand tools and power tool accessories; industrial bandsaw blades; tools for heating, ventilation, and air conditioning systems; and label makers and printers for industrial use. The Commercial Products segment comprises of cleaning and refuse products, hygiene systems, material handling solutions. The Baby & Parenting segment covers infant and juvenile products such as car seats, strollers, highchairs, and playards. The Branded Consumables segment markets branded consumer products, and consumable and fundamental household staples. The Consumer Solutions segment produces household products, including kitchen appliances and home environment goods. The Outdoor Solutions segment focuses on the products for outdoor and outdoor-related activities. The Process Solutions segment distributes plastic products including container closures, contact lens packaging, medical disposables, plastic cutlery, and rigid packaging. The company was founded in 1903 and is headquartered in Hoboken, NJ.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NWL – 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 $13,389,529,856 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.41 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 304.26% Pass
6. Moderate PEmg Ratio PEmg < 20 9.46 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.94 Pass
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 1.41 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.62 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.89
MG Growth Estimate 15.00%
MG Value $111.14
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $41.86
MG Value based on 0% Growth $24.54
Market Implied Growth Rate 0.48%
Current Price $27.32
% of Intrinsic Value 24.58%

Newell Brands Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.28 in 2014 to an estimated $2.89 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.48% 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 above the price.

At the time of valuation, further research into Newell Brands Inc revealed the company was trading below its Graham Number of $41.25. The company pays a dividend of $0.88 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 9.46, which was below the industry average of 20.37, 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 $-26.44.

Newell Brands Inc fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$26.44
Graham Number $41.25
PEmg 9.46
Current Ratio 1.41
PB Ratio 0.94
Current Dividend $0.88
Dividend Yield 3.22%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $6,078,000,000
Total Current Liabilities $4,316,800,000
Long-Term Debt $9,889,600,000
Total Assets $33,135,500,000
Intangible Assets $24,796,100,000
Total Liabilities $18,990,800,000
Shares Outstanding (Diluted Average) 488,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.62
Dec2017 $5.63
Dec2016 $1.25
Dec2015 $1.29
Dec2014 $1.35
Dec2013 $1.63
Dec2012 $1.37
Dec2011 $0.42
Dec2010 $0.96
Dec2009 $0.97
Dec2008 -$0.18
Dec2007 $1.68
Dec2006 $1.40
Dec2005 $0.91
Dec2004 -$0.42
Dec2003 -$0.17
Dec2002 -$0.76
Dec2001 $0.99
Dec2000 $1.57
Dec1999 $0.34
Dec1998 $1.70

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.89
Dec2017 $2.76
Dec2016 $1.34
Dec2015 $1.33
Dec2014 $1.28
Dec2013 $1.19
Dec2012 $0.88
Dec2011 $0.68
Dec2010 $0.86
Dec2009 $0.86
Dec2008 $0.76
Dec2007 $1.05
Dec2006 $0.55
Dec2005 $0.12
Dec2004 -$0.10
Dec2003 $0.17
Dec2002 $0.48

Recommended Reading:

Other ModernGraham posts about the company

14 Best Stocks for Value Investors This Week – 2/11/17
Newell Brands Inc Valuation – February 2017 $NWL
Newell Rubbermaid Inc. Valuation – October 2015 Update $NWL
28 Companies in the Spotlight This Week – 11/1/14
Newell Rubbermaid Inc. Annual Valuation – 2014 $NWL

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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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