Packaging Stocks

Ball Corporation Valuation – April 2018 $BLL

Company Profile (excerpt from Reuters): Ball Corporation (Ball), incorporated on December 19, 1922, is a supplier of metal packaging to the beverage, food, personal care and household products industries. The Company’s packaging products are produced for a range of end uses and are manufactured in facilities around the world. Its segments include beverage packaging, North and Central America; beverage packaging, South America; beverage packaging, Europe; food and aerosol packaging; aerospace, and other. Its major product line is aluminum and steel beverage containers. It also produces steel food, aerosol containers, extruded aluminum aerosol containers and aluminum slugs. It sells its packaging products to multinational beverage, food, personal care and household products companies. Its aerospace business is engaged in the design, development and manufacture of aerospace systems for civil, commercial and national cyber security aerospace markets. It produces spacecraft, instruments and sensors, radio frequency systems and components, data exploitation solutions and a range of aerospace technologies and products.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BLL – April 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 $14,168,369,726 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.92 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 8.31% Fail
6. Moderate PEmg Ratio PEmg < 20 29.63 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.63 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 0.92 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -18.68 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 $1.37
MG Growth Estimate -0.59%
MG Value $10.03
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $19.85
MG Value based on 0% Growth $11.63
Market Implied Growth Rate 10.56%
Current Price $40.55
% of Intrinsic Value 404.33%

Ball Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the 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 $1.42 in 2014 to an estimated $1.37 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.56% 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 Ball Corporation revealed the company was trading above its Graham Number of $22.79. The company pays a dividend of $0.37 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 29.63, which was above the industry average of 24.07. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.87.

Ball Corporation 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) -$26.87
Graham Number $22.79
PEmg 29.63
Current Ratio 0.92
PB Ratio 3.63
Current Dividend $0.37
Dividend Yield 0.90%
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 $3,758,000,000
Total Current Liabilities $4,107,000,000
Long-Term Debt $6,518,000,000
Total Assets $17,169,000,000
Intangible Assets $7,395,000,000
Total Liabilities $13,228,000,000
Shares Outstanding (Diluted Average) 352,464,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.05
Dec2017 $1.05
Dec2016 $0.81
Dec2015 $1.00
Dec2014 $1.65
Dec2013 $1.37
Dec2012 $1.25
Dec2011 $1.32
Dec2010 $1.28
Dec2009 $1.02
Dec2008 $0.83
Dec2007 $0.69
Dec2006 $0.79
Dec2005 $0.62
Dec2004 $0.66
Dec2003 $0.50
Dec2002 $0.34
Dec2001 -$0.23
Dec2000 $0.13
Dec1999 $0.20
Dec1998 $0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.37
Dec2017 $1.08
Dec2016 $1.13
Dec2015 $1.30
Dec2014 $1.42
Dec2013 $1.29
Dec2012 $1.21
Dec2011 $1.14
Dec2010 $1.01
Dec2009 $0.84
Dec2008 $0.74
Dec2007 $0.68
Dec2006 $0.65
Dec2005 $0.51
Dec2004 $0.40
Dec2003 $0.24
Dec2002 $0.11

Recommended Reading:

Other ModernGraham posts about the company

Ball Corporation Valuation – December 2016 $BLL
Ball Corporation Analysis – 2015 Update $BLL
19 Companies in the Spotlight This Week – 8/9/14
Ball Corporation Annual Valuation – 2014 $BLL

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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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