Construction Stocks

Martin Marietta Materials Inc Valuation – May 2018 $MLM

Company Profile (excerpt from Reuters): Martin Marietta Materials, Inc., incorporated on November 12, 1993, is a supplier of aggregates products (crushed stone, sand, and gravel) used for the construction of infrastructure, nonresidential, and residential projects. Aggregates products are also used for railroad ballast and in agricultural, utility and environmental applications. The Company’s Aggregates business operates through three segments: the Mid-America Group, Southeast Group and West Group. The Company’s business is categorized into Aggregates Business, Cement Business and Magnesia Specialties Business. Its Cement business is reported through the Cement segment. Its Magnesia Specialties business manufactures and markets magnesia-based chemical products used in industrial, agricultural, and environmental applications, and dolomitic lime sold to customers in the steel industry. Its Aggregates business consists of mining, processing, and selling granite, limestone, sand and gravel. Its Aggregates business also includes aggregates-related downstream product lines (including its building materials, such as asphalt products, ready mixed concrete, and road paving construction services). It is also a supplier of cement, ready mixed concrete, and asphalt and paving services. Its Cement business produces Portland and specialty cements.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MLM – May 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 $12,202,862,167 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.79 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 346.11% Pass
6. Moderate PEmg Ratio PEmg < 20 25.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.63 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 3.79 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.41 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 $7.73
MG Growth Estimate 15.00%
MG Value $297.55
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $112.07
MG Value based on 0% Growth $65.69
Market Implied Growth Rate 8.35%
Current Price $194.77
% of Intrinsic Value 65.46%

Martin Marietta Materials, Inc. 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 level of debt relative to the net current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $2.34 in 2014 to an estimated $7.73 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.35% 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 Martin Marietta Materials, Inc. revealed the company was trading above its Graham Number of $115.39. The company pays a dividend of $1.72 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 25.2, which was below the industry average of 26.36, 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 $-26.6.

Martin Marietta Materials, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$26.60
Graham Number $115.39
PEmg 25.20
Current Ratio 3.79
PB Ratio 2.63
Current Dividend $1.72
Dividend Yield 0.88%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $2,631,160,000
Total Current Liabilities $694,216,000
Long-Term Debt $2,727,294,000
Total Assets $8,992,511,000
Intangible Assets $2,227,523,000
Total Liabilities $4,312,911,000
Shares Outstanding (Diluted Average) 63,214,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.95
Dec2017 $11.25
Dec2016 $6.63
Dec2015 $4.29
Dec2014 $2.71
Dec2013 $2.61
Dec2012 $1.83
Dec2011 $1.78
Dec2010 $2.10
Dec2009 $1.91
Dec2008 $4.18
Dec2007 $6.06
Dec2006 $5.29
Dec2005 $4.08
Dec2004 $2.66
Dec2003 $1.91
Dec2002 $1.77
Dec2001 $2.19
Dec2000 $2.39
Dec1999 $2.68
Dec1998 $2.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.73
Dec2017 $6.91
Dec2016 $4.37
Dec2015 $3.04
Dec2014 $2.34
Dec2013 $2.12
Dec2012 $2.04
Dec2011 $2.50
Dec2010 $3.21
Dec2009 $3.94
Dec2008 $4.79
Dec2007 $4.73
Dec2006 $3.76
Dec2005 $2.83
Dec2004 $2.20
Dec2003 $2.04
Dec2002 $2.17

Recommended Reading:

Other ModernGraham posts about the company

Martin Marietta Materials Inc Valuation – December 2016 $MLM
Martin Marietta Materials Inc Valuation – August 2016 $MLM
Martin Marietta Materials Inc Valuation – February 2016 Update $MLM
Martin Marietta Materials Inc. Valuation – October 2015 Update $MLM
Martin Marietta Materials Inc. Analysis – Initial Coverage $MLM

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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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