Food Processing Stocks

Seneca Foods Corp Valuation – July 2018 $SENEA

Company Profile (excerpt from Reuters): Seneca Foods Corporation, incorporated on August 17, 1949, is a provider of packaged fruits and vegetables. The Company manages its business through two segments: packaging and sale of fruits and vegetables, and packaging and sale of chip products. Its product offerings include canned fruits and vegetables, frozen vegetables and other food products, frozen and bottled produce, and snack chips. Its products are sold under private label, as well as national and regional brands that the Company owns or licenses, including Seneca, Libby’s, Green Valley, Aunt Nellie’s, READ, Cherryman and Seneca Farms. The Company packs Green Giant, Le Sueur and other brands of canned vegetables, as well as select Green Giant frozen vegetables for B&G Foods North America (B&G) under a contract packing agreement. Its two segments constitute the food operation. The non-food operation is primarily related to the sale of cans and ends, and the Company’s trucking and aircraft operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SENEA – July 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 $261,979,486 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.00 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -95.50% Fail
6. Moderate PEmg Ratio PEmg < 20 35.97 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.66 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 4.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.71 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.75
MG Growth Estimate -4.25%
MG Value $10.74
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $10.90
MG Value based on 0% Growth $6.39
Market Implied Growth Rate 13.74%
Current Price $27.05
% of Intrinsic Value 251.84%

Seneca Foods Corp Class A 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 stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. 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 $1.56 in 2015 to an estimated $0.75 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.74% 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 Seneca Foods Corp Class A revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 35.97, which was above the industry average of 25.4. Finally, the company was trading above its Net Current Asset Value (NCAV) of $10.74.

Seneca Foods Corp Class A 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) $10.74
Graham Number $0.00
PEmg 35.97
Current Ratio 4.00
PB Ratio 0.66
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $778,012,000
Total Current Liabilities $194,354,000
Long-Term Debt $414,132,000
Total Assets $1,070,431,000
Intangible Assets $0
Total Liabilities $673,501,000
Shares Outstanding (Diluted Average) 9,730,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate
Mar2018 -$1.41
Mar2017 $1.60
Mar2016 $5.61
Mar2015 $0.90
Mar2014 $1.23
Mar2013 $3.57
Mar2012 $0.92
Mar2011 $1.45
Mar2010 $3.96
Mar2009 $1.53
Mar2008 $0.65
Mar2007 $2.63
Mar2006 $1.96
Mar2005 $0.70
Mar2004 $1.17
Mar2003 $0.88
Mar2002 $0.11
Mar2001 $0.08
Mar2000 $0.42
Mar1999 $0.85

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.75
Mar2018 $1.28
Mar2017 $2.61
Mar2016 $2.89
Mar2015 $1.56
Mar2014 $2.00
Mar2013 $2.36
Mar2012 $1.73
Mar2011 $2.11
Mar2010 $2.34
Mar2009 $1.52
Mar2008 $1.48
Mar2007 $1.75
Mar2006 $1.20
Mar2005 $0.74
Mar2004 $0.69
Mar2003 $0.45

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Enterprising Investor – July 2017
Stocks Trading Closest to Net Current Asset Value – April 2017
Best Stocks Below Their Graham Number – February 2017
10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017
Best Stocks Below Their Graham Number – January 2017

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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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