Company ProfileÂ (excerpt from Reuters): Kaman Corporation, incorporated on December 13, 1945, conducts business in the aerospace and distribution markets. The Company operates through two segments: Distribution and Aerospace. The Company’s brands include KAflex, KAron and K-MAX. The Company is focused on producing the wing control surfaces (inboard and outboard flaps, slats and deceleron assemblies) for the United States Air Force’s (USAF’s) A-10 fleet. Its bearings products are included on various military platforms manufactured in North America, Asia and Europe. These products are used as original equipment or specified as replacement parts by the manufacturers. These products are self-lubricating, ball and roller bearings for aircraft flight controls, turbine engines, landing gear and helicopter driveline couplings. Its bearings offerings include super precision miniature ball bearings used in aerospace applications, dental products, surgical power tools, analytical devices and various industrial applications.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$1,848,561,867||Fail|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||3.06||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||51.54%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||27.99||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.87||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||3.06||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.67||Pass|
|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
|MG Growth Estimate||2.38%|
|MG Value based on 3% Growth||$33.85|
|MG Value based on 0% Growth||$19.84|
|Market Implied Growth Rate||9.74%|
|% of Intrinsic Value||211.16%|
Kaman Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, high PEmg and PB ratios. The Enterprising Investor has no initial concerns. 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 Overvalued after growing its EPSmg (normalized earnings) from $2.02 in 2014 to an estimated $2.33 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.74% 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 Kaman Corporation revealed the company was trading above its Graham Number of $39.66. The company pays a dividend of $0.8 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 27.99, which was below the industry average of 50.18, 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 $-2.9.
Kaman Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$2.90|
|Number of Consecutive Years of Dividend Growth||1|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2018|
|Total Current Assets||$761,656,000|
|Total Current Liabilities||$248,541,000|
|Shares Outstanding (Diluted Average)||28,168,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.06|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.33|
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.