Standard Motor Products Inc Valuation – August 2018 $SMP

Company Profile (excerpt from Reuters): Standard Motor Products, Inc., incorporated on December 30, 1926, is an independent manufacturer and distributor of replacement parts for motor vehicles in the automotive aftermarket industry with a complementary focus on heavy duty, industrial equipment and the original equipment service market. The Company’s segments include Engine Management Segment and Temperature Control Segment. The Engine Management Segment manufactures and remanufactures ignition and emission parts, ignition wires, battery cables, fuel system parts and sensors for vehicle systems. The Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories and windshield washer system parts. The Company sells its products primarily to warehouse distributors, large retail chains, original equipment manufacturers and original equipment service part operations in the United States, Canada, Latin America and Europe.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SMP – August 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 $1,096,709,825 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.63 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 71.43% Pass
6. Moderate PEmg Ratio PEmg < 20 22.39 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.37 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 1.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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

EPSmg $2.13
MG Growth Estimate 1.07%
MG Value $22.65
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $30.89
MG Value based on 0% Growth $18.11
Market Implied Growth Rate 6.94%
Current Price $47.69
% of Intrinsic Value 210.59%

Standard Motor Products, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, poor dividend history, and the high PEmg ratio. 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 $1.99 in 2014 to an estimated $2.13 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.94% 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 Standard Motor Products, Inc. revealed the company was trading above its Graham Number of $32.57. The company pays a dividend of $0.76 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 22.39, which was above the industry average of 18.51. Finally, the company was trading above its Net Current Asset Value (NCAV) of $7.36.

Standard Motor Products, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $7.36
Graham Number $32.57
PEmg 22.39
Current Ratio 1.63
PB Ratio 2.37
Current Dividend $0.76
Dividend Yield 1.59%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $558,591,000
Total Current Liabilities $341,753,000
Long-Term Debt $34,000
Total Assets $851,945,000
Intangible Assets $119,576,000
Total Liabilities $389,575,000
Shares Outstanding (Diluted Average) 22,958,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.34
Dec2017 $1.64
Dec2016 $2.62
Dec2015 $1.99
Dec2014 $1.85
Dec2013 $2.21
Dec2012 $1.79
Dec2011 $2.70
Dec2010 $0.97
Dec2009 $0.18
Dec2008 -$1.24
Dec2007 $0.12
Dec2006 $0.51
Dec2005 -$0.18
Dec2004 -$0.74
Dec2003 -$0.10
Dec2002 -$2.57
Dec2001 -$0.21
Dec2000 $0.81
Dec1999 $0.58
Dec1998 $1.69

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.13
Dec2017 $2.04
Dec2016 $2.19
Dec2015 $2.02
Dec2014 $1.99
Dec2013 $1.90
Dec2012 $1.45
Dec2011 $1.04
Dec2010 $0.17
Dec2009 -$0.19
Dec2008 -$0.35
Dec2007 $0.03
Dec2006 -$0.21
Dec2005 -$0.63
Dec2004 -$0.76
Dec2003 -$0.61
Dec2002 -$0.56

Recommended Reading:

Other ModernGraham posts about the company

12 Best Stocks for Value Investors This Week – 2/4/17
Standard Motor Products Inc Valuation – Initial Coverage $SMP

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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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