Food Processing Stocks

SpartanNash Co Valuation – August 2018 $SPTN

Company Profile (excerpt from Reuters): SpartanNash Company, incorporated on April 16, 1918, is a multi-regional grocery distributor and grocery retailer. The Company’s core businesses include distributing grocery products to independent grocery retailers (independent retailers), select national retailers, its corporate owned retail stores, and the United States military commissaries. The Company operates through three segments: Food Distribution, Military and Retail. The Company’s Food Distribution segment provides a range of nationally branded and private brand grocery products and perishable food products to independent retailers, food service distributors and the Company’s corporate owned retail stores. The Company’s Military segment contracts with manufacturers to distribute a range of grocery products primarily to military commissaries and exchanges located in the United States, the District of Columbia, Europe, Cuba, Puerto Rico, Bahrain and Egypt. As of December 31, 2016, the Company’s Retail segment operated 157 corporate owned retail stores in the Midwest and Great Lakes regions primarily under the banners of Family Fare Supermarkets, VG’s Food and Pharmacy, D&W Fresh Markets, Sun Mart and Family Fresh Market.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SPTN – 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 $868,419,305 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.12 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -45.02% Fail
6. Moderate PEmg Ratio PEmg < 20 23.80 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.17 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 2.12 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.41 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.99
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $14.36
MG Value based on 0% Growth $8.42
Market Implied Growth Rate 7.65%
Current Price $23.58
% of Intrinsic Value N/A

SpartanNash Co 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 high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or 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 $1.39 in 2014 to an estimated $0.99 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.65% 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 SpartanNash Co revealed the company was trading below its Graham Number of $31.45. The company pays a dividend of $0.66 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.8, which was below the industry average of 26.3, 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 $-9.01.

SpartanNash Co receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.01
Graham Number $31.45
PEmg 23.80
Current Ratio 2.12
PB Ratio 1.17
Current Dividend $0.66
Dividend Yield 2.80%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $985,166,000
Total Current Liabilities $464,513,000
Long-Term Debt $733,367,000
Total Assets $2,016,937,000
Intangible Assets $311,213,000
Total Liabilities $1,304,893,000
Shares Outstanding (Diluted Average) 35,480,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.22
Dec2017 -$1.41
Dec2016 $1.51
Dec2015 $1.66
Dec2014 $1.55
Mar2013 $1.25
Mar2012 $1.39
Mar2011 $1.42
Mar2010 $1.14
Mar2009 $1.66
Mar2008 $1.58
Mar2007 $1.18
Mar2006 $0.86
Mar2005 $0.91
Mar2004 -$0.33
Mar2003 -$6.15
Mar2002 $0.50
Mar2001 $1.35
Mar2000 $1.28
Mar1999 $1.02
Mar1998 $0.94

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.99
Dec2017 $0.55
Dec2016 $1.52
Dec2015 $1.50
Dec2014 $1.39
Mar2013 $1.33
Mar2012 $1.40
Mar2011 $1.40
Mar2010 $1.35
Mar2009 $1.39
Mar2008 $1.11
Mar2007 $0.35
Mar2006 -$0.32
Mar2005 -$0.86
Mar2004 -$1.38
Mar2003 -$1.41
Mar2002 $0.98

Recommended Reading:

Other ModernGraham posts about the company

SpartanNash Co Valuation – Initial Coverage $SPTN

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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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