Packaging Stocks

Westrock Co Valuation – February 2019 $WRK

Company Profile (excerpt from Reuters): WestRock Company, incorporated on March 6, 2015, is a multinational provider of paper and packaging solutions for consumer and corrugated packaging markets. The Company also develops real estate in the Charleston, South Carolina region. The Company’s segments include Corrugated Packaging, Consumer Packaging, and Land and Development. The Corrugated Packaging segment consists of its containerboard mill and corrugated packaging operations, as well as its recycling operations. The Consumer Packaging segment consists of consumer mills, folding carton, beverage, merchandising displays, and partition operations. The Land and Development segment is engaged in the development and sale of real estate primarily in Charleston, South Carolina.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WRK – February 2019

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 $10,296,639,282 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.40 Fail
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 128.38% Pass
6. Moderate PEmg Ratio PEmg < 20 11.01 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.90 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 1.40 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.50 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.66
MG Growth Estimate 2.32%
MG Value $48.11
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $53.10
MG Value based on 0% Growth $31.13
Market Implied Growth Rate 1.26%
Current Price $40.32
% of Intrinsic Value 83.81%

Westrock Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.17 in 2015 to an estimated $3.66 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 1.26% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Westrock Co revealed the company was trading below its Graham Number of $59.42. The company pays a dividend of $1.72 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.01, which was below the industry average of 17.32, 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 $-53.28.

Westrock 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) -$53.28
Graham Number $59.42
PEmg 11.01
Current Ratio 1.40
PB Ratio 0.90
Current Dividend $1.72
Dividend Yield 4.27%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $5,226,000,000
Total Current Liabilities $3,729,900,000
Long-Term Debt $9,728,000,000
Total Assets $30,666,900,000
Intangible Assets $11,672,300,000
Total Liabilities $19,051,400,000
Shares Outstanding (Diluted Average) 259,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.49
Sep2018 $7.34
Sep2017 $2.77
Sep2016 -$1.56
Sep2015 $2.93
Sep2014 $3.29
Sep2013 $4.98
Sep2012 $1.72
Sep2011 $1.39
Sep2010 $2.85
Sep2009 $2.86
Sep2008 $1.07
Sep2007 $1.04
Sep2006 $0.39
Sep2005 $0.25
Sep2004 $0.25
Sep2003 $0.42
Sep2002 $0.39
Sep2001 $0.46
Sep2000 -$0.23
Sep1999 $0.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.66
Sep2018 $3.48
Sep2017 $1.86
Sep2016 $1.70
Sep2015 $3.17
Sep2014 $3.14
Sep2013 $2.97
Sep2012 $1.96
Sep2011 $2.00
Sep2010 $2.09
Sep2009 $1.51
Sep2008 $0.76
Sep2007 $0.56
Sep2006 $0.33
Sep2005 $0.31
Sep2004 $0.32
Sep2003 $0.34

Recommended Reading:

Other ModernGraham posts about the company

10 Most Overvalued Stocks of the S&P 500 – July 2018
WestRock Co Valuation – April 2018 $WRK
WestRock Co Valuation – December 2016 $WRK
10 Best Dividend Paying Stocks for the Defensive Investor – August 2016
14 Best Undervalued Stocks of the Week – 8/6/16

Other ModernGraham posts about related companies

Packaging Corp of America Valuation – January 2019 $PKG
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Silgan Holdings Inc Valuation – August 2018 $SLGN
Clearwater Paper Corp Valuation – July 2018 $CLW
Intertape Polymer Group Valuation – July 2018 $TSE-ITP
Bemis Co Inc Valuation – June 2018 $BMS
Owens-Illinois Inc Valuation – June 2018 $OI
International Paper Co Valuation – June 2018 $IP

Disclaimer:

The author held a long position in WRK but did not hold a position in any other 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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