Lamb Weston Holdings Inc Valuation – March 2019 #LW

Company Profile (excerpt from Reuters): Lamb Weston Holdings, Inc. (Lamb Weston), is a supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers around the world. The Company’s segments include Global, Foodservice, Retail and Other. The Company, along with its joint venture partners, offers a product portfolio to a channel and customer base in over 100 countries. Its offerings include Sweet Things, Straight Cut Fries, Crinkle/Concertina, Wedge, Twister/Curly Fries, Criss Cut/Waffle Fries, Puff, Chip, Slice, Potato Skin, Mashed, Hash Browns/Formed, Steak Cut Fries, Platter Cut Fries, Trim Fries, Chef Cut Fries, Ribcut and Appetizers.


Downloadable PDF version of this valuation:

ModernGraham Valuation of LW – March 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 $10,269,088,976 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.63 Fail
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 26533.33% Pass
6. Moderate PEmg Ratio PEmg < 20 28.01 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -61.84 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 1.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.30 Fail
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 $2.50
MG Growth Estimate 15.00%
MG Value $96.35
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $36.29
MG Value based on 0% Growth $21.27
Market Implied Growth Rate 9.76%
Current Price $70.10
% of Intrinsic Value 72.75%

Lamb Weston Holdings Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.61 in 2015 to an estimated $2.5 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.76% 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 above the price.

At the time of valuation, further research into Lamb Weston Holdings Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.76 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 28.01, which was above the industry average of 26.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.15.

Lamb Weston Holdings 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) -$14.15
Graham Number $0.00
PEmg 28.01
Current Ratio 1.63
PB Ratio -61.84
Current Dividend $0.76
Dividend Yield 1.08%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $1,134,600,000
Total Current Liabilities $696,800,000
Long-Term Debt $2,321,800,000
Total Assets $3,052,500,000
Intangible Assets $167,000,000
Total Liabilities $3,219,600,000
Shares Outstanding (Diluted Average) 147,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.95
May2018 $2.82
May2017 $2.22
May2016 $1.51
May2015 $1.83

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.50
May2018 $2.08
May2017 $1.51
May2016 $0.99
May2015 $0.61

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None. This is the first time ModernGraham has covered the company.

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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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