Company Profile (excerpt from Reuters): Martin Marietta Materials, Inc., incorporated on November 12, 1993, is a supplier of aggregates products (crushed stone, sand, and gravel) used for the construction of infrastructure, nonresidential, and residential projects. Aggregates products are also used for railroad ballast and in agricultural, utility and environmental applications. The Company’s Aggregates business operates through three segments: the Mid-America Group, Southeast Group and West Group. The Company’s business is categorized into Aggregates Business, Cement Business and Magnesia Specialties Business. Its Cement business is reported through the Cement segment. Its Magnesia Specialties business manufactures and markets magnesia-based chemical products used in industrial, agricultural, and environmental applications, and dolomitic lime sold to customers in the steel industry. Its Aggregates business consists of mining, processing, and selling granite, limestone, sand and gravel. Its Aggregates business also includes aggregates-related downstream product lines (including its building materials, such as asphalt products, ready mixed concrete, and road paving construction services). It is also a supplier of cement, ready mixed concrete, and asphalt and paving services. Its Cement business produces Portland and specialty cements.
Downloadable PDF version of this valuation:
ModernGraham Valuation of MLM – 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 | $11,875,000,000 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.74 | Fail | |
| 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 | 377.76% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 22.98 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.42 | 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 | 1.74 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 4.72 | 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 | $8.27 |
| MG Growth Estimate | 15.00% |
| MG Value | $318.32 |
| Opinion | Undervalued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $119.89 |
| MG Value based on 0% Growth | $70.28 |
| Market Implied Growth Rate | 7.24% |
| Current Price | $190.00 |
| % of Intrinsic Value | 59.69% |
Martin Marietta Materials, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg ratio. 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 $3.04 in 2015 to an estimated $8.27 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.24% 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 Martin Marietta Materials, Inc. revealed the company was trading above its Graham Number of $123.79. The company pays a dividend of $1.84 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 22.98, which was above the industry average of 20.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-51.44.
Martin Marietta Materials, 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) | -$51.44 |
| Graham Number | $123.79 |
| PEmg | 22.98 |
| Current Ratio | 1.74 |
| PB Ratio | 2.42 |
| Current Dividend | $1.84 |
| Dividend Yield | 0.97% |
| Number of Consecutive Years of Dividend Growth | 3 |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Total Current Assets | $1,365,816,000 |
| Total Current Liabilities | $786,750,000 |
| Long-Term Debt | $2,730,439,000 |
| Total Assets | $9,551,419,000 |
| Intangible Assets | $2,900,400,000 |
| Total Liabilities | $4,602,007,000 |
| Shares Outstanding (Diluted Average) | 62,918,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $8.60 |
| Dec2018 | $7.43 |
| Dec2017 | $11.25 |
| Dec2016 | $6.63 |
| Dec2015 | $4.29 |
| Dec2014 | $2.71 |
| Dec2013 | $2.61 |
| Dec2012 | $1.83 |
| Dec2011 | $1.78 |
| Dec2010 | $2.10 |
| Dec2009 | $1.91 |
| Dec2008 | $4.18 |
| Dec2007 | $6.06 |
| Dec2006 | $5.29 |
| Dec2005 | $4.08 |
| Dec2004 | $2.66 |
| Dec2003 | $1.91 |
| Dec2002 | $1.77 |
| Dec2001 | $2.19 |
| Dec2000 | $2.39 |
| Dec1999 | $2.68 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $8.27 |
| Dec2018 | $7.56 |
| Dec2017 | $6.91 |
| Dec2016 | $4.37 |
| Dec2015 | $3.04 |
| Dec2014 | $2.34 |
| Dec2013 | $2.12 |
| Dec2012 | $2.04 |
| Dec2011 | $2.50 |
| Dec2010 | $3.21 |
| Dec2009 | $3.94 |
| Dec2008 | $4.79 |
| Dec2007 | $4.73 |
| Dec2006 | $3.76 |
| Dec2005 | $2.83 |
| Dec2004 | $2.20 |
| Dec2003 | $2.04 |
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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.
