Here is a look at how Bemis Company (BMS) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:
Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?) :
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
Key Data:
| MG Value | $22.44 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $26.21 |
| Value Based on 0% Growth | $15.36 |
| Market Implied Growth Rate | 6.69% |
| NCAV | -$8.88 |
| PEmg | 21.88 |
| Current Ratio | 2.40 |
| PB Ratio | 2.41 |
Balance Sheet – 9/30/2013
| Current Assets | $1,594,400,000 |
| Current Liabilities | $664,500,000 |
| Total Debt | $1,422,400,000 |
| Total Assets | $4,195,400,000 |
| Intangible Assets | $1,253,300,000 |
| Total Liabilities | $2,508,000,000 |
| Outstanding Shares | 102,900,000 |
Earnings Per Share – Diluted
| 2013 (estimate) | $2.03 |
| 2012 | $1.66 |
| 2011 | $1.73 |
| 2010 | $1.83 |
| 2009 | $1.47 |
| 2008 | $1.65 |
| 2007 | $1.74 |
| 2006 | $1.65 |
| 2005 | $1.51 |
| 2004 | $1.67 |
| 2003 | $1.37 |
| 2002 | $1.54 |
Earnings Per Share – Modern Graham (Calculating EPSmg)
| 2013 (estimate) | $1.81 |
| 2012 | $1.69 |
| 2011 | $1.69 |
| 2010 | $1.67 |
| 2009 | $1.60 |
| 2008 | $1.66 |
Conclusion:
Bemis Company has fairly healthy financials and appears to be a good company, but the earnings history is not as strong as one would like to see. The company only passes five of our seven tests for the Defensive Investor, having failed the earnings growth test and the PEmg test. As a result, it is not suitable for the Defensive Investor. It does, however, pass four out of the five tests for the Enterprising Investor, failing only the Debt to Net Current Assets test. As a result, it may be suitable for the Enterprising Investor, who is able to take on more risk by doing further research. From a valuation side of things, the lack of earnings growth severely limits the value of the company. By only growing EPSmg (normalized earnings) from $1.66 in 2008 to an estimated $1.81 for 2013, the company has achieved a marginal growth rate. The market currently is implying growth of over 6.5%, which is well above what has been accomplished in the past. As a result, the company would appear to be overvalued. Any investor considering Bemis Company should do considerable further research before reaching a decision.
What do you think? Is Bemis Company overvalued? Is the company suitable for only Enterprising Investors? Leave a comment or mention @ModernGraham on Twitter to discuss.
Disclaimer: The author did not hold a position in Bemis Company at the time of publication and had no intention of entering into a position in the next 72 hours.
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