ModernGraham Valuation Of B&G Foods, Inc.

Dec.15.13 | About: B&G Foods, (BGS)

Here is a look at how B&G Foods, Inc. (NYSE:BGS) 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 = 2/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - FAIL
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
  5. 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 - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $38.63
MG Opinion Fairly Valued
Value Based on 3% Growth $14.55
Value Based on 0% Growth $8.53
Market Implied Growth Rate 12.34%
NCAV $1.40
PEmg 33.18
Current Ratio 1.63
PB Ratio 5.06
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Balance Sheet - 9/30/2013

Current Assets $192,800,000
Current Liabilities $118,600,000
Total Debt $815,800,000
Total Assets $1,420,800,000
Intangible Assets $1,100,400,000
Total Liabilities $1,072,700,000
Outstanding Shares 52,870,000
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Earnings Per Share

2013 (estimate) $1.07
2012 $1.20
2011 $1.04
2010 $0.67
2009 $0.44
2008 $0.27
2007 $0.54
2006 $0.42
2005 $0.29
2004 $0.18
2003 $0.07
2002 $0.13
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Earnings Per Share - Modern Graham

2013 (estimate) $1.00
2012 $0.89
2011 $0.69
2010 $0.49
2009 $0.40
2008 $0.37
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Conclusion:

B&G Foods, Inc. is not a company for the Defensive Investor, after having passed only two of the seven requirements for the investor type. The company isn't large enough, does not have a long enough dividend history, the current ratio isn't high enough, and the company is trading at high PEmg and PB ratios. As a result, there is too much risk involved for the Defensive Investor; however, the Enterprising Investor is willing to take on a little more risk because he is able to do further research. The company does pass enough of the requirements of the Enterprising Investor to qualify as a potential investment. On the valuation side, the company has achieved significant growth in EPSmg (normalized earnings), from $0.37 in 2008 to an estimated $1.00 for 2013. This growth would seem to support the current price and the company appears to be fairly valued. Enterprising Investors should proceed with further research to determine if B&G Foods Inc. is suitable for their individual portfolios.

Disclosure: The author did not hold a position in B&G Foods, Inc. (BGS) at the time of publication and had no intention of entering into a position within the next 72 hours.