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Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Bemis Company fares in the ModernGraham valuation model.

BMS Chart

BMS data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  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 - PASS
  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 - FAIL
  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 - PASS

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

Key Data:

Recent Price$39.03
MG Value$22.75
MG OpinionOvervalued
Value Based on 3% Growth$26.30
Value Based on 0% Growth$15.42
Market Implied Growth Rate6.51%
NCAV-$9.04
PEmg21.52
Current Ratio2.50
PB Ratio2.36

Balance Sheet - 12/31/2013

Current Assets$1,504,500,000
Current Liabilities$601,900,000
Total Debt$1,421,400,000
Total Assets$4,110,200,000
Intangible Assets$1,242,800,000
Total Liabilities$2,425,400,000
Outstanding Shares101,900,000

Earnings Per Share

2013$2.05
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 - ModernGraham

2013$1.81
2012$1.69
2011$1.69
2010$1.67
2009$1.60
2008$1.66

Dividend History

BMS Dividend Chart

BMS Dividend data by YCharts

Conclusion:

Bemis Company is not suitable for the Defensive Investor, but is suitable for the Enterprising Investor. The company has not shown sufficient earnings growth over the ten year historical period and has a PEmg too high for the Defensive Investor. The Enterprising Investor only has an issue with the company's debt level relative to its current assets. As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company. Such research should also include a review of some other potential investments, including 5 Undervalued Companies for the Enterprising Investor and 5 Low PEmg Companies for the Defensive Investor.

From a valuation side of things, the company has barely grown its EPSmg (normalized earnings), going from $1.60 in 2009 to $1.81 in 2013. This low level of historically demonstrated growth does not support the market's implied estimate of 6.51% earnings growth, and the ModernGraham valuation model therefore returns an estimate of intrinsic value that trails the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Bemis Company? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Bemis Company (NYSE:BMS) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Quarterly Valuation Of Bemis Company