ModernGraham Quarterly Valuation Of Leggett & Platt Inc.

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 |  About: Leggett & Platt Inc. (LEG)
by: Benjamin Clark

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 Leggett & Platt (NYSE:LEG) fares in the ModernGraham valuation model.

LEG Chart

LEG data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  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 - 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 - 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

Key Data:

Recent Price $31.86
MG Value $34.77
MG Opinion Fairly Valued
Value Based on 3% Growth $18.71
Value Based on 0% Growth $10.97
Market Implied Growth Rate 8.10%
Net Current Asset Value (NCAV) -$3.12
PEmg 24.70
Current Ratio 1.55
PB Ratio 3.19
Click to enlarge

Balance Sheet - 12/31/2013

Current Assets $1,281,700,000
Current Liabilities $829,500,000
Total Debt $688,400,000
Total Assets $3,108,100,000
Intangible Assets $1,130,200,000
Total Liabilities $1,716,800,000
Outstanding Shares 139,400,000
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Earnings Per Share

2013 $1.29
2012 $1.68
2011 $1.04
2010 $1.16
2009 $0.74
2008 $0.73
2007 $0.28
2006 $1.61
2005 $1.30
2004 $1.45
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Earnings Per Share - ModernGraham

2013 $1.29
2012 $1.22
2011 $0.92
2010 $0.87
2009 $0.80
2008 $0.91
Click to enlarge

Dividend History

LEG Dividend Chart

LEG Dividend data by YCharts

Conclusion:

Leggett & Platt Inc. is an interesting company that is not suitable for Defensive Investors due to the insufficient earnings growth over the ten year period, the low current ratio, and the high PEmg and PB ratios. However, the company does qualify for the Enterprising Investor, though it should be noted that the current ratio is very close to the minimum for that investor as well. Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company. From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.80 in 2009 to $1.29 for 2013. This demonstrated level of growth supports the market's implied estimate of 8.1% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety in relation to the price.

Disclaimer: The author did not hold a position in Leggett & Platt (LEG) 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.