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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 Masco Corporation (NYSE:MAS) fares in the ModernGraham valuation model.

MAS Chart

MAS data by YCharts

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 - 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 - FAIL
  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 one-third over the last 10 years using three-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 = 2/5

  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 - FAIL
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Balance Sheet - 12/31/2013

Current Assets $3,468,000,000
Current Liabilities $1,782,000,000
Total Debt $3,421,000,000
Total Assets $6,933,000,000
Intangible Assets $2,052,000,000
Total Liabilities $6,398,000,000
Outstanding Shares 349,500,000

Earnings Per Share

2013 $0.78
2012 -$0.22
2011 -$1.34
2010 -$3.00
2009 -$0.41
2008 -$1.08
2007 $1.06
2006 $1.15
2005 $2.03
2004 $2.04

Earnings Per Share - ModernGraham

2013 -$0.49
2012 -$1.16
2011 -$1.40
2010 -$1.11
2009 $0.08
2008 $0.56

Dividend History

MAS Dividend Chart

MAS Dividend data by YCharts


Masco Corporation is not suitable for either the Defensive Investor or the Enterprising Investor. The company has shown terrible earnings in recent history, has not shown sufficient growth, and has a high level of debt relative to current assets. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should explore other opportunities through a review of 5 Undervalued Companies for the Defensive Investor and 5 Outstanding Dow Components. From a valuation perspective, the company does not fare well in the ModernGraham valuation model due to the negative EPSmg (normalized earnings). Any valuation must come from an area other than the earnings, and the balance sheet does not look promising either. Therefore, the company appears to be significantly overvalued and any investor seeking to speculate here should be extremely cautious.

Disclaimer: The author did not hold a position in Masco Corporation (MAS) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Annual Valuation Of Masco