ModernGraham Quarterly Valuation Of National Presto Industries - March 2014

| About: National Presto (NPK)

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 National Presto Industries fares in the ModernGraham valuation model.

NPK Chart

NPK data by YCharts

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

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - FAIL
  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 - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - PASS
  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 = 5/5

  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 - PASS
  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 $80.48
MG Value $61.36
MG Opinion Overvalued
Value Based on 3% Growth $97.63
Value Based on 0% Growth $57.23
Market-implied growth rate 1.73%
NCAV $29.43
PEmg 11.95
Current Ratio 4.87
PB Ratio 1.67

Balance Sheet - 12/31/2013

Current Assets $264,100,000
Current Liabilities $54,200,000
Total Debt $0
Total Assets $393,500,000
Intangible Assets $36,200,000
Total Liabilities $61,000,000
Outstanding Shares 6,900,000

Earnings Per Share

2013 $5.97
2012 $5.64
2011 $6.98
2010 $9.26
2009 $9.13
2008 $6.45
2007 $5.65
2006 $4.09
2005 $2.40
2004 $2.26
2003 $2.27

Earnings Per Share - ModernGraham

2013 $6.73
2012 $7.24
2011 $7.86
2010 $7.84
2009 $6.60
2008 $4.95

Dividend History

NPK Dividend Yield (NYSE:<a href='' title='Tata Motors Limited'>TTM</a>) Chart

NPK Dividend Yield (TTM) data by YCharts


National Presto Industries is a strong company that fares well in terms of the ModernGraham requirements for Defensive Investors and Enterprising Investors. The company only fails the market cap requirement of the Defensive Investor. As a result, all value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company as well as other opportunities through a review of 5 Undervalued Companies for the Defensive Investor and 5 Undervalued Companies for the Enterprising Investor.

From a valuation standpoint, however, the company appears to be overvalued at the current time. The company has grown EPSmg (normalized earnings) from $6.60 in 2009 to $6.73 in 2013, a very low level of growth that does not support the market's current implied estimate of 1.73% earnings growth. The ModernGraham valuation model has accordingly estimated an intrinsic value that falls below a margin of safety in relation to the 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 National Presto Industries? 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 National Presto Industries (NYSE:NPK) 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.

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