Company Description: Bemis Company Inc. is a leading maker of a broad range of flexible packaging and pressure-sensitive materials.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
BMS is trading at a discount to only 3.) above. The stock is trading at a 30.1% premium to its calculated fair value of $21.51. BMS did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
BMS earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. BMS earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1922 and has increased its dividend payments for 28 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $270 is below the $700 target I look for in a stock that has increased dividends as long as BMS has. If BMS grows its dividend at 3.2% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 3.6%. BMS earned a check for the Key Metric 'Years to >MMA' since its 2 years is less than the 5 year target.
Memberships and Peers: BMS is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Avery Dennison Corporation (AVY) with a 3.8% yield, Packaging Corp. of America (PKG) with a 3.1% yield, and Sonoco Products Co. (SON) with a 3.8% yield.
Conclusion: BMS did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks BMS as a 3 Star-Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $21.92 before BMS's NPV MMA Differential increased to the $700 minimum that I look for in a stock with 28 years of consecutive dividend increases. At that price the stock would yield 4.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $700 NPV MMA Differential, the calculated rate is 5.7%. This dividend growth rate is higher than the 3.2% used in this analysis, thus providing no margin of safety. BMS has a risk rating of 1.50 which classifies it as a Low risk stock.
You may not think you know BMS, but you see its products every time go enter a store. About 70% of Bemis' revenue comes from packaging for foods and beverages, including Hormel, Tyson, Sara Lee, Pepsi, Kellogg's, and private-label manufacturers. As a result of the Alcan acquisition, the company has seen its debt ratio increase. However, the deal is a a good strategic fit and should provide sufficient pay down the debt.
BMS is an interesting company. Unfortunately, its valuation is currently on the rich side for me. I will continue to watch it and look for opportunities when the stock is trading closer to my fair value price of $21.51.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in BMS (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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Tags: [BMS] [AVY] [PKG] [SON]