Is Andersons undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of Andersons to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
- The current share price of Andersons is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
We assess Andersons's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Food and Staples Retailing industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Food and Staples Retailing industry average (and greater than 0)? (1 check)
Andersons has a total score of 1/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (346.92%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for Andersons is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
||Extrapolated @ (-9.58%)
||Extrapolated @ (-9.58%)
||Extrapolated @ (-9.58%)
Discounted (@ 8.9%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $31 × (1 + 2.3%) ÷ (8.92% – 2.3%)
Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($443 / 28)
Value per share:
Current discount (share price of $33.9): -115%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 8.92% = 2.33% + (0.859 * 7.67%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.859 = 0.606 (1 + (1- 30%) (59.49%))
Levered Beta used in calculation = 0.859
- The risk free rate of 2.33% is from the 10 year government bond rate in US.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is Andersons expected to perform in the next 1 to 3 years based on estimates from 4 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Earnings are expected to become positive over 3 years.
Future Earnings growth analysis
Is Andersons expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are Andersons's annual earnings growth expected to exceed 3.4% over the next 3 years?
- Expected to become positive in 1 year.
- + 3 year earnings data not available.
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
- Cash flow data unavailable.
- Andersons is expected to become profitable in 2 years.
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- Andersons is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.
Improvement & Relative to industry
- Expected to be less than the Food and Staples Retailing industry average.
- A decline in Andersons's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess Andersons's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Andersons has a total score of 2/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has Andersons performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Andersons's growth in the last year to its industry (Food and Staples Retailing).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- Andersons does not currently make a profit.
Andersons's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Negative return on shareholders funds (ROE) last year.
- Andersons performed worse than the Food and Staples Retailing industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) has improved significantly over 3 years.
Past performance checks
We assess Andersons's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Food and Staples Retailing industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Andersons has a total score of 1/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is Andersons's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up Andersons's finances.
The net worth of a company is the difference between its assets and liabilities.
- Andersons is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- Andersons's cash and other short term assets cover its long term commitments.
This treemap shows a more detailed breakdown of Andersons's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- High level of stock/ inventory/ unsold assets.
- Total debt is covered by short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (76%) compared to net worth is high (greater 40%).
- The level of debt compared to net worth has been reduced over the past 5 years (111% vs 76% today).
- Total debt is well covered by annual operating cash flow (greater than 20% of total debt).
- Interest on debt is not strongly covered (ideally 3x) by earnings (EBIT is 2.1x annual interest expense).
Financial health checks
We assess Andersons's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
Andersons has a total score of 4/6, see the detailed checks below.
What is Andersons's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from Andersons dividends. Estimated to be 1.91% next year.
If you bought $2,000 of Andersons shares you are expected to receive $39 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying below low risk savings rate. (2.25%)
- Paying below the markets top dividend payers. (3.18%)
Upcoming dividend payment
Purchase Andersons on or before the 'Buy Limit' to receive their next dividend payment.
Dividends are usually paid every 3 or 6 months, you can time your share purchase to take advantage of upcoming dividend payments.
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Dividends per share have been stable in the past 10 years.
- Dividends per share have increased over the past 10 years.
Current Payout to shareholders
What portion of Andersons's earnings are paid to the shareholders as a dividend.
- The company is paying a dividend however it is incurring a loss.
Future Payout to shareholders
- Dividends after 3 years are expected to be well covered by net profit (4.3x coverage).
Income/ dividend checks
We assess Andersons's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can Andersons afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
Andersons has a total score of 3/6, see the detailed checks below.
What is the CEO of Andersons's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. Patrick E. Bowe, also known as Pat, has been Chief Executive Officer, President and Director of The Andersons, Inc. since November 2, 2015. Mr. Bowe served as Corporate Vice President of Cargill, Incorporated until September 2015. Mr. Bowe has more than 35 years of experience in the agricultural sector. He served as the President of Cargill Sweeteners North America. In this position, he was responsible for all aspects of Cargill’s sweeteners business. He has extensive experience in leading large organizations with particular expertise in commodity and futures trading, acquisitions and joint ventures, process improvement, strategic sourcing, capital management and establishing and maintaining strong customer relationships. Mr. Bowe served as a Director of The Schwan Food Company, Inc. since October 2009. He served as a Non-Executive Director of Global Bio-chem Technology Group Company Limited from February 5, 2002 to September 29, 2010. He holds a Master’s degree in Economics from Stanford University, the United States.
- CEO's compensation has been consistent with company performance over the past year.
- CEO's compensation is higher than average for a company of this size and profit level.
Management Team Tenure
Average tenure of the Andersons management team:
- The average tenure for the Andersons management team is over 5 years, this suggests they are a seasoned and experienced team.
Chief Financial Officer
Vice President of Human Resources
President of Rail Group
President of Grain Group
Chief Information Officer
Board of Directors Tenure
Average tenure of the Andersons board of directors:
- The average tenure for the Andersons board of directors is over 10 years, this suggests they are a seasoned and experienced board.
Board of Directors
Recent Insider Trading
- No insider transactions in the past 3 months.
Who owns this company?
We assess Andersons's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
Andersons has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
The Andersons, Inc., together with its subsidiaries, engages in the grain, ethanol, plant nutrient, railcar leasing, turf and cob products, and retailing businesses in the United States and internationally. It operates through five segments: Grain, Ethanol, Rail, Plant Nutrient, and Retail. The Grain segment operates grain elevators; stores grains; and provides grain marketing, risk management, and corn origination services. The Ethanol segment purchases and sells ethanol; and offers facility operations, risk management, and ethanol and corn oil marketing services to the ethanol plants. The Rail segment leases, sells, and repairs various types of railcars, locomotives, and barges; provides fleet management services to private railcar owners; and invests in short-line railroad, as well as offers metal fabrication services. The Plant Nutrient segment manufactures, distributes, and retails agricultural and related plant nutrients, corncob-based products, and pelleted lime and gypsum products; and crop nutrients, crop protection chemicals, and seed products, as well as provides application and agronomic services to commercial and family farmers. This segment also offers warehousing, packaging, and manufacturing services to nutrient producers and other distributors; and manufactures and distributes nitrogen reagents for air pollution control systems. In addition, this segment produces professional turf care products for golf course and turf care markets; and fertilizer and control products to merchandisers, independent retailers, and other lawn fertilizer manufacturers, as well as provides contract manufacturing of fertilizer and control products. The Retail segment operates retail stores; a specialty food store; a distribution center; and engages in lawn and garden equipment sales and service activities. The Andersons, Inc. was founded in 1947 and is based in Maumee, Ohio.
1947 Briarfield Boulevard, Maumee, 43537, United States
|Sector:||Food and Staples Retailing|