Matson, Inc. (NYSE:MATX); My Fair Value Estimate:
o My Estimate of Fair Value (MFV)
o Return on Invested Capital (ROIC)
o Liquidation Value = Tangible Book Value (TBV)
o Book Value (BV)
o Operating Income (OI)
o Enterprise Value (EV)
o Price-to-earnings ratio (P/E)
Matson, Inc is engaged in marine shipping. To me, that’s not particularly relevant. What’s of greatest relevance is the differential between its market value and MFV. But, before we get to those calculations, I measure the stock via a scorecard to highlight indicators that might make the stock more or less likely to be winner. Correspondingly, pros and cons as I see them.
·The P/E is <10
o I love cheap stocks, and for others that do too, this is most likely the measure of relative value they are using
·The company is also cheap using OI/EV (~.42), my preferred relative measure
·The % of shares short is <5%
o Shorts take greater risk than (non-margined) longs, so I assume they’ve done some research before betting against a company
·BV has grown nicely over 5 years
·Debt/MC is >50%
·Operating Profit Margins are down sequentially and year-over-year
Those pros and cons and—more importantly—the company’s average ROIC (~13% over the last 10-years) make it seem unlikely that the company has durable competitive advantages. So, I deem the company not good quantitatively and value it relative to its liquidation value, TBV of $46.45. Given the company’s seemingly fair balance sheet and 5-yr average multiple of BV x 2.2**, I think TBV x 1 is a reasonable fair value, which equates to MFV of $46.45.
At a recent price of $62.57, the differential between market value and MFV is 35%.
Conclusion: To me, shares are currently overvalued. I put the company on my not good watchlist, i.e. I’m not confident the company can grow earnings in a sustainable way, so I would only look to profit from mean reversion via buying shares for <MFV. However, the company’s historical ROIC is close to rising above the threshold I use to deem companies good. If ROIC crosses above the threshold, it will likely raise my valuation.
My positioning: None
For more information about how and why I designate companies not good read here: (https://www.veriteventures.com/post/how-i-value-most-assets-companies)
*Post prepared using data as of 12/13/22
**I’m using the company’s historical Book Value multiple as a proxy for Tangible Book because TB is <=BV and BV multiples are more readily available from data providers.
The information in this post has not been audited and accuracy is not guaranteed. The post is for informational purposes only and is not investment advice. Consult a financial professional before making investment decisions. The author’s opinions and positions may change subsequently, without notice.