The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

UN Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at UN through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 1.69x and 1.21x respectively.

Utilizing this range we can see that UN’s current Price to Sales per share ratio of 1.04x is significantly below its average levels historically. In fact, with a current price of $23.37, UN is a full 29% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for UN.

UN Cash Earnings

Looking at UN specifically in their Cash Earnings capabilities, Ockham views UN as significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from UN. For example, UN's Cash Earnings ratio per share has fluctuated between 10.36 and 14.49 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where UN is with respect to prior business periods.

So with UN's current price (latest close of $23.37) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, UN is 37% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with UN.

UN Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from UN against the historic high and low levels over an available data range. Because UN has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In UN’s case, the estimated annual dividend is $0.66 producing a current dividend yield of 2.82%. The highest dividend yield from UN in recent history was 5.27% while the lowest dividend yield was 1.68%. It is never a good sign for a company to pay significantly lower dividends, in this case 18.85% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as a negative factor.