Is Mueller Industries (MLI) Modestly Overvalued? A Comprehensive Analysis of Its Market Value
Mueller Industries Inc (NYSE:MLI) has experienced a daily loss of 49.35% and a three-month loss of 21.22%. Despite this downturn, the company maintains a robust Earnings Per Share (EPS) of 11.39. The question that arises is whether the stock is modestly overvalued. This article provides a thorough valuation analysis to answer this question. Keep reading to uncover the intrinsic value of Mueller Industries.
Company Overview
Mueller Industries Inc is a global manufacturer of copper, brass, aluminum, and plastic products. The company operates three business segments: piping systems, industrial metals, and climate. The piping systems segment, which generates the bulk of the company's revenue, produces a variety of products, including tubes, fittings, rods, and valves. The industrial metals segment focuses on brass and copper products, while the climate segment produces items for temperature-control goods. Despite its global presence, most of Mueller Industries' sales originate from the United States.
At its current price of $35.68 per share, Mueller Industries' stock appears to be modestly overvalued when compared to its Fair Value (GF Value) of $31.34. This valuation is based on the company's market cap of $4.10 billion, sales of $3.70 billion, and an operating margin of 22.05%.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this method, Mueller Industries (NYSE:MLI) appears to be modestly overvalued. Consequently, the long-term return of its stock is likely to be lower than its business growth.
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An Assessment of Financial Strength
Investing in companies with robust financial strength minimizes the risk of permanent capital loss. Mueller Industries' cash-to-debt ratio of 27.66 is superior to 82.85% of companies in the Industrial Products industry, indicating strong financial health. This strength is further reinforced by the company's 10 out of 10 GuruFocus financial strength rank.
Profitability and Growth
Companies with consistent profitability over the long term typically carry less risk. Mueller Industries has been profitable for 10 out of the past 10 years, with an operating margin of 22.05% that outperforms 93% of companies in the Industrial Products industry. This strong profitability is reflected in the company's GuruFocus rank.
Growth is a vital factor in a company's valuation. Mueller Industries' 3-year average annual revenue growth of 17.7% ranks better than 76.99% of companies in the Industrial Products industry. Furthermore, its 3-year average EBITDA growth rate of 57.6% outperforms 92.66% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. Mueller Industries' ROIC of 41.2 over the past 12 months is significantly higher than its WACC of 12.06, indicating value creation.
Conclusion
In summary, Mueller Industries (NYSE:MLI) appears to be modestly overvalued. Despite this, the company exhibits strong financial health and profitability, with growth that ranks better than 92.66% of companies in the Industrial Products industry. For a more detailed analysis of Mueller Industries, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
