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Harman International Industries Analysis – September 2015 Update $HAR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Harman International Industries (HAR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Harman International Industries Inc. (Harman), develops, manufactures and markets audio products, lighting solutions and electronic systems, and offers digitally integrated audio and infotainment systems for the automotive industry. The Company’s products are sold under multiple brands, primarily Aha, AKG, AMX, Becker, BSS, Crown, DigiTech, Infinity, JBL, Lexicon, Mark Levinson, Revel, Selenium and yurbuds. The Infotainment segment of the Company designs, manufactures and markets infotainment systems for vehicle applications to be installed primarily as original equipment by automotive manufacturers. The Lifestyle segment designs, manufactures and markets automotive audio systems for vehicle applications. The Professional segment designs, manufactures and markets a range of loudspeakers, power amplifiers, digital signal processors, microphones and headphones.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of HAR – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,014,712,294 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.39 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -2060.81% Fail
6. Moderate PEmg Ratio PEmg < 20 21.08 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.99 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.39 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.30 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

HAR value Chart September 2015

EPSmg $4.64
MG Growth Estimate 15.00%
MG Value $178.74
Opinion Undervalued
MG Value based on 3% Growth $67.32
MG Value based on 0% Growth $39.46
Market Implied Growth Rate 6.29%
Current Price $97.86
% of Intrinsic Value 54.75%

Harman International Industries does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, inconsistent dividend history, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.64 in 2012 to an estimated $4.64 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.29% annual earnings growth over the next 7-10 years  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Harman International Industries (HAR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

HAR Charts September 2015

Net Current Asset Value (NCAV) -$8.36
Graham Number $68.80
PEmg 21.08
Current Ratio 1.39
PB Ratio 2.99
Dividend Yield 1.35%
Number of Consecutive Years of Dividend Growth 6

 

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Most Recent Balance Sheet Figures

Total Current Assets $2,948,770,000
Total Current Liabilities $2,120,368,000
Long-Term Debt $1,080,667,000
Total Assets $5,929,752,000
Intangible Assets $1,956,847,000
Total Liabilities $3,555,139,000
Shares Outstanding (Diluted Average) 72,514,000

Earnings Per Share History

Next Fiscal Year Estimate $6.31
Jun15 $4.84
Jun14 $3.36
Jun13 $2.04
Jun12 $4.57
Jun11 $1.90
Jun10 $2.25
Jun09 -$7.19
Jun08 $1.73
Jun07 $4.72
Jun06 $3.75
Jun05 $3.31
Jun04 $2.27
Jun03 $1.55
Jun02 $0.85
Jun01 $0.48
Jun00 $1.03
Jun99 $0.16
Jun98 $0.67
Jun97 $0.74
Jun96 $0.79

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.64
Jun15 $3.65
Jun14 $2.98
Jun13 $2.10
Jun12 $1.64
Jun11 $0.34
Jun10 $0.06
Jun09 -$0.27
Jun08 $3.18
Jun07 $3.64
Jun06 $2.85
Jun05 $2.16
Jun04 $1.47
Jun03 $0.99
Jun02 $0.68
Jun01 $0.61
Jun00 $0.67

Recommended Reading:

Other ModernGraham posts about the company

Harman International Industries Analysis – June 2015 Quarterly Update $HAR
23 Companies in the Spotlight This Week – 3/9/15
Harman International Industries Inc. Quarterly Valuation – March 2015 $HAR
32 Companies in the Spotlight This Week – 12/6/14
Harman International Industries Inc. Quarterly Valuation – December 2014 $HAR

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to read our full disclaimer.

 

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