Information Technology Stocks

Infosys Ltd Valuation – January 2016 Update $INFY

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 – November 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 Infosys Ltd (INFY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Infosys Limited is engaged in consulting, technology, outsourcing and next-generation services. The Company’s solutions include application development and maintenance, independent validation services, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; Management Consulting, enterprise solutions and package implementation, systems integration and business intelligence; Products, business platforms and solutions, and technologies, such as cloud computing, enterprise mobility, digital, big data and analytics. Its segments are Financial Services and Insurance, Manufacturing, Energy and utilities, Communication and Services, Retail, Consumer packaged goods and Logistics, Life Sciences and Healthcare, and Growth Markets.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of INFY – January 2016

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 $37,098,608,972 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.73 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 60.37% Pass
6. Moderate PEmg Ratio PEmg < 20 21.40 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 42.72 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 3.73 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
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

INFY value Chart January 2016

EPSmg $0.76
MG Growth Estimate 2.53%
MG Value $10.26
Opinion Overvalued
MG Value based on 3% Growth $10.98
MG Value based on 0% Growth $6.43
Market Implied Growth Rate 6.45%
Current Price $16.20
% of Intrinsic Value 157.88%

Infosys Ltd qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.65 in 2012 to an estimated $0.76 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.45% 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 below 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 Infosys Ltd (INFY)?  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

INFY Charts January 2016

Net Current Asset Value (NCAV) $0.23
Graham Number $2.38
PEmg 21.40
Current Ratio 3.73
PB Ratio 42.72
Dividend Yield 2.17%
Number of Consecutive Years of Dividend Growth 8

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $741,747,700
Total Current Liabilities $198,846,200
Long-Term Debt $0
Total Assets $1,071,627,000
Intangible Assets $69,294,680
Total Liabilities $204,952,000
Shares Outstanding (Diluted Average) 2,285,713,000

Earnings Per Share History

Next Fiscal Year Estimate $0.66
Mar15 $0.88
Mar14 $0.75
Mar13 $0.75
Mar12 $0.76
Mar11 $0.65
Mar10 $0.57
Mar09 $0.56
Mar08 $0.50
Mar07 $0.37
Mar06 $0.25
Mar05 $0.19
Mar04 $0.24
Mar03 $0.18
Mar02 $0.16
Mar01 $0.12
Mar00 $0.06
Mar99 $0.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.76
Mar15 $0.79
Mar14 $0.73
Mar13 $0.70
Mar12 $0.65
Mar11 $0.57
Mar10 $0.51
Mar09 $0.44
Mar08 $0.36
Mar07 $0.27
Mar06 $0.22
Mar05 $0.19
Mar04 $0.18
Mar03 $0.14
Mar02 $0.10
Mar01 $0.06
Mar00 $0.02

Recommended Reading:

Other ModernGraham posts about the company

Infosys Limited Analysis – October 2015 Update $INFY
The 8 Best Stocks For Value Investors This Week – 6/27/15
Infosys Analysis – June 2015 Update $INFY
24 Companies in the Spotlight This Week – 3/28/15
Infosys Limited Quarterly Valuation – March 2015 $INFY

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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 review our detailed disclaimer.

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