IT Hardware Stocks

ScanSource Inc Valuation – Initial Coverage $SCSC

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 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  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 ScanSource Inc (SCSC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ScanSource, Inc. is a provider of technology products and solutions. The Company and its subsidiaries provide solutions for technology manufacturers and sell to resellers in technology markets, such as point-of-sale (POS) and Barcode, Networking and Security, Communications and Emerging Technologies. It operates through two segments: Worldwide Barcode & Security and Worldwide Communications & Services. The Barcode & Security distribution segment focuses on automatic identification and data capture (AIDC), POS, electronic physical security and three dimensional (3D) printing technologies. The Communications & Services distribution segment focuses on communications technologies and services. As of June 30, 2016, the Company marketed over 100,000 products from approximately 400 hardware and software vendors to approximately 35,000 reseller customers from distribution centers in Mississippi, Virginia, Florida, Mexico, Colombia, Brazil, Belgium, France, Germany and the United Kingdom.

SCSC Chart

SCSC data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of SCSC – December 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 $974,733,715 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.91 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 29.60% Fail
6. Moderate PEmg Ratio PEmg < 20 15.83 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.30 Pass
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 1.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.27 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.47
MG Growth Estimate 3.25%
MG Value $37.02
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $35.81
MG Value based on 0% Growth $20.99
Market Implied Growth Rate 3.67%
Current Price $39.10
% of Intrinsic Value 105.61%

ScanSource, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.03 in 2013 to an estimated $2.47 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 3.67% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into ScanSource, Inc. revealed the company was trading below its Graham Number of $43.61. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 15.83, which was below the industry average of 28.12, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $13.02.

ScanSource, Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $13.02
Graham Number $43.61
PEmg 15.83
Current Ratio 1.91
PB Ratio 1.30
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $1,306,470,000
Total Current Liabilities $682,506,000
Long-Term Debt $166,141,000
Total Assets $1,744,121,000
Intangible Assets $311,811,000
Total Liabilities $970,960,000
Shares Outstanding (Diluted Average) 25,762,000

Earnings Per Share History

Next Fiscal Year Estimate $2.75
Jun2016 $2.38
Jun2015 $2.27
Jun2014 $2.86
Jun2013 $1.24
Jun2012 $2.68
Jun2011 $2.70
Jun2010 $1.82
Jun2009 $1.79
Jun2008 $2.10
Jun2007 $1.63
Jun2006 $1.53
Jun2005 $1.37
Jun2004 $1.13
Jun2003 $0.87
Jun2002 $0.80
Jun2001 $0.67
Jun2000 $0.58
Jun1999 $0.33
Jun1998 $0.24
Jun1997 $0.19

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.47
Jun2016 $2.31
Jun2015 $2.30
Jun2014 $2.30
Jun2013 $2.03
Jun2012 $2.36
Jun2011 $2.13
Jun2010 $1.82
Jun2009 $1.78
Jun2008 $1.70
Jun2007 $1.43
Jun2006 $1.27
Jun2005 $1.08
Jun2004 $0.90
Jun2003 $0.74
Jun2002 $0.62
Jun2001 $0.49

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

AMETEK Inc Valuation – December 2016 $AME
Ingram Micro Inc Valuation – Initial Coverage $IM
Sanmina Corp Valuation – Initial Coverage $SANM
Qorvo Inc Valuation – December 2016 Update $QRVO
IIVI Inc Valuation – Initial Coverage $IIVI
CEVA Inc Valuation – Initial Coverage $CEVA
NetApp Inc Valuation – August 2016 $NTAP
Applied Materials Inc Valuation – August 2016 $AMAT
Skyworks Solutions Inc Valuation – August 2016 $SWKS
Garmin Limited Valuation – August 2016 $GRMN

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top