Broadcom Inc Valuation – February 2019 $AVGO

Company Profile (excerpt from Reuters): Broadcom Inc., formerly Broadcom Limited, incorporated on March 3, 2015, is a designer, developer and global supplier of a range of semiconductor devices with a focus on digital and mixed signal complementary metal oxide semiconductor (CMOS)-based devices and analog III-V based products. The Company operates through four segments: Wired Infrastructure, Wireless Communications, Enterprise Storage and Industrial & Other. It offers a range of products that are used in end-products, such as enterprise and data center networking, home connectivity, set-top boxes (STBs), broadband access, telecommunication equipment, smartphones, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Its product portfolio ranges from discrete devices to complex sub-systems that include multiple device types, and also includes firmware for interfacing between analog and digital systems. Its products include mechanical hardware that interfaces with optoelectronic or capacitive sensors.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AVGO – February 2019

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 $108,783,876,350 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.90 Pass
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 771.13% Pass
6. Moderate PEmg Ratio PEmg < 20 17.76 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.26 Fail
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 3.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.58 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $15.04
MG Growth Estimate 15.00%
MG Value $579.17
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $218.13
MG Value based on 0% Growth $127.87
Market Implied Growth Rate 4.63%
Current Price $267.15
% of Intrinsic Value 46.13%

Broadcom Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.76 in 2015 to an estimated $15.04 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.63% 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 above the price.

At the time of valuation, further research into Broadcom Inc revealed the company was trading above its Graham Number of $174.29. The company pays a dividend of $7 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.76, which was below the industry average of 29.46, 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 $-33.79.

Broadcom Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$33.79
Graham Number $174.29
PEmg 17.76
Current Ratio 3.90
PB Ratio 4.26
Current Dividend $7.00
Dividend Yield 2.62%
Number of Consecutive Years of Dividend Growth 8

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 10/1/2018
Total Current Assets $9,107,000,000
Total Current Liabilities $2,338,000,000
Long-Term Debt $17,493,000,000
Total Assets $50,124,000,000
Intangible Assets $37,675,000,000
Total Liabilities $23,467,000,000
Shares Outstanding (Diluted Average) 425,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $20.94
Oct2018 $28.44
Oct2017 $4.02
Oct2016 -$4.86
Oct2015 $4.85
Oct2014 $0.99
Oct2013 $2.19
Oct2012 $2.25
Oct2011 $2.19
Oct2010 $1.69
Oct2009 -$0.20
Oct2008 $0.38
Oct2007 -$0.74

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $15.04
Oct2018 $10.29
Oct2017 $1.29
Oct2016 $0.31
Oct2015 $2.76
Oct2014 $1.77
Oct2013 $1.98
Oct2012 $1.67
Oct2011 $1.14
Oct2010 $0.49
Oct2009 -$0.11
Oct2008 -$0.07
Oct2007 -$0.25

Recommended Reading:

Other ModernGraham posts about the company

Broadcom Inc Valuation – April 2018 $AVGO
Broadcom Limited Valuation – July 2016 $AVGO
19 Best Stocks For Value Investors This Week – 1/9/16
Avago Technologies Ltd Valuation – January 2016 Update $AVGO
The Best Stocks of the IT Hardware Industry – September 2015

Other ModernGraham posts about related companies

KLA-Tencor Corp Valuation – January 2019 $KLAC
TE Connectivity Ltd Valuation – January 2019 $TEL
NVIDIA Corp Valuation – January 2019 $NVDA
Seagate Technology PLC Valuation – January 2019 $STX
Corning Inc Valuation – January 2019 $GLW
HP Inc Valuation – December 2018 $HPQ
Intel Corp Valuation – November 2018 $INTC
Apple Inc Valuation – November 2018 $AAPL
Littelfuse Inc Valuation – September 2018 $LFUS
CTS Corporation Valuation – August 2018 $CTS

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.

Broadcom Inc Valuation – April 2018 $AVGO

Company Profile (excerpt from Reuters): Broadcom Limited, incorporated on March 3, 2015, is a designer, developer and global supplier of a range of semiconductor devices with a focus on digital and mixed signal complementary metal oxide semiconductor (CMOS)-based devices and analog III-V based products. The Company operates through four segments: Wired Infrastructure, Wireless Communications, Enterprise Storage and Industrial & Other. It offers a range of products that are used in end-products, such as enterprise and data center networking, home connectivity, set-top boxes (STBs), broadband access, telecommunication equipment, smartphones, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Its product portfolio ranges from discrete devices to complex sub-systems that include multiple device types, and also includes firmware for interfacing between analog and digital systems. Its products include mechanical hardware that interfaces with optoelectronic or capacitive sensors.

AVGO Chart

AVGO data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AVGO – April 2018

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 $93,602,964,886 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.70 Pass
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 402.17% Pass
6. Moderate PEmg Ratio PEmg < 20 32.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.90 Fail
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 5.70 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.89 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.25
MG Growth Estimate 15.00%
MG Value $279.23
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $105.16
MG Value based on 0% Growth $61.65
Market Implied Growth Rate 12.09%
Current Price $236.99
% of Intrinsic Value 84.87%

Broadcom Ltd does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.77 in 2014 to an estimated $7.25 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 12.09% 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 Broadcom Ltd revealed the company was trading above its Graham Number of $146.88. The company pays a dividend of $4.08 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 32.68, which was below the industry average of 51.31, 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 $-40.9.

Broadcom Ltd scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$40.90
Graham Number $146.88
PEmg 32.68
Current Ratio 5.70
PB Ratio 3.90
Current Dividend $4.08
Dividend Yield 1.72%
Number of Consecutive Years of Dividend Growth 7

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 1/1/2018
Total Current Assets $11,220,000,000
Total Current Liabilities $1,970,000,000
Long-Term Debt $17,475,000,000
Total Assets $54,544,000,000
Intangible Assets $40,070,000,000
Total Liabilities $28,643,000,000
Shares Outstanding (Diluted Average) 426,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $19.32
Oct2017 $4.02
Oct2016 -$4.86
Oct2015 $4.85
Oct2014 $0.99
Oct2013 $2.19
Oct2012 $2.25
Oct2011 $2.19
Oct2010 $1.69
Oct2009 -$0.20
Oct2008 $0.38
Oct2007 -$0.74

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.25
Oct2017 $1.29
Oct2016 $0.31
Oct2015 $2.76
Oct2014 $1.77
Oct2013 $1.98
Oct2012 $1.67
Oct2011 $1.14
Oct2010 $0.49
Oct2009 -$0.11
Oct2008 -$0.07
Oct2007 -$0.25

Recommended Reading:

Other ModernGraham posts about the company

19 Best Stocks For Value Investors This Week – 1/9/16
Avago Technologies Ltd Valuation – January 2016 Update $AVGO
The Best Stocks of the IT Hardware Industry – September 2015
19 Best Stocks For Value Investors This Week – 8/29/15
Avago Technologies Ltd Analysis – Initial Coverage $AVGO

Other ModernGraham posts about related companies

KLA-Tencor Corp Valuation – March 2018 $KLAC
TE Connectivity Ltd Valuation – March 2018 $TEL
Juniper Networks Inc Valuation – March 2018 $JNPR
NVIDIA Corp Valuation – March 2018 $NVDA
Seagate Technology PLC Valuation – March 2018 $STX
HP Inc Valuation – February 2018 $HPQ
Intel Corp Valuation – February 2018 $INTC
Apple Inc Valuation – February 2018 $AAPL
Lam Research Corp Valuation – September 2017 $LRCX
Vicor Corp Valuation – Initial Coverage $VICR

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.

Broadcom Limited Valuation – July 2016 $AVGO

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 Companies Benjamin Graham Would Invest In Today – July 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 Broadcom Limited (AVGO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Broadcom Limited is a semiconductor company. The Company offers a range of products in end-markets, including wired infrastructure, wireless communications, enterprise storage, and industrial and others. The Company’s products are used in various applications, including data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays. The Company’s product categories include broadband access and modems, enterprise and network processors, Ethernet communication and switching, set-top box and media processors, wireless infrastructure and wireless connectivity. Its broadband access and modems category consists of products, such as Universal 1024 quadrature amplitude modulation (QAM) Modulator, Universal DOCSIS 2.0-Based Downstream Modulator and QAMLink DOCSIS/EuroDOCSIS 2.0 Single-Chip Cable Modem.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AVGO – July 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 $65,838,312,108 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.52 Pass
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 -1842.86% Fail
6. Moderate PEmg Ratio PEmg < 20 50.69 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.46 Fail
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 2.52 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.63 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

AVGO value chart July 2016

EPSmg $3.24
MG Growth Estimate 14.09%
MG Value $118.84
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $46.98
MG Value based on 0% Growth $27.54
Market Implied Growth Rate 21.09%
Current Price $164.23
% of Intrinsic Value 138.19%

Broadcom Ltd is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 Overvalued after growing its EPSmg (normalized earnings) from $1.67 in 2012 to an estimated $3.24 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 21.09% 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.

Broadcom Ltd receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

AVGO charts July 2016

Net Current Asset Value (NCAV) -$60.28
Graham Number $66.34
PEmg 50.69
Current Ratio 2.52
PB Ratio 3.46
Current Dividend $1.75
Dividend Yield 1.07%
Number of Consecutive Years of Dividend Growth 6

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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 4/1/2016
Total Current Assets $6,687,000,000
Total Current Liabilities $2,651,000,000
Long-Term Debt $14,664,000,000
Total Assets $51,407,000,000
Intangible Assets $41,720,000,000
Total Liabilities $31,705,000,000
Shares Outstanding (Diluted Average) 415,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.92
Oct2015 $4.85
Oct2014 $0.99
Oct2013 $2.19
Oct2012 $2.25
Oct2011 $2.19
Oct2010 $1.69
Oct2009 -$0.20
Oct2008 $0.38
Oct2007 -$0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.24
Oct2015 $2.76
Oct2014 $1.77
Oct2013 $1.98
Oct2012 $1.67
Oct2011 $1.14
Oct2010 $0.49
Oct2009 -$0.11
Oct2008 -$0.07
Oct2007 -$0.25

Recommended Reading:

Other ModernGraham posts about the company

19 Best Stocks For Value Investors This Week – 1/9/16
Avago Technologies Ltd Valuation – January 2016 Update $AVGO
The Best Stocks of the IT Hardware Industry – September 2015
19 Best Stocks For Value Investors This Week – 8/29/15
Avago Technologies Ltd Analysis – Initial Coverage $AVGO

Other ModernGraham posts about related companies

Microchip Technology Inc Valuation – July 2016 $MCHP
Jabil Circuit Inc Valuation – July 2016 $JBL
KLA-Tencor Corp Valuation – July 2016 $KLAC
Linear Technology Corp Valuation – July 2016 $LLTC
Arrow Electronics Inc Valuation – July 2016 $ARW
Lam Research Corp Valuation – June 2016 $LRCX
TE Connectivity Ltd Valuation – June 2016 $TEL
Juniper Networks Inc Valuation – June 2016 $JNPR
Nvidia Corporation Valuation – June 2016 $NVDA
Intel Corporation Valuation – May 2016 $INTC

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.

Avago Technologies Ltd Valuation – January 2016 Update $AVGO

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 Avago Technologies Ltd (AVGO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Avago Technologies Limited (Avago) is a designer, developer and global supplier of a range of analog semiconductor devices. The Company focuses on III-V based products and complex digital and mixed signal complementary metal oxide semiconductor (CMOS) based devices. The Company operates through four segments: wireless communications, enterprise storage, wired infrastructure and industrial & other. The wireless communications segment supports the wireless industry with a range of radio frequency (RF) semiconductor devices. The enterprise storage segment consists of LSI Corporation’s (LSI’s) storage products and PLX Technology, Inc.’s (PLX’s) peripheral component interconnect express (PCIe) switches and bridges. The wired infrastructure segment supplies transceivers that receive and transmit information along optical fibers in the storage and Ethernet networking markets. The industrial & other segment provides a range of products for the general industrial and automotive markets.

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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. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of AVGO – 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 $35,769,459,920 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.37 Pass
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 -2805.36% Fail
6. Moderate PEmg Ratio PEmg < 20 25.62 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.56 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 3.37 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.47 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

AVGO value Chart January 2016

EPSmg $5.04
MG Growth Estimate 15.00%
MG Value $193.91
Opinion Undervalued
MG Value based on 3% Growth $73.03
MG Value based on 0% Growth $42.81
Market Implied Growth Rate 8.56%
Current Price $129.04
% of Intrinsic Value 66.55%

Avago Technologies Ltd qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, the short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by the level of debt relative to the net current assets. 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 undervalued after growing its EPSmg (normalized earnings) from $1.67 in 2011 to an estimated $5.04 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.56% 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 Avago Technologies Ltd (AVGO)?  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

AVGO Charts January 2016

Net Current Asset Value (NCAV) -$7.62
Graham Number $59.78
PEmg 25.62
Current Ratio 3.37
PB Ratio 7.56
Dividend Yield 1.20%
Number of Consecutive Years of Dividend Growth 6

 

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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 Oct15
Total Current Assets $3,775,000,000
Total Current Liabilities $1,119,000,000
Long-Term Debt $3,903,000,000
Total Assets $10,592,000,000
Intangible Assets $4,951,000,000
Total Liabilities $5,878,000,000
Shares Outstanding (Diluted Average) 276,000,000

Earnings Per Share History

Next Fiscal Year Estimate $9.31
Oct15 $4.85
Oct14 $0.99
Oct13 $2.19
Oct12 $2.25
Oct11 $2.19
Oct10 $1.69
Oct09 -$0.20
Oct08 $0.38
Oct07 -$0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.04
Oct15 $2.76
Oct14 $1.77
Oct13 $1.98
Oct12 $1.67
Oct11 $1.14
Oct10 $0.49
Oct09 -$0.11
Oct08 -$0.07
Oct07 -$0.25

Recommended Reading:

Other ModernGraham posts about the company

The Best Stocks of the IT Hardware Industry – September 2015
19 Best Stocks For Value Investors This Week – 8/29/15
Avago Technologies Ltd Analysis – Initial Coverage $AVGO

Other ModernGraham posts about related companies

KLA-Tencor Corp Valuation – January 2016 Update $KLAC
Lam Research Corp Valuation – January 2016 Update $LRCX
Amphenol Corporation Valuation – January 2016 Update $APH
Arrow Electronics Inc Valuation – December 2015 Update $ARW
TE Connectivity Ltd Valuation – December 2015 Update $TEL
Broadcom Corp Valuation – November 2015 Update $BRCM
SanDisk Corp Valuation – November 2015 Update $SNDK
Corning Inc Valuation – November 2015 Update $GLW
Intel Corp Valuation – November 2015 Update $INTC
FLIR Systems Inc. Valuation – November 2015 Update $FLIR

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.

Avago Technologies Ltd Analysis – Initial Coverage $AVGO

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 Avago Technologies Ltd (AVGO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Avago Technologies Limited is a designer, developer and global supplier of a range of analog semiconductor devices with a focus on III-V based products. III-V refers to elements from the 3rd and 5th groups in the periodic table of chemical elements, and examples of these materials are gallium arsenide (GaAs), gallium nitride (GaN), and indium phosphide (InP). The Company serves three primary target markets: wireless communications, which supports the wireless industry with a range of radio frequency (RF) semiconductor devices; wired infrastructure, which supplies transceivers that receive and transmit information along optical fibers, and industrial and other, which provides a range of products for the general industrial and automotive markets.

[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. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of AVGO – August 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 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
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 Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 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 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 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

EPSmg 3.41
MG Growth Estimate 15.00%
MG Value $131.34
Opinion Fairly Valued
MG Value based on 3% Growth $49.46
MG Value based on 0% Growth $29.00
Market Implied Growth Rate 14.26%
Current Price $126.30
% of Intrinsic Value 96.17%

Avago Technologies Ltd qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short history as a publicly traded company, short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  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 fairly valued after growing its EPSmg (normalized earnings) from $1.14 in 2011 to an estimated $3.41 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 14.26% 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 within a margin of safety relative to 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 Avago Technologies Ltd (AVGO)?  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

AVGO Charts August 2015

Net Current Asset Value (NCAV) -$8.43
PEmg 37.02
Current Ratio 4.50
PB Ratio 8.83
Dividend Yield 1.06%
Number of Consecutive Years of Dividend Growth 5

 

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Useful Links:

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

Most Recent Balance Sheet Figures

Total Current Assets $4,076,000,000
Total Current Liabilities $906,000,000
Long-Term Debt $4,852,000,000
Total Assets $10,532,000,000
Intangible Assets $4,876,000,000
Total Liabilities $6,471,000,000
Shares Outstanding (Diluted Average) 284,000,000

Earnings Per Share History

Next Fiscal Year Estimate $6.79
Oct14 $0.99
Oct13 $2.19
Oct12 $2.25
Oct11 $2.19
Oct10 $1.69
Oct09 -$0.20
Oct08 $0.38
Oct07 -$0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.41
Oct14 $1.77
Oct13 $1.98
Oct12 $1.67
Oct11 $1.14
Oct10 $0.49
Oct09 -$0.11
Oct08 -$0.07
Oct07 -$0.25

Recommended Reading:

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None

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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.  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 take a moment to review our more detailed disclaimer.

Xilinx Inc Valuation – March 2019 #XLNX

Company Profile (excerpt from Reuters): Xilinx, Inc. (Xilinx), incorporated on February 5, 1990, is engaged in designing and developing programmable devices and associated technologies. The Company’s programmable devices and associated technologies include integrated circuits (ICs) in the form of programmable logic devices (PLDs), including programmable System on Chips (SoCs) and three-dimensional ICs (3D ICs); software design tools to program the PLDs; targeted reference designs; printed circuit boards, and intellectual property (IP), which consists of Xilinx, and various third-party verification and IP cores. In addition to its programmable platforms, Xilinx provides design services, customer training, field engineering and technical support.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of XLNX – March 2019

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 $30,836,641,097 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.38 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 35.70% Pass
6. Moderate PEmg Ratio PEmg < 20 48.05 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.84 Fail
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 4.38 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.38 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

EPSmg $2.53
MG Growth Estimate 2.73%
MG Value $35.37
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $36.75
MG Value based on 0% Growth $21.54
Market Implied Growth Rate 19.78%
Current Price $121.80
% of Intrinsic Value 344.34%

Xilinx, Inc. is suitable 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.14 in 2015 to an estimated $2.53 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.78% 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 below the price.

At the time of valuation, further research into Xilinx, Inc. revealed the company was trading above its Graham Number of $26.25. The company pays a dividend of $1.4 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 48.05, which was above the industry average of 35.5. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.67.

Xilinx, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $5.67
Graham Number $26.25
PEmg 48.05
Current Ratio 4.38
PB Ratio 11.84
Current Dividend $1.40
Dividend Yield 1.15%
Number of Consecutive Years of Dividend Growth 14

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 12/1/2018
Total Current Assets $4,172,352,000
Total Current Liabilities $952,869,000
Long-Term Debt $1,221,438,000
Total Assets $5,354,764,000
Intangible Assets $423,251,000
Total Liabilities $2,717,569,000
Shares Outstanding (Diluted Average) 256,374,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.33
Mar2018 $1.99
Mar2017 $2.32
Mar2016 $2.05
Mar2015 $2.35
Mar2014 $2.19
Mar2013 $1.79
Mar2012 $1.95
Mar2011 $2.39
Mar2010 $1.29
Mar2009 $1.31
Mar2008 $1.25
Mar2007 $1.02
Mar2006 $1.00
Mar2005 $0.87
Mar2004 $0.85
Mar2003 $0.36
Mar2002 -$0.34
Mar2001 $0.10
Mar2000 $1.90
Mar1999 $0.33

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.53
Mar2018 $2.15
Mar2017 $2.20
Mar2016 $2.12
Mar2015 $2.14
Mar2014 $2.00
Mar2013 $1.85
Mar2012 $1.80
Mar2011 $1.64
Mar2010 $1.23
Mar2009 $1.17
Mar2008 $1.06
Mar2007 $0.92
Mar2006 $0.76
Mar2005 $0.55
Mar2004 $0.45
Mar2003 $0.32

Recommended Reading:

Other ModernGraham posts about the company

Xilinx Inc Valuation – May 2018 $XLNX
Xilinx Inc Valuation – February 2017 $XLNX
Xilinx Inc Valuation – August 2016 $XLNX
Xilinx Inc Valuation – February 2016 $XLNX
Xilinx Inc. Valuation – November 2015 Update $XLNX

Other ModernGraham posts about related companies

Qualcomm Inc Valuation – March 2019 #QCOM
Ametek Inc Valuation – March 2019 #AME
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NetApp Inc Valuation – February 2019 $NTAP
Applied Materials Inc Valuation – February 2019 $AMAT
Microchip Technology Inc Valuation – February 2019 $MCHP
Broadcom Inc Valuation – February 2019 $AVGO
KLA-Tencor Corp Valuation – January 2019 $KLAC

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.

Western Digital Corp Valuation – March 2019 #WDC

Company Profile (excerpt from Reuters): Western Digital Corporation (Western Digital), incorporated on October 26, 2000, is a developer, manufacturer and provider of data storage devices and solutions that address the needs of the information technology (IT) industry and the infrastructure that enables the proliferation of data in virtually every industry. The Company’s portfolio of offerings addresses three categories: Datacenter Devices and Solutions (capacity and performance enterprise hard disk drives (HDDs), enterprise solid state drives (SSDs), datacenter software and system solutions); Client Devices (mobile, desktop, gaming and digital video hard drives, client SSDs, embedded products and wafers), and Client Solutions (removable products, hard drive content solutions and flash content solutions). The Company also generates license and royalty revenue related to its intellectual property which is included in each of the three categories.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WDC – March 2019

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 $14,501,831,037 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.24 Pass
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 -73.33% Fail
6. Moderate PEmg Ratio PEmg < 20 31.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.32 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 2.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.92 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.61
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $23.30
MG Value based on 0% Growth $13.66
Market Implied Growth Rate 11.26%
Current Price $49.84
% of Intrinsic Value N/A

Western Digital Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $5.72 in 2015 to an estimated $1.61 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.26% 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 below the price.

At the time of valuation, further research into Western Digital Corp revealed the company was trading above its Graham Number of $23.31. The company pays a dividend of $2 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.02, which was below the industry average of 35.5, 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 $-25.12.

Western Digital Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$25.12
Graham Number $23.31
PEmg 31.02
Current Ratio 2.24
PB Ratio 1.32
Current Dividend $2.00
Dividend Yield 4.01%
Number of Consecutive Years of Dividend Growth 0

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 12/1/2018
Total Current Assets $9,742,000,000
Total Current Liabilities $4,350,000,000
Long-Term Debt $10,370,000,000
Total Assets $27,939,000,000
Intangible Assets $12,222,000,000
Total Liabilities $17,027,000,000
Shares Outstanding (Diluted Average) 290,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.62
Jun2018 $2.20
Jun2017 $1.34
Jun2016 $1.00
Jun2015 $6.18
Jun2014 $6.68
Jun2013 $3.98
Jun2012 $6.58
Jun2011 $3.09
Jun2010 $5.93
Jun2009 $2.08
Jun2008 $3.84
Jun2007 $2.50
Jun2006 $1.76
Jun2005 $0.90
Jun2004 $0.69
Jun2003 $0.87
Jun2002 $0.34
Jun2001 -$0.31
Jun2000 -$2.69
Jun1999 -$5.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.61
Jun2018 $2.56
Jun2017 $3.11
Jun2016 $4.29
Jun2015 $5.72
Jun2014 $5.41
Jun2013 $4.63
Jun2012 $4.74
Jun2011 $3.71
Jun2010 $3.75
Jun2009 $2.51
Jun2008 $2.46
Jun2007 $1.63
Jun2006 $1.10
Jun2005 $0.68
Jun2004 $0.31
Jun2003 -$0.41

Recommended Reading:

Other ModernGraham posts about the company

Western Digital Corp Valuation – May 2018 $WDC
Western Digital Corporation Valuation – February 2017 $WDC
Best Stocks Below Their Graham Number – August 2016
Western Digital Corporation Valuation – August 2016 $WDC
10 Low PE Stock Picks for the Defensive Investor – August 2016

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FLIR Systems Inc Valuation – February 2019 $FLIR
NetApp Inc Valuation – February 2019 $NTAP
Applied Materials Inc Valuation – February 2019 $AMAT
Microchip Technology Inc Valuation – February 2019 $MCHP
Broadcom Inc Valuation – February 2019 $AVGO
KLA-Tencor Corp Valuation – January 2019 $KLAC

Disclaimer:

The author held a long position in WDC but did not hold a position in any other 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.

Texas Instruments Inc Valuation – March 2019 #TXN

Company Profile (excerpt from Reuters): Texas Instruments Incorporated, incorporated on December 23, 1938, designs, makes and sells semiconductors to electronics designers and manufacturers across the world. The Company operates through two segments: Analog and Embedded Processing. As of December 31, 2016, the Company had design, manufacturing or sales operations in more than 30 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TXN – March 2019

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 $100,065,963,125 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.27 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 131.11% Pass
6. Moderate PEmg Ratio PEmg < 20 24.10 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.50 Fail
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 3.27 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.77 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

EPSmg $4.43
MG Growth Estimate 13.46%
MG Value $156.82
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $64.21
MG Value based on 0% Growth $37.64
Market Implied Growth Rate 7.80%
Current Price $106.73
% of Intrinsic Value 68.06%

Texas Instruments Incorporated is suitable 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.33 in 2015 to an estimated $4.43 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.79% 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 above the price.

At the time of valuation, further research into Texas Instruments Incorporated revealed the company was trading above its Graham Number of $31.69. The company pays a dividend of $2.63 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24.07, which was below the industry average of 35.5, 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 $-0.05.

Texas Instruments Incorporated performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.05
Graham Number $31.69
PEmg 24.07
Current Ratio 3.27
PB Ratio 11.48
Current Dividend $2.63
Dividend Yield 2.47%
Number of Consecutive Years of Dividend Growth 15

 

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 12/1/2018
Total Current Assets $8,097,000,000
Total Current Liabilities $2,474,000,000
Long-Term Debt $4,319,000,000
Total Assets $17,137,000,000
Intangible Assets $5,079,000,000
Total Liabilities $8,143,000,000
Shares Outstanding (Diluted Average) 969,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.69
Dec2018 $5.59
Dec2017 $3.61
Dec2016 $3.48
Dec2015 $2.82
Dec2014 $2.57
Dec2013 $1.91
Dec2012 $1.51
Dec2011 $1.88
Dec2010 $2.62
Dec2009 $1.15
Dec2008 $1.44
Dec2007 $1.84
Dec2006 $2.78
Dec2005 $1.39
Dec2004 $1.05
Dec2003 $0.60
Dec2002 -$0.20
Dec2001 -$0.12
Dec2000 $1.71
Dec1999 $0.83

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.43
Dec2018 $4.07
Dec2017 $3.17
Dec2016 $2.78
Dec2015 $2.33
Dec2014 $2.09
Dec2013 $1.84
Dec2012 $1.78
Dec2011 $1.87
Dec2010 $1.90
Dec2009 $1.60
Dec2008 $1.78
Dec2007 $1.81
Dec2006 $1.57
Dec2005 $0.83
Dec2004 $0.57
Dec2003 $0.41

Recommended Reading:

Other ModernGraham posts about the company

Texas Instruments Inc Valuation – May 2018 $TXN
5 Best Stocks for Value Investors This Week – 2/18/17
Texas Instruments Inc Valuation – February 2017 $TXN
Texas Instruments Inc Valuation – August 2016 $TXN
15 Best Stocks For Value Investors This Week – 2/13/16

Other ModernGraham posts about related companies

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Ametek Inc Valuation – March 2019 #AME
Advanced Micro Devices Inc Valuation – February 2019 $AMD
Qorvo Inc Valuation – February 2019 $QRVO
FLIR Systems Inc Valuation – February 2019 $FLIR
NetApp Inc Valuation – February 2019 $NTAP
Applied Materials Inc Valuation – February 2019 $AMAT
Microchip Technology Inc Valuation – February 2019 $MCHP
Broadcom Inc Valuation – February 2019 $AVGO
KLA-Tencor Corp Valuation – January 2019 $KLAC

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.

Qualcomm Inc Valuation – March 2019 #QCOM

Company Profile (excerpt from Reuters): QUALCOMM Incorporated, incorporated on August 15, 1991, is engaged in the development and commercialization of a digital communication technology called code division multiple access (CDMA). The Company is engaged in the development and commercialization of the orthogonal frequency division multiple access (OFDMA) family of technologies, including long-term evolution (LTE), which is an Orthogonal Frequency Division Multiplexing (OFDM)-based standard that uses OFDMA and single-carrier Frequency Division Multiple Access (FDMA), for cellular wireless communication applications. The Company’s segments include QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing) and QSI (Qualcomm Strategic Initiatives). The Company also develops and commercializes a range of other technologies used in handsets and tablets that contribute to end user demand, such as certain audio and video codecs, the wireless local area networks (WLAN) 802.11 functionality and volatile and non-volatile memory controllers. Other technologies used by wireless devices that it has developed include operating systems, user interfaces, graphics and camera processing functionality, integrated circuit packaging techniques, sensors and sensor fusion algorithms and application processor architectures.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of QCOM – March 2019

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 $64,787,678,702 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -78.35% Fail
6. Moderate PEmg Ratio PEmg < 20 41.16 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 18.10 Fail
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 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.68 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.30
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $18.86
MG Value based on 0% Growth $11.06
Market Implied Growth Rate 16.33%
Current Price $53.53
% of Intrinsic Value N/A

QUALCOMM, Inc. does not satisfy the requirements of 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, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.73 in 2015 to an estimated $1.3 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.33% 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 below the price.

At the time of valuation, further research into QUALCOMM, Inc. revealed the company was trading above its Graham Number of $7.63. The company pays a dividend of $2.38 per share, for a yield of 4.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 41.16, which was above the industry average of 35.5. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.72.

QUALCOMM, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.72
Graham Number $7.63
PEmg 41.16
Current Ratio 1.54
PB Ratio 18.10
Current Dividend $2.38
Dividend Yield 4.45%
Number of Consecutive Years of Dividend Growth 17

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 12/1/2018
Total Current Assets $16,294,000,000
Total Current Liabilities $10,556,000,000
Long-Term Debt $15,388,000,000
Total Assets $34,246,000,000
Intangible Assets $9,041,000,000
Total Liabilities $30,629,000,000
Shares Outstanding (Diluted Average) 1,223,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.40
Sep2018 -$3.32
Sep2017 $1.65
Sep2016 $3.81
Sep2015 $3.22
Sep2014 $4.65
Sep2013 $3.91
Sep2012 $3.51
Sep2011 $2.52
Sep2010 $1.96
Sep2009 $0.95
Sep2008 $1.90
Sep2007 $1.95
Sep2006 $1.44
Sep2005 $1.26
Sep2004 $1.03
Sep2003 $0.51
Sep2002 $0.22
Sep2001 -$0.38
Sep2000 $0.43
Sep1999 $0.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.30
Sep2018 $0.83
Sep2017 $3.09
Sep2016 $3.81
Sep2015 $3.73
Sep2014 $3.76
Sep2013 $3.07
Sep2012 $2.49
Sep2011 $1.94
Sep2010 $1.64
Sep2009 $1.49
Sep2008 $1.68
Sep2007 $1.46
Sep2006 $1.10
Sep2005 $0.80
Sep2004 $0.50
Sep2003 $0.22

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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.

Ametek Inc Valuation – March 2019 #AME

Company Profile (excerpt from Reuters): AMETEK, Inc., incorporated on May 8, 1986, is a manufacturer of electronic instruments and electromechanical devices with operations in North America, Europe, Asia and South America. The Company operates through two segments: Electronic Instruments (EIG) and Electromechanical (EMG). EIG designs and manufactures instruments for the process, power and industrial and aerospace markets. EMG is a differentiated supplier of precision motion control solutions, thermal management systems, specialty metals and electrical interconnects. Its end markets include aerospace and defense, medical, automation, mass transit, petrochemical and other industrial markets.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AME – March 2019

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 $18,072,893,170 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.46 Fail
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 121.55% Pass
6. Moderate PEmg Ratio PEmg < 20 24.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.34 Fail
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 1.46 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.94 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

EPSmg $3.27
MG Growth Estimate 7.03%
MG Value $73.71
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $47.38
MG Value based on 0% Growth $27.77
Market Implied Growth Rate 7.93%
Current Price $79.57
% of Intrinsic Value 107.95%

AMETEK, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.22 in 2015 to an estimated $3.27 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 7.93% 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 AMETEK, Inc. revealed the company was trading above its Graham Number of $40.56. The company pays a dividend of $0.56 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 24.35, which was below the industry average of 35.5, 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 $-11.17.

AMETEK, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.17
Graham Number $40.56
PEmg 24.35
Current Ratio 1.46
PB Ratio 4.34
Current Dividend $0.56
Dividend Yield 0.70%
Number of Consecutive Years of Dividend Growth 1

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 12/1/2018
Total Current Assets $1,836,144,000
Total Current Liabilities $1,258,704,000
Long-Term Debt $2,273,837,000
Total Assets $8,662,288,000
Intangible Assets $6,015,804,000
Total Liabilities $4,420,366,000
Shares Outstanding (Diluted Average) 231,335,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.00
Dec2018 $3.34
Dec2017 $2.94
Dec2016 $2.19
Dec2015 $2.45
Dec2014 $2.37
Dec2013 $2.10
Dec2012 $1.88
Dec2011 $1.58
Dec2010 $1.18
Dec2009 $0.85
Dec2008 $1.02
Dec2007 $0.94
Dec2006 $0.76
Dec2005 $0.57
Dec2004 $0.47
Dec2003 $0.37
Dec2002 $0.37
Dec2001 $0.29
Dec2000 $0.31
Dec1999 $0.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.27
Dec2018 $2.82
Dec2017 $2.51
Dec2016 $2.26
Dec2015 $2.22
Dec2014 $2.02
Dec2013 $1.73
Dec2012 $1.47
Dec2011 $1.21
Dec2010 $1.00
Dec2009 $0.88
Dec2008 $0.85
Dec2007 $0.72
Dec2006 $0.57
Dec2005 $0.46
Dec2004 $0.39
Dec2003 $0.34

Recommended Reading:

Other ModernGraham posts about the company

Ametek Inc Valuation – April 2018 $AME
AMETEK Inc Valuation – December 2016 $AME
Ametek Inc Valuation – August 2016 $AME
5 Undervalued Stocks Near Lows for Enterprising Value Investors – Aug 2016
5 Companies for Enterprising Investors Near 52 Week Lows – June 2016

Other ModernGraham posts about related companies

Advanced Micro Devices Inc Valuation – February 2019 $AMD
Qorvo Inc Valuation – February 2019 $QRVO
FLIR Systems Inc Valuation – February 2019 $FLIR
NetApp Inc Valuation – February 2019 $NTAP
Applied Materials Inc Valuation – February 2019 $AMAT
Microchip Technology Inc Valuation – February 2019 $MCHP
Broadcom Inc Valuation – February 2019 $AVGO
KLA-Tencor Corp Valuation – January 2019 $KLAC
TE Connectivity Ltd Valuation – January 2019 $TEL
NVIDIA Corp Valuation – January 2019 $NVDA

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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