L3 Technologies Inc Valuation – January 2019 $LLL

Company Profile (excerpt from Reuters): L3 Technologies, Inc., formerly L-3 Communications Holdings, Inc., incorporated on March 20, 1997, is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, aircraft sustainment, simulation and training, night vision and image intensification equipment and security and detection systems. The Company provides a broad range of communication and electronic systems and products used on military and commercial platforms. It operates through three segments: Electronic Systems, Communication Systems and Intelligence, Surveillance & Reconnaissance (ISR) Systems segment. The Company’s customers include the United States Department of Defense (DoD) and its prime contractors, the United States Government intelligence agencies, the United States Department of Homeland Security (DHS), foreign governments, and domestic and international commercial customers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LLL – January 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 $14,315,953,468 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.96 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 20.03% Fail
6. Moderate PEmg Ratio PEmg < 20 21.88 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.53 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 1.96 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.53 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 $8.31
MG Growth Estimate 0.42%
MG Value $77.57
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $120.44
MG Value based on 0% Growth $70.60
Market Implied Growth Rate 6.69%
Current Price $181.70
% of Intrinsic Value 234.24%

L3 Technologies 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 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 growing its EPSmg (normalized earnings) from $8.08 in 2014 to an estimated $8.31 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.69% 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 L3 Technologies Inc revealed the company was trading above its Graham Number of $134.83. The company pays a dividend of $3 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 21.88, which was below the industry average of 47.17, 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 $-38.26.

L3 Technologies 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) -$38.26
Graham Number $134.83
PEmg 21.88
Current Ratio 1.96
PB Ratio 2.53
Current Dividend $3.00
Dividend Yield 1.65%
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 9/1/2018
Total Current Assets $4,435,000,000
Total Current Liabilities $2,260,000,000
Long-Term Debt $3,320,000,000
Total Assets $13,184,000,000
Intangible Assets $7,248,000,000
Total Liabilities $7,473,000,000
Shares Outstanding (Diluted Average) 79,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.38
Dec2017 $8.51
Dec2016 $9.01
Dec2015 -$2.97
Dec2014 $7.56
Dec2013 $8.24
Dec2012 $8.03
Dec2011 $9.05
Dec2010 $8.25
Dec2009 $7.61
Dec2008 $7.59
Dec2007 $5.98
Dec2006 $4.22
Dec2005 $4.20
Dec2004 $3.33
Dec2003 $2.62
Dec2002 $1.93
Dec2001 $1.47
Dec2000 $1.19
Dec1999 $0.88
Dec1998 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.31
Dec2017 $6.20
Dec2016 $5.36
Dec2015 $4.35
Dec2014 $8.08
Dec2013 $8.31
Dec2012 $8.26
Dec2011 $8.15
Dec2010 $7.38
Dec2009 $6.60
Dec2008 $5.75
Dec2007 $4.58
Dec2006 $3.67
Dec2005 $3.17
Dec2004 $2.47
Dec2003 $1.90
Dec2002 $1.43

Recommended Reading:

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L3 Technologies Inc Valuation – March 2018 $LLL
L-3 Communications Holdings Inc Valuation – July 2016 $LLL
47 Companies in the Spotlight This Week – 5/16/15
L3 Communications Holdings Inc. Quarterly Valuation – May 2015 $LLL
34 Companies in the Spotlight This Week – 2/7/15

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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.

L3 Technologies Inc Valuation – March 2018 $LLL

Company Profile (excerpt from Reuters): L3 Technologies, Inc., formerly L-3 Communications Holdings, Inc., incorporated on March 20, 1997, is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, aircraft sustainment, simulation and training, night vision and image intensification equipment and security and detection systems. The Company provides a broad range of communication and electronic systems and products used on military and commercial platforms. It operates through four segments: Electronic Systems, Aerospace Systems, Communication Systems and Sensor Systems. The Company’s customers include the United States Department of Defense (DoD) and its prime contractors, the United States Government intelligence agencies, the United States Department of Homeland Security (DHS), foreign governments, and domestic and international commercial customers.

LLL Chart

LLL data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LLL – March 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 $16,312,039,364 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.87 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 5.70% Fail
6. Moderate PEmg Ratio PEmg < 20 29.30 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.27 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 1.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.61 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 $7.12
MG Growth Estimate -1.79%
MG Value $35.02
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $103.18
MG Value based on 0% Growth $60.49
Market Implied Growth Rate 10.40%
Current Price $208.53
% of Intrinsic Value 595.52%

L3 Technologies 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 $8.08 in 2014 to an estimated $7.12 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.4% 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 L3 Technologies revealed the company was trading above its Graham Number of $113.74. The company pays a dividend of $3 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 29.3, which was below the industry average of 44.37, 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 $-40.18.

L3 Technologies 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) -$40.18
Graham Number $113.74
PEmg 29.30
Current Ratio 1.87
PB Ratio 3.27
Current Dividend $3.00
Dividend Yield 1.44%
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 12/1/2017
Total Current Assets $4,448,000,000
Total Current Liabilities $2,379,000,000
Long-Term Debt $3,330,000,000
Total Assets $12,729,000,000
Intangible Assets $6,907,000,000
Total Liabilities $7,646,000,000
Shares Outstanding (Diluted Average) 79,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.81
Dec2017 $8.51
Dec2016 $9.01
Dec2015 -$2.97
Dec2014 $7.56
Dec2013 $8.24
Dec2012 $8.03
Dec2011 $9.05
Dec2010 $8.25
Dec2009 $7.61
Dec2008 $7.59
Dec2007 $5.98
Dec2006 $4.22
Dec2005 $4.20
Dec2004 $3.33
Dec2003 $2.62
Dec2002 $1.93
Dec2001 $1.47
Dec2000 $1.19
Dec1999 $0.88
Dec1998 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.12
Dec2017 $6.20
Dec2016 $5.36
Dec2015 $4.35
Dec2014 $8.08
Dec2013 $8.31
Dec2012 $8.26
Dec2011 $8.15
Dec2010 $7.38
Dec2009 $6.60
Dec2008 $5.75
Dec2007 $4.58
Dec2006 $3.67
Dec2005 $3.17
Dec2004 $2.47
Dec2003 $1.90
Dec2002 $1.43

Recommended Reading:

Other ModernGraham posts about the company

47 Companies in the Spotlight This Week – 5/16/15
L3 Communications Holdings Inc. Quarterly Valuation – May 2015 $LLL
34 Companies in the Spotlight This Week – 2/7/15
L-3 Communications Holdings Inc. Quarterly Valuation – February 2015 $LLL
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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.

L-3 Communications Holdings Inc Valuation – July 2016 $LLL

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 – June 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 L-3 Communications Holdings Inc (LLL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): L-3 Communications Holdings, Inc. (L-3 Holdings) operates through its operating subsidiary L-3 Communications (L-3). The Company operates through three segments: Electronic Systems, which provides a range of products and services, including components, products, subsystems, systems and related services to military and commercial customers; Aerospace Systems, which provides products and services for the Intelligence, Surveillance and Reconnaissance (ISR) market, specializing in signals intelligence (SIGINT) and multi-intelligence platforms, and Communication Systems, which provides network and communication systems, secure communications products, radio frequency components, satellite communication terminals, and space, microwave and telemetry products. L-3 Communications is a contractor in ISR systems, aircraft sustainment (including modifications, logistics and maintenance), simulation and training, night vision and image intensification equipment, and security and detection systems.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LLL – 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 $11,442,992,502 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.52 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 -42.14% Fail
6. Moderate PEmg Ratio PEmg < 20 29.94 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.70 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 1.52 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.27 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

LLL value chart July 2016

EPSmg $4.99
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $72.35
MG Value based on 0% Growth $42.41
Market Implied Growth Rate 10.72%
Current Price $149.39
% of Intrinsic Value N/A

L-3 Communications Holdings, 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 $8.35 in 2012 to an estimated $4.99 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.72% 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.

L-3 Communications Holdings, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

LLL charts July 2016

Net Current Asset Value (NCAV) -$43.92
Graham Number $99.03
PEmg 29.94
Current Ratio 1.52
PB Ratio 2.70
Current Dividend $2.65
Dividend Yield 1.77%
Number of Consecutive Years of Dividend Growth 13

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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 3/1/2016
Total Current Assets $4,063,000,000
Total Current Liabilities $2,679,000,000
Long-Term Debt $3,137,000,000
Total Assets $11,911,000,000
Intangible Assets $6,501,000,000
Total Liabilities $7,533,000,000
Shares Outstanding (Diluted Average) 79,000,000

Earnings Per Share History

Next Fiscal Year Estimate $7.70
Dec2015 -$2.93
Dec2014 $7.56
Dec2013 $8.54
Dec2012 $8.30
Dec2011 $9.03
Dec2010 $8.25
Dec2009 $7.61
Dec2008 $7.72
Dec2007 $5.98
Dec2006 $4.22
Dec2005 $4.20
Dec2004 $3.33
Dec2003 $2.71
Dec2002 $1.93
Dec2001 $1.48
Dec2000 $1.19
Dec1999 $0.88
Dec1998 $0.63
Dec1997 $0.31

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.99
Dec2015 $4.46
Dec2014 $8.21
Dec2013 $8.47
Dec2012 $8.35
Dec2011 $8.16
Dec2010 $7.40
Dec2009 $6.63
Dec2008 $5.79
Dec2007 $4.58
Dec2006 $3.68
Dec2005 $3.19
Dec2004 $2.49
Dec2003 $1.93
Dec2002 $1.43
Dec2001 $1.09
Dec2000 $0.80

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47 Companies in the Spotlight This Week – 5/16/15
L3 Communications Holdings Inc. Quarterly Valuation – May 2015 $LLL
34 Companies in the Spotlight This Week – 2/7/15
L-3 Communications Holdings Inc. Quarterly Valuation – February 2015 $LLL
28 Companies in the Spotlight This Week – 11/1/14

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General Dynamics Corporation Valuation – January 2016 Update $GD
Precision Castparts Corporation Valuation – January 2016 Update $PCP
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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.

L3 Communications Holdings Inc. Quarterly Valuation – May 2015 $LLL

L3CommunicationsBenjamin 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 5 Most Undervalued Companies for the Defensive Investor – May 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 specific look at how L3 Communications Holdings Inc. (LLL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): L-3 Communications Holdings, Inc. (L-3 Holdings) operates through its wholly owned operating subsidiary L-3 Communications Corporation (L-3 Communications). L-3 is a prime contractor in intelligence, surveillance and reconnaissance (ISR) systems, aircraft sustainment (including modifications, logistics and maintenance), simulation and training, night vision and image intensification equipment, enterprise and mission information technology (IT) solutions, and cyber operations. L-3 also provides a range of communication and electronic systems and products used on military and commercial platforms. It operates in four segments: Electronic Systems, Aerospace Systems, Communication Systems and National Security Solutions (NSS). Its customers include the United States Department of Defense and its prime contractors, the United States Government intelligence agencies, the United States Department of Homeland Security, foreign Governments, and domestic and international commercial customers.
LLL Chart

LLL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $119.58
MG Value $53.36
MG Opinion Overvalued
Value Based on 3% Growth $111.84
Value Based on 0% Growth $65.56
Market Implied Growth Rate 3.50%
Net Current Asset Value (NCAV) -$45.85
PEmg 15.50
Current Ratio 1.87
PB Ratio 1.92

Balance Sheet – March 2015

Current Assets $4,712,000,000
Current Liabilities $2,525,000,000
Total Debt $3,945,000,000
Total Assets $13,782,000,000
Intangible Assets $7,702,000,000
Total Liabilities $8,554,000,000
Outstanding Shares 83,800,000

Earnings Per Share

2015 (estimate) $7.13
2014 $7.56
2013 $8.24
2012 $8.03
2011 $9.03
2010 $8.25
2009 $7.61
2008 $7.59
2007 $5.98
2006 $4.22
2005 $4.20

Earnings Per Share – ModernGraham

2015 (estimate) $7.71
2014 $8.08
2013 $8.30
2012 $8.26
2011 $8.14
2010 $7.38

Dividend History
LLL Dividend Chart

LLL Dividend data by YCharts

Conclusion:

L3 Communications is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio and the insufficient earnings or growth over the last ten years.  The Enterprising Investor is concerned with the level of debt relative to the net current assets and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $8.14 in 2011 to only an estimated $7.71 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 3.5% 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 well 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 L3 Communications (LLL)?  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.

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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

L-3 Communications Holdings Inc. Quarterly Valuation – February 2015 $LLL

L3Communications

L-3 Communications Holdings Inc. is suitable for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the low current ratio while the Enterprising Investor is concerned by the level of debt relative to the net current assets. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $7.38 in 2010 to only $8.08 for 2014. This demonstrated growth does not support the market’s implied estimate of 3.45% earnings growth. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.

Be sure to check out previous ModernGraham valuations of L-3 Communications Holdings Inc. (LLL) for greater perspective!

Read the full valuation on Seeking Alpha!

LLL Chart

LLL data by YCharts

Disclaimer:  The author did not hold a position in L-3 Communications Holdings Inc. (LLL) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

L3 Communications Holdings Inc. Quarterly Valuation – October 2014 $LLL

L3CommunicationsBenjamin 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 5 Undervalued Companies to Research for the Defensive Investor – October 2014.  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 specific look at how L3 Communications (LLL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): L-3 Communications Holdings, Inc. is a prime contractor in aerospace systems and national security solutions. The Company is also a provider of a range of communication and electronic systems and products used on military and commercial platforms. The Company operates in four segments: Aerospace Systems, Electronic Systems, Communication Systems and National Security Solutions.
LLL Chart

LLL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $114.56
MG Value $94.39
MG Opinion Overvalued
Value Based on 3% Growth $118.00
Value Based on 0% Growth $69.17
Market Implied Growth Rate 2.79%
Net Current Asset Value (NCAV) -$39.27
PEmg 14.08
Current Ratio 1.89
PB Ratio 1.73

Balance Sheet – June 2014

Current Assets $4,705,000,000
Current Liabilities $2,494,000,000
Total Debt $3,948,000,000
Total Assets $14,116,000,000
Intangible Assets $8,112,000,000
Total Liabilities $8,212,000,000
Outstanding Shares 89,300,000

Earnings Per Share

2014 (estimate) $7.34
2013 $8.54
2012 $8.30
2011 $9.03
2010 $8.25
2009 $7.61
2008 $7.59
2007 $5.98
2006 $4.22
2005 $4.20
2004 $3.33

Earnings Per Share – ModernGraham

2014 (estimate) $8.14
2013 $8.47
2012 $8.35
2011 $8.14
2010 $7.38
2009 $6.60

Dividend History
LLL Dividend Chart

LLL Dividend data by YCharts

Conclusion:

L3 Communications is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio while the Enterprising Investor’s only issue is with the level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $7.38 in 2010 to an estimated $8.14 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 2.79% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of L3 Communications Holdings Inc. (LLL) for a better perspective!

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 L3 Communications Holdings Inc. (LLL)?  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.

Disclaimer:  The author did not hold a position in L3 Communications Holdings Inc. (LLL) or 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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

L3 Communications May 2014 Quarterly Valuation $LLL

L3CommunicationsBenjamin 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 5 Undervalued Companies with a High Beta.  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 specific look at how L3 Communications (NYSE:LLL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): L-3 Communications Holdings, Inc. is a prime contractor in aerospace systems and national security solutions. The Company is also a provider of a range of communication and electronic systems and products used on military and commercial platforms. The Company operates in four segments: Aerospace Systems, Electronic Systems, Communication Systems and National Security Solutions.

LLL Chart

LLL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $121.17
MG Value $105.22
MG Opinion Overvalued
Value Based on 3% Growth $121.37
Value Based on 0% Growth $71.15
Market Implied Growth Rate 2.99%
Net Current Asset Value (NCAV) -$37.87
PEmg 14.48
Current Ratio 1.91
PB Ratio 1.70

Balance Sheet – 3/31/2014

Current Assets $4,702,000,000
Current Liabilities $2,456,000,000
Total Debt $3,643,000,000
Total Assets $14,065,000,000
Intangible Assets $8,104,000,000
Total Liabilities $7,952,000,000
Outstanding Shares 85,830,000

Earnings Per Share

2014 (estimate) $8.21
2013 $8.54
2012 $8.01
2011 $9.03
2010 $8.25
2009 $7.61
2008 $7.56
2007 $5.98
2006 $4.22
2005 $4.20
2004 $3.33

Earnings Per Share – ModernGraham

2014 (estimate) $8.37
2013 $8.40
2012 $8.25
2011 $8.14
2010 $7.37
2009 $6.59

Dividend History
LLL Dividend Chart

LLL Dividend data by YCharts

Conclusion:

L3 Communications is suitable for either Defensive Investors or Enterprising Investors.  The Defensive Investor’s only concern is the current ratio, while the Enterprising Investor is concerned with the high level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods, should feel comfortable conducting further research into the company.  From a valuation side of things, the company appears overvalued after growing its EPSmg (normalized earnings) from $7.37 in 2010 to only an estimated $8.37 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 2.99% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market 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 L3 Communications (LLL)?  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.

Disclaimer:  The author did not hold a position in L3 Communications (LLL) or 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.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

Raytheon Co Valuation – March 2019 #RTN

Company Profile (excerpt from Reuters): Raytheon Company, incorporated on December 17, 1953, is a technology company, which specializes in defense and other government markets. The Company develops integrated products, services and solutions in various markets, including sensing; effects; command, control, communications, computers, cyber and intelligence; mission support, and cybersecurity. The Company operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS), and Forcepoint. The Company serves both domestic and international customers, primarily as a prime contractor or subcontractor on a range of defense and related programs for government customers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of RTN – 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 $50,836,887,301 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 80.90% Pass
6. Moderate PEmg Ratio PEmg < 20 19.17 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.47 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 1.24 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 $9.40
MG Growth Estimate 6.50%
MG Value $202.10
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $136.26
MG Value based on 0% Growth $79.88
Market Implied Growth Rate 5.33%
Current Price $180.12
% of Intrinsic Value 89.12%

Raytheon Company 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 PB ratio. 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 $6.56 in 2015 to an estimated $9.4 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.33% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Raytheon Company revealed the company was trading above its Graham Number of $102.6. The company pays a dividend of $3.47 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 19.17, which was below the industry average of 51.79, 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 $-29.

Raytheon Company 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) -$29.00
Graham Number $102.60
PEmg 19.17
Current Ratio 1.46
PB Ratio 4.47
Current Dividend $3.47
Dividend Yield 1.93%
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 $12,136,000,000
Total Current Liabilities $8,288,000,000
Long-Term Debt $4,755,000,000
Total Assets $31,864,000,000
Intangible Assets $15,486,000,000
Total Liabilities $20,392,000,000
Shares Outstanding (Diluted Average) 284,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.50
Dec2018 $10.15
Dec2017 $6.95
Dec2016 $7.55
Dec2015 $6.91
Dec2014 $7.18
Dec2013 $6.16
Dec2012 $5.65
Dec2011 $5.28
Dec2010 $4.88
Dec2009 $4.89
Dec2008 $3.92
Dec2007 $5.79
Dec2006 $2.85
Dec2005 $1.92
Dec2004 $0.94
Dec2003 $0.88
Dec2002 -$1.59
Dec2001 -$2.12
Dec2000 $0.41
Dec1999 $1.17

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.40
Dec2018 $8.15
Dec2017 $7.08
Dec2016 $6.99
Dec2015 $6.56
Dec2014 $6.20
Dec2013 $5.59
Dec2012 $5.18
Dec2011 $4.95
Dec2010 $4.68
Dec2009 $4.34
Dec2008 $3.74
Dec2007 $3.26
Dec2006 $1.66
Dec2005 $0.71
Dec2004 -$0.03
Dec2003 -$0.42

Recommended Reading:

Other ModernGraham posts about the company

Raytheon Co Valuation – June 2018 $RTN
Raytheon Company Valuation – April 2017 $RTN
Raytheon Company Valuation – August 2016 $RTN
Raytheon Co Valuation – February 2016 $RTN
10 Best Stocks For Value Investors This Week – 10/31/15

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – March 2019 #TDG
Northrop Grumman Corp Valuation – March 2019 #NOC
Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB

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.

General Dynamics Corp Valuation – March 2019 #GD

Company Profile (excerpt from Reuters): General Dynamics Corporation, incorporated on February 21, 1952, is a global aerospace and defense company. The Company offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions, and shipbuilding and ship repair. The Company operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems.

GD Chart

GD data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GD – 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 $48,068,656,138 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 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 153.85% Pass
6. Moderate PEmg Ratio PEmg < 20 15.88 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.21 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 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.32 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 $10.48
MG Growth Estimate 8.33%
MG Value $263.73
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $152.03
MG Value based on 0% Growth $89.12
Market Implied Growth Rate 3.69%
Current Price $166.49
% of Intrinsic Value 63.13%

General Dynamics Corporation 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 over the last ten years, and the high PB ratio. 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 Undervalued after growing its EPSmg (normalized earnings) from $6.74 in 2015 to an estimated $10.48 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.69% 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 General Dynamics Corporation revealed the company was trading above its Graham Number of $102.99. The company pays a dividend of $3.63 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.88, which was below the industry average of 51.79, 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 $-52.25.

General Dynamics Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$52.25
Graham Number $102.99
PEmg 15.88
Current Ratio 1.23
PB Ratio 4.21
Current Dividend $3.63
Dividend Yield 2.18%
Number of Consecutive Years of Dividend Growth 5

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 $18,189,000,000
Total Current Liabilities $14,739,000,000
Long-Term Debt $11,444,000,000
Total Assets $45,408,000,000
Intangible Assets $22,179,000,000
Total Liabilities $33,676,000,000
Shares Outstanding (Diluted Average) 296,406,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.60
Dec2018 $11.18
Dec2017 $9.56
Dec2016 $8.29
Dec2015 $9.29
Dec2014 $7.42
Dec2013 $6.67
Dec2012 -$0.94
Dec2011 $6.87
Dec2010 $6.81
Dec2009 $6.17
Dec2008 $6.17
Dec2007 $5.08
Dec2006 $4.56
Dec2005 $3.61
Dec2004 $3.05
Dec2003 $2.52
Dec2002 $2.26
Dec2001 $2.33
Dec2000 $2.24
Dec1999 $2.18

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.48
Dec2018 $9.67
Dec2017 $8.69
Dec2016 $7.55
Dec2015 $6.74
Dec2014 $5.43
Dec2013 $4.67
Dec2012 $4.11
Dec2011 $6.50
Dec2010 $6.13
Dec2009 $5.57
Dec2008 $5.01
Dec2007 $4.21
Dec2006 $3.58
Dec2005 $2.98
Dec2004 $2.60
Dec2003 $2.35

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – September 2018
5 Companies for Enterprising Investors Near 52 Week Lows – July 2018
General Dynamics Corp Valuation – June 2018 $GD
General Dynamics Corp Valuation – March 2017 $GD
General Dynamics Corporation Valuation – January 2016 Update $GD

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – March 2019 #TDG
Northrop Grumman Corp Valuation – March 2019 #NOC
Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB

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.

TransDigm Group Inc Valuation – March 2019 #TDG

Company Profile (excerpt from Reuters): TransDigm Group Incorporated, incorporated on July 8, 2003, is a global designer, producer and supplier of engineered aircraft components for commercial and military aircraft in service. Through its subsidiary, Skandia Inc., the Company provides seating foam, foam fabrication, flammability testing and acoustic solutions for the business jet market. The Company operates through three segments: Power & Control, Airframe and Non-aviation.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TDG – 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 $23,267,803,131 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.13 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 249.49% Pass
6. Moderate PEmg Ratio PEmg < 20 32.92 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -14.85 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 4.13 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.20 Fail
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 $13.36
MG Growth Estimate 15.00%
MG Value $514.39
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $193.73
MG Value based on 0% Growth $113.57
Market Implied Growth Rate 12.21%
Current Price $439.87
% of Intrinsic Value 85.51%

TransDigm Group Incorporated does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with 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 dividends. 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 $4.94 in 2015 to an estimated $13.36 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 12.21% 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 TransDigm Group Incorporated revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 32.92, which was below the industry average of 51.79, 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 $-180.03.

TransDigm Group Incorporated 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) -$180.03
Graham Number $0.00
PEmg 32.92
Current Ratio 4.13
PB Ratio -14.85
Current Dividend $0.00
Dividend Yield 0.00%
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 $3,926,618,000
Total Current Liabilities $951,266,000
Long-Term Debt $12,507,616,000
Total Assets $12,389,278,000
Intangible Assets $8,001,467,000
Total Liabilities $14,056,171,000
Shares Outstanding (Diluted Average) 56,266,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $16.67
Sep2018 $16.20
Sep2017 $7.88
Sep2016 $10.39
Sep2015 $7.84
Sep2014 $3.16
Sep2013 $2.39
Sep2012 $5.97
Sep2011 $3.17
Sep2010 $2.52
Sep2009 $3.10
Sep2008 $2.65
Sep2007 $1.83
Sep2006 $0.53
Sep2005 $0.75
Sep2004 $0.29
Sep2003 -$10.92
Sep2002 $221.95

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $13.36
Sep2018 $10.84
Sep2017 $7.55
Sep2016 $6.90
Sep2015 $4.94
Sep2014 $3.48
Sep2013 $3.57
Sep2012 $3.93
Sep2011 $2.82
Sep2010 $2.48
Sep2009 $2.23
Sep2008 $1.60
Sep2007 $0.21
Sep2006 $13.78
Sep2005 $27.74
Sep2004 $41.57
Sep2003 $55.55

Recommended Reading:

Other ModernGraham posts about the company

TransDigm Group Inc Valuation – June 2018 $TDG
TransDigm Group Inc Valuation – Initial Coverage $TDG

Other ModernGraham posts about related companies

Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB
KLX Inc Valuation – August 2018 $KLXI
Kaman Corp Valuation – August 2018 $KAMN

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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