ModernGraham Valuation: Infosys Technologies (INFY)
Company ProfileÂ (obtained fromÂ Google Finance):Â Infosys Limited (Infosys) provides business consulting, technology, engineering and outsourcing services. Its end-to-end business solutions include consulting and systems integration comprising consulting, enterprise solutions, systems integration and advanced technologies; business information technology (IT) services consisting application development and maintenance, independent validation services, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; products, business platforms and solutions, including Finacle. In November 2013, the Company announced that Infosys BPO, the business process outsourcing subsidiary announced the opening of a new delivery center in Eindhoven, the Netherlands.
Defensive and Enterprising Investor TestsÂ (What is the significance of these tests, and what is PEmg ratio?):
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- 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
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$41.49|
|Value Based on 0% Growth||$24.32|
|Market Implied Growth Rate||5.48%|
|Net Current Asset Value (NCAV)||$8.51|
Balance Sheet – 9/30/2013Â
Earnings Per Share
Earnings Per Share – Modern GrahamÂ
Infosys Technologies is an intriguing company that has exhibited consistent growth over the historical period. Â The company qualifies for both the Defensive Investor and the Enterprising Investor, having only disappointed the Defensive Investor by having a high PB ratio. Â Both investor types should feel comfortable continuing with further research, and should take a moment to review our valuations of IBM (ModernGraham Valuation) and Microsoft (ModernGraham Valuation). Â From a valuation perspective, the company has grown EPSmg (normalized earnings) from $1.77 in 2009 to an estimated $2.86 for 2014. Â This level of growth is close to the 5.48% estimate implied by the market at the current time, and the company appears to be fairly valued.
What do you think? Â Do you agree that Infosys Technologies is fairly valued? Â Is the company suitable for both Defensive Investors and Enterprising Investors? Â Leave a comment or mentionÂ @ModernGrahamÂ on Twitter to discuss.
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Disclaimer: Â The author did not hold a position in Infosys Technologies (INFY) at the time of publication and had no intention of entering into a position within the next 72 hours.
Photo Credit: Â Andrew Magill