ModernGraham Valuation: Infosys Technologies (INFY)
Company Profile (obtained from Google Finance): 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 Tests (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)
Key Data:
| MG Value | $59.24 |
| 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 |
| PEmg | 19.45 |
| Current Ratio | 4.41 |
| PB Ratio | 4.61 |
Balance Sheet – 9/30/2013Â
| Current Assets | $6,358,000,000 |
| Current Liabilities | $1,442,000,000 |
| Total Debt | $0 |
| Total Assets | $8,397,000,000 |
| Intangible Assets | $414,000,000 |
| Total Liabilities | $1,497,000,000 |
| Outstanding Shares | 571,400,000 |
Earnings Per Share
| 2014 (estimate) | $2.86 |
| 2013 | $3.02 |
| 2012 | $3.00 |
| 2011 | $2.62 |
| 2010 | $2.30 |
| 2009 | $2.24 |
| 2008 | $2.02 |
| 2007 | $1.50 |
| 2006 | $0.99 |
| 2005 | $0.77 |
| 2004 | $1.01 |
| 2003 | $0.37 |
Earnings Per Share – Modern GrahamÂ
| 2014 (estimate) | $2.86 |
| 2013 | $2.79 |
| 2012 | $2.59 |
| 2011 | $2.30 |
| 2010 | $2.03 |
| 2009 | $1.77 |
Conclusion:
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?  Do you agree that Infosys Technologies is fairly valued?  Is the company suitable for both Defensive Investors and Enterprising Investors?  Leave a comment or mention @ModernGraham 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
