CA Technologies, Inc. (CA) Quarterly Valuation

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CA Technologies is one of a number of companies engaged in information technology, a sector that as a whole may continue to see growth as companies across the world seek to become ever more efficient with technology.  However, Intelligent Investors must go beyond speculating about how a sector or even a specific company will perform.  Rather, Intelligent Investors must analyze the fundamentals of each potential investment to determine whether the company presents low risk at a solid price.  Through a ModernGraham analysis, one can maintain a systematic analysis across companies and even industries to easily compare one potential investment’s risk level and opportunity for value against another potential investment.  What follows is a specific look at how CA Technologies fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CA, Inc. (CA) is an independent enterprise information technology (IT) management software and solutions company. CA develops and delivers software and services. The Company operates in three segments: Mainframe Solutions, Enterprise Solutions and Services. The Company addresses components of the computing environment, including people, information, processes, systems, networks, applications and databases, across hardware and software platforms and programs. It offers a portfolio of software solutions, including mainframe; service assurance; security (identity and access management); service and portfolio management, and virtualization and service automation. It delivers its products on-premises or, for certain products, using Software-as-a-Service (SaaS). In June 2013, the Company announced it has completed the acquisition of privately-held Layer 7 Technologies.

Defensive and Enterprising Investor Tests:

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 = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  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:

MG Value $71.93
MG Opinion Undervalued
Value Based on 3% Growth $29.27
Value Based on 0% Growth $17.16
Market Implied Growth Rate 3.73%
Net Current Asset Value (NCAV) -$4.28
PEmg 15.95
Current Ratio 1.18
PB Ratio 2.51

Balance Sheet – 12/31/2013

Current Assets $4,190,000,000
Current Liabilities $3,537,000,000
Total Debt $1,253,000,000
Total Assets $11,777,000,000
Intangible Assets $7,051,000,000
Total Liabilities $6,087,000,000
Outstanding Shares 443,170,000

Earnings Per Share

2014 (estimate) $2.33
2013 $2.07
2012 $1.90
2011 $1.60
2010 $1.45
2009 $1.29
2008 $0.93
2007 $0.22
2006 $0.26
2005 $0.02
2004 -$0.06

Earnings Per Share – ModernGraham 

2014 (estimate) $2.02
2013 $1.80
2012 $1.58
2011 $1.32
2010 $1.06
2009 $0.76

Conclusion:

CA Technologies looks very good in the ModernGraham approach based on Benjamin Graham’s methods for value investors.  The company passes the requirements of the Defensive Investor, failing only the current ratio requirement, and as a result is suitable for both Defensive Investors and Enterprising Investors.  All Intelligent Investors should feel comfortable proceeding with further research to determine if CA Technologies would be right for their individual portfolios, and that research may include reviewing other companies that pass the ModernGraham requirements with a particular emphasis on a comparison with ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Oracle Corp (ORCL).  From a valuation perspective, CA Technologies also looks good, having grown its EPSmg (normalized earnings) from $0.76 in 2009 to an estimated $2.02 for 2013.  This is a solid level of growth that leads the ModernGraham valuation model to calculate an intrinsic value that surpasses the market’s current price.  Therefore, the company appears to be undervalued at the present time.

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 CA Technologies (CA)?  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.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in CA Technologies (CA) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

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


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Comments

2 responses to “CA Technologies, Inc. (CA) Quarterly Valuation”

  1. Al Avatar
    Al

    This may be a dumb question, but when I see a release regarding EPS for 2014 that says “The company provided earnings per share guidance of $3.00-3.07 for the period, compared to the Thomson Reuters consensus earnings per share estimate of $3.12”. What am I missing in your EPS estimate?

    1. Benjamin Clark Avatar

      Al,

      For CA, the fiscal year ends in March, so my estimate is based on reported earnings in 6/13 (Q1), 9/13 (Q2), and 12/13 (Q3) plus the lowest estimate for earnings from 3/14 (Q4).

      So:
      Q1 = $0.72
      Q2 = $0.83
      Q3 = $0.80
      Q4 (lowest estimate) = $0.51

      The total from that is $2.86, which I see is quite a bit higher than what I have listed on this post. It’s possible the estimates I used then have been revised in the month and a half since I posted the article.

      Since this company is suitable for Defensive Investors and Enterprising Investors, it will be evaluated quarterly, so this will be updated around the end of April or beginning of May.

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