Infosys Ltd (INFY) Quarterly Valuation – March 2014

500px-Infosys_logo.svgBenjamin 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.  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 Infosys fares in the ModernGraham valuation model.

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.

INFY Chart

INFY 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 – PASS
  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 – FAIL

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

  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 – PASS
  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 $54.95
MG Value $63.06
MG Opinion Fairly Valued
Value Based on 3% Growth $42.36
Value Based on 0% Growth $24.83
Market Implied Growth Rate 5.15%
Net Current Asset Value (NCAV) $8.81
PEmg 18.81
Current Ratio 4.53
PB Ratio 4.34

Balance Sheet – 12/31/2013

Current Assets $6,534,000,000
Current Liabilities $1,442,000,000
Total Debt $0
Total Assets $8,733,000,000
Intangible Assets $414,000,000
Total Liabilities $1,502,000,000
Outstanding Shares 571,400,000

Earnings Per Share

2014 (estimate) $3.04
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 – ModernGraham

2014 (estimate) $2.92
2013 $2.79
2012 $2.59
2011 $2.30
2010 $2.03
2009 $1.77

Dividend History

INFY Dividend Chart

INFY Dividend data by YCharts


Infosys is a very strong company that is intriguing to both the Defensive Investor and the Enterprising Investor.  The only requirement the company does not satisfy for either investor type is the Defensive Investor’s PB ratio requirement.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should keep the company on a watch list and feel very comfortable proceeding with further research, including a review of ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Oracle Corp (ORCL).  From a valuation perspective, the company appears to be fairly valued by the market after growing its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $2.92 for 2014.  This level of demonstrated historical growth supports the market’s implied estimate of 5.15% expected earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls 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 Infosys Ltd (INFY)?  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 Infosys Ltd (INFY) 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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