Motorola Solutions Inc. (MSI) Quarterly Valuation – March 2014

Motorola_solutions_logoBenjamin 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 Motorola Solutions Inc. fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Motorola Solutions, Inc. (Motorola Solutions) provides communication infrastructure, devices, software and services. The Company provides these products and services for enterprise and government customers worldwide. The Company operates in two segments: Government and Enterprise. The Government segment includes sales of public safety communications systems, commercial two-way radio systems and devices, software and services. The Enterprise segment includes sales of rugged and enterprise-grade mobile computers and tablets, laser/imaging/RFID-based data capture products, wireless local area network (WLAN) and integrated digital enhanced network (iDEN) infrastructure, software and services. In January 2014, the Company announced that it has acquired Twisted Pair Solutions, a provider of push-to-talk over broadband applications for secure, real-time communication anywhere, on any device.

MSI Chart

MSI data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  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 – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  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 – FAIL
  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 = 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 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $64.30
MG Value $102.03
MG Opinion Undervalued
Value Based on 3% Growth $38.43
Value Based on 0% Growth $22.53
Market Implied Growth Rate 7.88%
Net Current Asset Value (NCAV) -$4.61
PEmg 24.26
Current Ratio 2.18
PB Ratio 4.47

Balance Sheet – 12/31/2013

Current Assets $7,020,000,000
Current Liabilities $3,220,000,000
Total Debt $2,457,000,000
Total Assets $11,851,000,000
Intangible Assets $1,509,000,000
Total Liabilities $8,192,000,000
Outstanding Shares 254,500,000

Earnings Per Share

2013 $4.06
2012 $2.95
2011 $2.20
2010 $0.70
2009 -$0.35
2008 -$13.09
2007 -$0.35
2006 $9.10
2005 $12.74
2004 $6.30
2003 $2.66

Earnings Per Share – ModernGraham

2013 $2.65
2012 $0.79
2011 -$0.92
2010 -$1.92
2009 -$1.61
2008 -$0.52

Dividend History

MSI Dividend Chart

MSI Dividend data by YCharts


Motorola Solutions Inc. is not suitable for the Defensive Investor, but is suitable for the Enterprising Investor.  The company only passes the Defensive Investor’s requirements regarding size and current ratio, but the Enterprising Investor’s only concern is the lack of earnings stability over the five year period.  As a result, Enterprising Investors interested in following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors through a review of ModernGraham’s valuation of Cisco Systems (CSCO) and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation standpoint, the company appears to be undervalued after raising its EPSmg (normalized earnings) from -$1.61 in 2009 to $2.65 in 2013.  This is a solid level of demonstrated growth that outpaces the market’s implied estimate of 7.88% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well above 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 Motorola Solutions Inc. (MSI)?  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 Motorola Solutions Inc. (MSI) 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 wikipedia; this article is not affiliated with the company in any manner.





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