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Harman International May 2014 Quarterly Valuation $HAR

500px-Harman_International_Industries_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 or by reviewing the 5 Lowest PEmg Companies for Enterprising Investors.  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 Harman International (HAR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Harman International Industries, Incorporated (Harman International) is engaged in the developing, manufacturing and marketing of audio products and electronic systems. The Company has developed a range of product offerings, which are sold under brand names like AKG, Crown, JBL, Infinity, Harman/Kardon, Lexicon, dbx, Digitec, BSS, Studer, Soundcraft, Mark Levinson, Becker, Revel, Logic 7 and Selenium. The Company has four segments: Infotainment, Lifestyle, Professional, and Other. On February 28, 2013, the Company acquired Martin Professional A/S from A/S Schouw & Co. In October 2013, the Company announced the acquisition of privately-held Duran Audio BV.

HAR Chart

HAR data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  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 – 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 = 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 $107
MG Value $123.12
MG Opinion Fairly Valued
Value Based on 3% Growth $46.37
Value Based on 0% Growth $27.18
Market Implied Growth Rate 12.48%
Net Current Asset Value (NCAV) $8.60
PEmg 33.46
Current Ratio 1.79
PB Ratio 4.12

Balance Sheet – 3/31/2014

Current Assets $2,486,790,000
Current Liabilities $1,392,400,000
Total Debt $228,780,000
Total Assets $3,668,300,000
Intangible Assets $257,590,000
Total Liabilities $1,901,130,000
Outstanding Shares 68,090,000

Earnings Per Share

2014 (estimate) $4.36
2013 $2.04
2012 $4.57
2011 $1.90
2010 $0.50
2009 -$7.19
2008 $1.73
2007 $4.72
2006 $3.75
2005 $3.31
2004 $2.27

Earnings Per Share – ModernGraham

2014 (estimate) $3.20
2013 $1.87
2012 $1.29
2011 -$0.13
2010 -$0.53
2009 -$0.27

Dividend History

HAR Dividend Chart

HAR Dividend data by YCharts

Conclusion:

Harman International does not qualify for the Defensive Investor but is suitable for Enterprising Investors.  The only requirement of the Defensive Investor which the company passes is the market cap size, but the company manages to pass all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors should feel comfortable proceeding with further research into the company and its competitors.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from negative $0.53 to an estimated $3.20 for 2014.  This strong level of demonstrated growth supports the market’s implied estimate of 12.48% 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 Harman International (HAR)?  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.

Be sure to review the previous ModernGraham Valuations of Harman International (HAR)!

Disclaimer:  The author did not hold a position in Harman International (HAR) or any other company mentioned 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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