Benjamin 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 Undervalued Companies for the Defensive Investor. 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 Delphi Automotive (DLPH) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Delphi Automotive PLC (Delphi) is a global vehicle components manufacturer and provides electrical and electronic, powertrain, safety and thermal technology solutions to the global automotive and commercial vehicle markets. As of December 31, 2012, the Company operated 126 manufacturing facilities and 15 technical centers utilizing a regional service model that enables it to serve its global customers. The Company operates through four segments: Electrical / Electronic Architecture; Powertrain Systems; Electronics and Safety and Thermal Systems. In October 2012, the Company acquired FCI Group’s Motorized Vehicles Division.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- 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
- 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 = 2/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – FAIL
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| Recent Price | $67.99 |
| MG Value | $53.40 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $53.40 |
| Value Based on 0% Growth | $31.30 |
| Market Implied Growth Rate | 4.98% |
| Net Current Asset Value (NCAV) | -$7.69 |
| PEmg | 18.46 |
| Current Ratio | 1.50 |
| PB Ratio | 6.99 |
Balance Sheet – 3/31/2014
| Current Assets | $5,880,000,000 |
| Current Liabilities | $3,930,000,000 |
| Total Debt | $2,418,000,000 |
| Total Assets | $11,182,000,000 |
| Intangible Assets | $1,190,000,000 |
| Total Liabilities | $8,221,000,000 |
| Outstanding Shares | 304,250,000 |
Earnings Per Share
| 2014 (estimate) | $4.85 |
| 2013 | $3.89 |
| 2012 | $3.33 |
| 2011 | $2.72 |
| 2010 | $0.00 |
| 2009 | $0.00 |
| 2008 | $0.00 |
| 2007 | $0.00 |
| 2006 | $0.00 |
| 2005 | $0.00 |
| 2004 | $0.00 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $3.68 |
| 2013 | $2.73 |
| 2012 | $1.84 |
| 2011 | $0.91 |
| 2010 | $0.00 |
| 2009 | $0.00 |
Dividend History
DLPH Dividend data by YCharts
Conclusion:
Delphi Automotive is not suitable for either the Defensive Investor or the Enterprising Investor, in large part due to its short operating history post-bankruptcy. In time, it may demonstrate sufficient financials to warrant interest from Intelligent Investors, but for now value investors have too many concerns. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities. From a valuation perspective, the company appears to be overvalued. The ModernGraham valuation model, based on Benjamin Graham’s formulas, returns an estimate of intrinsic value below the market price at this 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 Delphi Automotive (DLPH)? 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.
Disclaimer: The author did not hold a position in Delphi Automotive (DLPH) 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.
