FLIR Systems Inc. Quarterly Valuation – July 2014 $FLIR

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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 Near 52 Week Lows.  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 FLIR Systems (FLIR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): FLIR Systems, Inc. (FLIR), is a designer, manufacturer, and marketer of thermal imaging systems. The Company’s advanced sensors and integrated sensor systems enable the gathering and analysis of critical information through a range of applications in commercial, industrial, and government markets worldwide. Its business is organized into two divisions: Commercial Systems and Government Systems. Commercial Systems division includes Thermal Vision & Measurement and Raymarine. Government Systems division include Surveillance, Detection, and Integrated Systems. It offers a range of sensor products, including infrared imaging cameras and systems, detector cores, CBRNE threat detectors, test and measurement instruments, radars, maritime electronics, and related products and solutions. In August 2013, Tessera Technologies Inc announced that FLIR Systems, Inc. acquired a portion of the assets of Tessera’s Micro-Optics business based in Charlotte, North Carolina.
FLIR Chart

FLIR data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  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 – 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 – PASS
  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 $33.68
MG Value $14.37
MG Opinion Overvalued
Value Based on 3% Growth $20.10
Value Based on 0% Growth $11.78
Market Implied Growth Rate 7.90%
Net Current Asset Value (NCAV) $4.28
PEmg 24.30
Current Ratio 4.90
PB Ratio 2.89

Balance Sheet – 3/31/2014

Current Assets $1,330,200,000
Current Liabilities $271,200,000
Total Debt $368,900,000
Total Assets $2,368,900,000
Intangible Assets $729,400,000
Total Liabilities $724,900,000
Outstanding Shares 141,310,000

Earnings Per Share

2014 (estimate) $1.44
2013 $1.22
2012 $1.47
2011 $1.38
2010 $1.54
2009 $1.42
2008 $1.25
2007 $0.89
2006 $0.66
2005 $0.58
2004 $0.47

Earnings Per Share – ModernGraham

2014 (estimate) $1.39
2013 $1.37
2012 $1.44
2011 $1.38
2010 $1.30
2009 $1.11

Dividend History

FLIR Dividend Chart

FLIR Dividend data by YCharts


FLIR Systems qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the short dividend history and the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’s initial requirements.  As a result, Enterprising Investors following the ModernGraham approach, which is based on Benjamin Graham’s methods, should feel comfortable conducting further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of L-3 Communications (LLL) and ModernGraham’s valuation of Raytheon Company (RTN).  As for a valuation, the company appears overvalued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to only an estimated $1.39 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 7.9% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below 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 FLIR Systems (FLIR)?  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 FLIR Systems (FLIR) or in 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 for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.  “FLIR logo” by The logo may be obtained from FLIR Systems. Licensed under Fair use via Wikipedia.

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