TE Connectivity Ltd Quarterly Valuation – August 2014 $TEL

LogoTEConnectivityBenjamin 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 with High Dividend Yields.  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 TE Connectivity (TEL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): TE Connectivity Ltd. (TE Connectivity), formerly Tyco Electronics Ltd., designs and manufactures over 500,000 products that connect and protect the flow of power and data inside a number of products used by consumers and industries. The Company operates through three segments: Transportation Solutions, which is a supplier of electronic components, including connectors, relays, circuit protection devices, wire and cable, heat shrink tubing, and sensors, as well as application tooling and custom-engineered solutions for the automotive and aerospace, defense, and marine markets; Communications and Industrial Solutions, which is a supplier of electronic components, including connectors, relays, touch screens, circuit protection devices, antennas, and heat shrink tubing, and Network Solutions, which is a supplier of infrastructure components and systems for the telecommunications and energy markets. In July 2014, TE Connectivity Ltd acquired SEACON group.
TEL Chart

TEL 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 – 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 – 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 $61.65
MG Value $120.61
MG Opinion Undervalued
Value Based on 3% Growth $45.42
Value Based on 0% Growth $26.63
Market Implied Growth Rate 5.59%
Net Current Asset Value (NCAV) -$7.70
PEmg 19.68
Current Ratio 1.78
PB Ratio 2.86

Balance Sheet – 6/27/2014

Current Assets $6,873,000,000
Current Liabilities $3,860,000,000
Total Debt $2,375,000,000
Total Assets $18,871,000,000
Intangible Assets $5,527,000,000
Total Liabilities $10,029,000,000
Outstanding Shares 409,670,000

Earnings Per Share

2014 (estimate) $3.77
2013 $3.02
2012 $2.70
2011 $2.82
2010 $2.32
2009 -$6.75
2008 $3.28
2007 -$0.29

Earnings Per Share – ModernGraham

2014 (estimate) $3.13
2013 $2.15
2012 $1.43
2011 $0.63
2010 -$0.41
2009 -$1.43

Dividend History

TEL Dividend Chart

TEL Dividend data by YCharts


TE Connectivity qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns and in fact the only things the investor type likes are the market cap and the PEmg ratio.  Meanwhile, the Enterprising Investor has no initial concerns as the company passes all of the investor type’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Corning Inc. (GLW).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.41 in 2010 to an estimated gain of $3.13 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.59% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of TE Connectivity Ltd (TEL) for more perspective!

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 TE Connectivity (TEL)?  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 TE Connectivity (TEL) 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.

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