Harman International Industries Quarterly Valuation – August 2014 $HAR
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 Enterprising 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 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. In June 2014, Harman International Industries Inc completed the acquisition of AMX LLC, from The Duchossois Group, Inc. Effective June 17, 2014, the Company acquired yurbuds LLC.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years -Â FAIL
- Dividend Record – has paid a dividend for at least 10 straight years -Â 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 -Â FAIL
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $115.10 |
| MG Value | $110.29 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $41.54 |
| Value Based on 0% Growth | $24.35 |
| Market Implied Growth Rate | 15.84% |
| Net Current Asset Value (NCAV) | $1.85 |
| PEmg | 40.18 |
| Current Ratio | 1.66 |
| PB Ratio | 4.37 |
Balance Sheet – 6/30/2014
| Current Assets | $2,458,900,000 |
| Current Liabilities | $1,485,700,000 |
| Total Debt | $519,400,000 |
| Total Assets | $4,125,600,000 |
| Intangible Assets | $723,000,000 |
| Total Liabilities | $2,333,000,000 |
| Outstanding Shares | 68,090,000 |
Earnings Per Share
| 2014 | $3.36 |
| 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 | $2.86 |
| 2013 | $1.87 |
| 2012 | $1.29 |
| 2011 | -$0.13 |
| 2010 | -$0.53 |
| 2009 | -$0.27 |
Dividend History
HAR Dividend data by YCharts
Conclusion:
Harman International does not qualify for the Defensive Investor but does satisfy for the Enterprising Investor.  The Defensive Investor has numerous concerns and is only satisfied by the market cap size, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from a loss of $0.53 in 2010 to $2.86 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 15.84% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.
Be sure to check out the previous ModernGraham valuations of Harman International Industries (HAR) 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 Harman International Industries (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.
Disclaimer:  The author did not hold a position in Harman International Industries (HAR) 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.
