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Altera Corporation Quarterly Stock Valuation – September 2014 $ALTR

altera-logo-v3Benjamin 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 – September 2014.  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 Altera Corporation (ALTR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Altera Corporation is a global semiconductor company. The Company designs, manufactures, and markets high-density programmable logic devices (PLDs), HardCopy ASIC devices, pre-defined design building blocks known as intellectual property (IP) cores, and associated development tools. Its PLDs, which consist of field-programmable gate arrays (FPGAs), and complex programmable logic devices (CPLDs), are semiconductor integrated circuits that are manufactured as standard chips that its customers program to perform desired logic functions within their electronic systems. With its HardCopy devices the Company offers its customers a migration path from a PLD to a non-programmable implementation of their designs. Its customers can license IP cores from the Company for implementation of standard functions in their PLD designs. In April 2013, the Company acquired TPACK, a wholly owned subsidiary of Applied Micro Circuits Corp.
ALTR Chart

ALTR 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 $36.48
MG Value $21.76
MG Opinion Overvalued
Value Based on 3% Growth $24.30
Value Based on 0% Growth $14.25
Market Implied Growth Rate 6.63%
Net Current Asset Value (NCAV) $3.83
PEmg 21.77
Current Ratio 5.73
PB Ratio 3.33

Balance Sheet – 6/27/2014

Current Assets $3,609,700,000
Current Liabilities $630,300,000
Total Debt $1,492,100,000
Total Assets $5,815,900,000
Intangible Assets $151,600,000
Total Liabilities $2,426,700,000
Outstanding Shares 308,960,000

Earnings Per Share

2014 (estimate) $1.47
2013 $1.36
2012 $1.72
2011 $2.35
2010 $2.49
2009 $0.84
2008 $1.18
2007 $0.82
2006 $0.88
2005 $0.74
2004 $0.72

Earnings Per Share – ModernGraham

2014 (estimate) $1.68
2013 $1.77
2012 $1.89
2011 $1.83
2010 $1.46
2009 $0.93

Dividend History
ALTR Dividend Chart

ALTR Dividend data by YCharts


Altera Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the short dividend history as well as the high PEmg and PB ratios 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 overvalued after growing its EPSmg (normalized earnings) from $1.46 in 2010 to an estimated $1.68 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.63% 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.

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 Altera Corporation (ALTR)?  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 Altera Corporation (ALTR) 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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