T.E. Connectivity Limited Quarterly Valuation – February 2015 $TEL

LogoTEConnectivity

TE Connectivity does fairly well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the low current ratio, short dividend record, and the high PB ratio, while the Enterprising Investor is only concerned by the level of debt relative to current assets. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $0.57 in 2011 to an estimated $3.66 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 5.27% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 108% per year, which is clearly unsustainable over the long term. The ModernGraham valuation model reduces the historical growth to a much more conservative figure, assuming that some slowdown will occur, but still estimates a growth higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of T.E. Connectivity Limited (TEL) for greater perspective!

Read the full valuation on Seeking Alpha!

TEL Chart

TEL data by YCharts

Disclaimer:  The author did not hold a position in T.E. Connectivity Limited (TEL) 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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