Information Technology Stocks

Motorola Solutions Inc Valuation – February 2016 Update $MSI

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 10 Companies Benjamin Graham Would Invest In Today – February 2016.  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 stock analysis showing a specific look at how Motorola Solutions Inc (MSI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Motorola Solutions, Inc. provides communication infrastructure, devices, accessories, software and services. The Company operates business in two segments: Products and Services. The Products segment offers a portfolio of infrastructure, devices, accessories and software. The primary customers of the Products segment are Government, public safety and first-responder agencies, municipalities, and commercial and industrial customers. The Products segment has two principal product lines: devices and systems. The Services segment provides a set of service offerings for Government, public safety and commercial communication networks. The Services segment has the following principal product lines: Integration services, Lifecycle Support services, Managed services, Smart Public Safety Solutions and Integrated Digital Enhanced Network (iDEN) services. The Company serves customers in more than 100 countries.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MSI – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,384,620,155 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.36 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -496.01% Fail
6. Moderate PEmg Ratio PEmg < 20 17.40 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -42.23 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.36 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.59 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MSI value Chart February 2016

EPSmg $3.70
MG Growth Estimate 15.00%
MG Value $142.50
Opinion Undervalued
MG Value based on 3% Growth $53.67
MG Value based on 0% Growth $31.46
Market Implied Growth Rate 4.45%
Current Price $64.41
% of Intrinsic Value 45.20%

Motorola Solutions Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the inconsistent dividend history, and the high PB ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.15 in 2011 to an estimated gain of $3.70 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.45% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Stage 3: Information for Further Research

MSI Charts February 2016

Net Current Asset Value (NCAV) -$17.91
Graham Number #NUM!
PEmg 17.40
Current Ratio 2.36
PB Ratio -42.23
Dividend Yield 2.11%
Number of Consecutive Years of Dividend Growth 5

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $4,787,000,000
Total Current Liabilities $2,029,000,000
Long-Term Debt $4,386,000,000
Total Assets $8,086,000,000
Intangible Assets $473,000,000
Total Liabilities $8,393,000,000
Shares Outstanding (Diluted Average) 201,300,000

Earnings Per Share History

Next Fiscal Year Estimate $2.57
Dec2014 $5.29
Dec2013 $4.06
Dec2012 $2.96
Dec2011 $3.41
Dec2010 $1.87
Dec2009 -$0.14
Dec2008 -$13.09
Dec2007 -$0.14
Dec2006 $10.22
Dec2005 $12.67
Dec2004 $4.38
Dec2003 $2.66
Dec2002 -$7.63
Dec2001 -$12.46
Dec2000 $4.06
Dec1999 $2.87
Dec1998 -$3.52
Dec1997 $4.55
Dec1996 $4.41

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.70
Dec2014 $4.02
Dec2013 $3.06
Dec2012 $1.38
Dec2011 -$0.15
Dec2010 -$1.37
Dec2009 -$1.36
Dec2008 -$0.38
Dec2007 $5.97
Dec2006 $7.51
Dec2005 $4.08
Dec2004 -$0.75
Dec2003 -$2.91
Dec2002 -$4.91
Dec2001 -$2.66
Dec2000 $2.32
Dec1999 $1.52

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies with a Low Beta – January 2016
Motorola Solutions Inc. Valuation – November 2015 Update $MSI
5 Undervalued Companies with a Low Beta – October 2015
The 16 Best Stocks For Value Investors This Week – 8/1/15
Motorola Solutions Inc. Analysis – July 2015 Update $MSI

Other ModernGraham posts about related companies

Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
Akamai Technologies Inc Valuation – January 2016 $AKAM
Infosys Ltd Valuation – January 2016 Update $INFY
Total System Services Inc. Valuation – November 2015 Update $TSS
International Business Machines Corp Valuation – November 2015 Update $IBM
Motorola Solutions Inc. Valuation – November 2015 Update $MSI
Qualcomm Inc. Valuation – October 2015 Update $QCOM
Cognizant Technology Solutions Corp Analysis – October 2015 Update $CTSH
Infosys Limited Analysis – October 2015 Update $INFY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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