TE Connectivity Ltd Valuation – June 2016 $TEL

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 - June 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 TE Connectivity Ltd (TEL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): TE Connectivity Ltd. (TE Connectivity) is a technology company. The Company designs and manufactures connectivity and sensors solutions. It operates its business through three segments: Transportation Solutions, which offers various products, including terminals and connector systems and components, relays, circuit protection devices, sensors, and application tooling, among others; Industrial Solutions, which include terminals and connector systems and components, heat shrink tubing, relays, wire and cable, and Communications Solutions, which include terminals and connector systems and components, circuit protection devices, antennas, relays and heat shrink tubing. It markets its products to manufacturers and distributors in a number of markets, which include automotive, industrial equipment and consumer devices.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of TEL – June 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 $22,491,420,850 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.75 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -415.89% Fail
6. Moderate PEmg Ratio PEmg < 20 14.31 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.12 Pass
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 1.75 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.61 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

TEL value Chart June 2016

EPSmg $4.38
MG Growth Estimate 15.00%
MG Value $168.76
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $63.56
MG Value based on 0% Growth $37.26
Market Implied Growth Rate 2.90%
Current Price $62.72
% of Intrinsic Value 37.17%

TE Connectivity Ltd is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.39 in 2012 to an estimated $4.38 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.9% 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.

TE Connectivity Ltd performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

TEL Charts June 2016

Net Current Asset Value (NCAV) -$13.64
Graham Number $43.98
PEmg 14.30
Current Ratio 1.75
PB Ratio 3.12
Current Dividend $1.32
Dividend Yield 2.11%
Number of Consecutive Years of Dividend Growth 6


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $5,414,000,000
Total Current Liabilities $3,097,000,000
Long-Term Debt $3,732,000,000
Total Assets $17,841,000,000
Intangible Assets $6,108,000,000
Total Liabilities $10,435,000,000
Shares Outstanding (Diluted Average) 368,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.15
Sep2015 $5.89
Sep2014 $4.27
Sep2013 $3.02
Sep2012 $2.59
Sep2011 $2.81
Sep2010 $2.41
Sep2009 -$7.09
Sep2008 $3.67
Sep2007 -$1.11
Sep2006 $2.40
Sep2005 $2.30
Sep2004 $1.53
Sep2003 -$0.46

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.38
Sep2015 $4.24
Sep2014 $3.28
Sep2013 $2.11
Sep2012 $1.39
Sep2011 $0.58
Sep2010 -$0.34
Sep2009 -$1.13
Sep2008 $1.82
Sep2007 $0.90
Sep2006 $1.66
Sep2005 $1.08
Sep2004 $0.39
Sep2003 -$0.15

Recommended Reading:

Other ModernGraham posts about the company

13 Best Stocks For Value Investors This Week – 12/12/15
TE Connectivity Ltd Valuation – December 2015 Update $TEL
The Best Stocks of the IT Hardware Industry – September 2015
19 Best Stocks For Value Investors This Week – 8/29/15
TE Connectivity Limited Analysis – August 2015 Update $TEL

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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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