Linear Technology Corp Valuation – July 2016 $LLTC

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 Linear Technology Corp (LLTC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Linear Technology Corporation is engaged in designing, manufacturing and marketing a line of analog integrated circuits for companies across the world. The Company’s principal product categories include Amplifiers, High Speed Amplifiers, Voltage Regulators, Voltage References, Interface, Data Converters, Battery Stack Monitors, Silicon Oscillators and Timer Blox, Phase Locked Loop (PLL) Synthesizers and Clock Distribution, SmartMesh Embedded Wireless Sensor Network, Isolated uModule Transceivers, Radio Frequency Circuits, Power Over Ethernet (PoE) Controllers, uModule Power Products, Signal Chain uModule Products and Others. The SmartMesh IP and SmartMesh WirelessHART technology offers wireless network-based solutions using low power electronic components, board level products with mesh networking and software addressing applications. Its products are used in industrial, automotive, computer, medical, instrumentation, consumer, and military and aerospace systems.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of LLTC – July 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 $11,539,951,731 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 9.80 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
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 33.70% Pass
6. Moderate PEmg Ratio PEmg < 20 24.48 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.96 Fail
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 9.80 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
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

LLTC value chart July 2016

EPSmg $1.96
MG Growth Estimate 0.85%
MG Value $19.97
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $28.37
MG Value based on 0% Growth $16.63
Market Implied Growth Rate 7.99%
Current Price $47.90
% of Intrinsic Value 239.84%

Linear Technology Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. 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 Overvalued after growing its EPSmg (normalized earnings) from $1.85 in 2012 to an estimated $1.96 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.99% 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 below the price.

Linear Technology Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

LLTC charts July 2016

Net Current Asset Value (NCAV) $5.67
Graham Number $17.84
PEmg 24.48
Current Ratio 9.80
PB Ratio 6.96
Current Dividend $1.22
Dividend Yield 2.55%
Number of Consecutive Years of Dividend Growth 20


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,709,886,000
Total Current Liabilities $174,509,000
Long-Term Debt $0
Total Assets $2,004,880,000
Intangible Assets $9,935,000
Total Liabilities $321,557,000
Shares Outstanding (Diluted Average) 244,764,000

Earnings Per Share History

Next Fiscal Year Estimate $2.01
Jun2015 $2.12
Jun2014 $1.90
Jun2013 $1.71
Jun2012 $1.70
Jun2011 $2.50
Jun2010 $1.58
Jun2009 $1.41
Jun2008 $1.71
Jun2007 $1.39
Jun2006 $1.37
Jun2005 $1.38
Jun2004 $1.02
Jun2003 $0.74
Jun2002 $0.60
Jun2001 $1.29
Jun2000 $0.88
Jun1999 $0.61
Jun1998 $0.57
Jun1997 $0.43
Jun1996 $0.43

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.96
Jun2015 $1.95
Jun2014 $1.87
Jun2013 $1.83
Jun2012 $1.85
Jun2011 $1.86
Jun2010 $1.52
Jun2009 $1.48
Jun2008 $1.47
Jun2007 $1.29
Jun2006 $1.17
Jun2005 $1.05
Jun2004 $0.89
Jun2003 $0.82
Jun2002 $0.84
Jun2001 $0.89
Jun2000 $0.65

Recommended Reading:

Other ModernGraham posts about the company

Linear Technology Corp Valuation – January 2016 Update $LLTC
Linear Technology Corp Valuation – October 2015 Update $LLTC
Linear Technology Corp Valuation – October 2015 Update $LLTC
Linear Technology Corporation Analysis – July 2015 Update $LLTC
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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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