Motorola Solutions Inc Valuation – August 2016 $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 - July 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. is a provider of communication infrastructure, devices, accessories, software and services. The Company operates through two segments: Products and Services. Its Products segment offers a portfolio of infrastructure, devices, accessories and software. The Products segment has two product lines, including Devices and Systems. Its Devices includes two-way portable radios and vehicle-mounted radios; accessories, such as speaker microphones, batteries, earpieces, headsets, carry cases and cables, and software features and upgrades. Its Systems includes the radio network core and central processing software; base stations; consoles; repeaters, and software applications and features. Its Services segment provides a range of service offerings for government, public safety and commercial communication networks. The Services segment product lines include Integration services, Managed & Support services, and Integrated Digital Enhanced Network (iDEN) services.

MSI Chart

MSI data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MSI – August 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 $13,429,048,584 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.97 Fail
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 -194.84% Fail
6. Moderate PEmg Ratio PEmg < 20 18.11 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -88.50 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 1.97 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.55 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 August 2016

EPSmg $4.06
MG Growth Estimate 15.00%
MG Value $156.26
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $58.85
MG Value based on 0% Growth $34.50
Market Implied Growth Rate 4.80%
Current Price $73.50
% of Intrinsic Value 47.04%

Motorola Solutions Inc 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, and the poor dividend history, and the high PB ratio. 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 $1.38 in 2012 to an estimated $4.06 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Motorola Solutions Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.5 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 18.11, which was below the industry average of 35.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-29.35.

Motorola Solutions Inc performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

MSI charts August 2016

Net Current Asset Value (NCAV) -$29.35
Graham Number $0.00
PEmg 18.11
Current Ratio 1.97
PB Ratio -88.50
Current Dividend $1.50
Dividend Yield 2.04%
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 $4,001,000,000
Total Current Liabilities $2,032,000,000
Long-Term Debt $5,023,000,000
Total Assets $9,049,000,000
Intangible Assets $1,259,000,000
Total Liabilities $9,196,000,000
Shares Outstanding (Diluted Average) 177,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.37
Dec2015 $3.02
Dec2014 $5.29
Dec2013 $4.06
Dec2012 $2.96
Dec2011 $3.41
Dec2010 $1.89
Dec2009 -$0.14
Dec2008 -$13.09
Dec2007 -$0.14
Dec2006 $10.22
Dec2005 $12.67
Dec2004 $4.48
Dec2003 $2.66
Dec2002 -$7.63
Dec2001 -$12.46
Dec2000 $4.06
Dec1999 $3.06
Dec1998 -$3.76
Dec1997 $4.53
Dec1996 $4.43

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.06
Dec2015 $3.85
Dec2014 $4.02
Dec2013 $3.07
Dec2012 $1.38
Dec2011 -$0.14
Dec2010 -$1.36
Dec2009 -$1.36
Dec2008 -$0.37
Dec2007 $5.99
Dec2006 $7.53
Dec2005 $4.10
Dec2004 -$0.71
Dec2003 -$2.89
Dec2002 -$4.90
Dec2001 -$2.66
Dec2000 $2.32

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies with a Low Beta – August 2016
5 Undervalued Companies with a Low Beta – July 2016
5 Undervalued Companies with a Low Beta – May 2016
5 Undervalued Companies with a Low Beta – February 2016
26 Best Stocks For Value Investors This Week – 2/6/16

Other ModernGraham posts about related companies

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Infosys Ltd Valuation – July 2016 $INFY
Cognizant Technology Solutions Corp Valuation – July 2016 $CTSH
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Qualcomm Inc Valuation – February 2016 $QCOM
Motorola Solutions Inc Valuation – February 2016 Update $MSI
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
Akamai Technologies Inc Valuation – January 2016 $AKAM
Infosys Ltd Valuation – January 2016 Update $INFY


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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