ARRIS International PLC Valuation – January 2017 $ARRS
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 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017. 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 ARRIS International PLC (ARRS) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): ARRIS International plc focuses on entertainment and communications technology. The Company operates in two segments: Customer Premises Equipment (CPE), and Network & Cloud (N&C). The CPE segment’s products include Set-Top, Gateway, digital subscriber line (DSL) and Cable Modem, and Embedded Multimedia Terminal Adapter (E-MTA) and Voice/Data Modem. The N&C segment includes various products, such as Infrastructure Products, Global Services and Cloud Solutions. It enables service providers, including cable, telephone, and digital broadcast satellite operators, and media programmers to deliver media, voice and Internet Protocol (IP) data services to their subscribers. It is engaged in offering set-tops, digital video and Internet Protocol Television (IPTV) distribution systems, broadband access infrastructure platforms, and associated data and voice CPE, which it also sells directly to consumers through retail channels.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of ARRS – January 2017
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 | $5,679,442,661 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.74 | 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 | 483.33% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 43.37 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.91 | 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 | 1.74 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.00 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.70 |
| MG Growth Estimate | 15.00% |
| MG Value | $26.77 |
| Opinion | Overvalued |
| MG Grade | D |
| MG Value based on 3% Growth | $10.08 |
| MG Value based on 0% Growth | $5.91 |
| Market Implied Growth Rate | 17.44% |
| Current Price | $30.16 |
| % of Intrinsic Value | 112.66% |
ARRIS International plc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.24 in 2012 to an estimated $0.7 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.44% 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 below the price.
At the time of valuation, further research into ARRIS International plc revealed the company was trading above its Graham Number of $10.71. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 43.37, which was below the industry average of 68.5, 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 $-8.26.
ARRIS International plc scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$8.26 |
| Graham Number | $10.71 |
| PEmg | 43.37 |
| Current Ratio | 1.74 |
| PB Ratio | 1.91 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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| ModernGraham tagged articles | Morningstar |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2016 |
| Total Current Assets | $3,049,712,000 |
| Total Current Liabilities | $1,753,128,000 |
| Long-Term Debt | $0 |
| Total Assets | $7,651,816,000 |
| Intangible Assets | $3,855,810,000 |
| Total Liabilities | $4,631,554,000 |
| Shares Outstanding (Diluted Average) | 191,508,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $0.32 |
| Dec2015 | $0.62 |
| Dec2014 | $2.21 |
| Dec2013 | -$0.37 |
| Dec2012 | $0.46 |
| Dec2011 | -$0.15 |
| Dec2010 | $0.50 |
| Dec2009 | $0.71 |
| Dec2008 | -$1.04 |
| Dec2007 | $0.87 |
| Dec2006 | $1.30 |
| Dec2005 | $0.52 |
| Dec2004 | -$0.33 |
| Dec2003 | -$0.62 |
| Dec2002 | -$2.33 |
| Dec2001 | -$3.13 |
| Dec2000 | $0.52 |
| Dec1999 | $1.33 |
| Dec1998 | $0.15 |
| Dec1997 | -$0.55 |
| Dec1996 | $0.67 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.70 |
| Dec2015 | $0.77 |
| Dec2014 | $0.74 |
| Dec2013 | $0.08 |
| Dec2012 | $0.24 |
| Dec2011 | $0.14 |
| Dec2010 | $0.35 |
| Dec2009 | $0.34 |
| Dec2008 | $0.19 |
| Dec2007 | $0.66 |
| Dec2006 | $0.27 |
| Dec2005 | -$0.56 |
| Dec2004 | -$1.12 |
| Dec2003 | -$1.30 |
| Dec2002 | -$1.32 |
| Dec2001 | -$0.66 |
| Dec2000 | $0.53 |
Recommended Reading:
Other ModernGraham posts about the company
Arris Group Inc. Analysis – Initial Coverage $ARRS
Other ModernGraham posts about related companies
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.
