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 – February 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 CTS Corporation (CTS) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): CTS Corporation (CTS) is a global manufacturer of sensors, electronic components and actuators. The Company designs, manufactures and sells a line of sensors, electronic components and actuators primarily to original equipment manufacturers (OEMs) for the automotive, communications, defense and aerospace, medical, industrial and computer markets. The Company’s other products include Mechatronics and Micro-mechatronics, Frequency Products and Filters, Electro Ceramics, and Electronic Components and Modules. Its markets consist principally of automotive sensors and actuators used in commercial or consumer vehicles; electronic components used in communications infrastructure and computer markets; components used in computer and other high-speed applications, switches, resistor networks, and potentiometers used to serve multiple markets, and fabricated piezoelectric materials and substrates used primarily in medical, industrial defense and aerospace and computer markets.
[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.
[otw_shortcode_button href=”https://www.moderngraham.com/moderngraham-stocks-screens/” size=”medium” icon_position=”left” shape=”square”]Learn More About Premium Membership[/otw_shortcode_button]
[/level-free]
[not-level-free]
Downloadable PDF version of this valuation:
ModernGraham Valuation of CTS – March 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 | $699,609,843 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.20 | Pass | |
| 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 | 455.81% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 27.14 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.26 | 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 | 2.20 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.76 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.80 |
| MG Growth Estimate | 15.00% |
| MG Value | $30.65 |
| Opinion | Undervalued |
| MG Grade | B- |
| MG Value based on 3% Growth | $11.54 |
| MG Value based on 0% Growth | $6.77 |
| Market Implied Growth Rate | 9.32% |
| Current Price | $21.60 |
| % of Intrinsic Value | 70.48% |
CTS Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the high PEmg ratio. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years. 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 $0.25 in 2013 to an estimated $0.8 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.32% 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 CTS Corporation revealed the company was trading above its Graham Number of $15.85. The company pays a dividend of $0.16 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 27.14, which was below the industry average of 28.12, 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 $0.48.
CTS Corporation performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $0.48 |
| Graham Number | $15.85 |
| PEmg | 27.14 |
| Current Ratio | 2.20 |
| PB Ratio | 2.26 |
| Current Dividend | $0.16 |
| Dividend Yield | 0.74% |
| Number of Consecutive Years of Dividend Growth | 0 |
[/not-level-free]
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2016 |
| Total Current Assets | $215,707,000 |
| Total Current Liabilities | $98,129,000 |
| Long-Term Debt | $89,100,000 |
| Total Assets | $517,697,000 |
| Intangible Assets | $126,114,000 |
| Total Liabilities | $199,815,000 |
| Shares Outstanding (Diluted Average) | 33,251,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $1.15 |
| Dec2016 | $1.03 |
| Dec2015 | $0.21 |
| Dec2014 | $0.78 |
| Dec2013 | -$0.12 |
| Dec2012 | $0.59 |
| Dec2011 | $0.60 |
| Dec2010 | $0.63 |
| Dec2009 | -$1.01 |
| Dec2008 | $0.81 |
| Dec2007 | $0.66 |
| Dec2006 | $0.63 |
| Dec2005 | $0.53 |
| Dec2004 | $0.53 |
| Dec2003 | $0.36 |
| Dec2002 | -$0.54 |
| Dec2001 | -$1.61 |
| Dec2000 | $2.92 |
| Dec1999 | $1.80 |
| Dec1998 | $1.28 |
| Dec1997 | $0.71 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.80 |
| Dec2016 | $0.58 |
| Dec2015 | $0.37 |
| Dec2014 | $0.47 |
| Dec2013 | $0.25 |
| Dec2012 | $0.40 |
| Dec2011 | $0.32 |
| Dec2010 | $0.23 |
| Dec2009 | $0.13 |
| Dec2008 | $0.68 |
| Dec2007 | $0.59 |
| Dec2006 | $0.47 |
| Dec2005 | $0.21 |
| Dec2004 | $0.14 |
| Dec2003 | $0.16 |
| Dec2002 | $0.30 |
| Dec2001 | $0.82 |
Recommended Reading:
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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.
Leave a Reply