IT Hardware Stocks

Tech Data Corp Valuation – Initial Coverage $TECD

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 – March 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 Tech Data Corp (TECD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Tech Data Corporation is a wholesale distributor of technology products. The Company serves as a link in the technology supply chain by bringing products from the technology vendors to market, as well as providing its customers with logistics capabilities and services. It operates through the segment of distributing technology products, logistics management and other value-added services. It operates in two geographic segments: the Americas and Europe. It provides resellers training and technical support suite of electronic commerce tools customized shipping documents product configuration or integration services and access to financing programs. Its customers include value-added resellers, direct marketers, retailers and corporate resellers who support the diverse technology needs of end users. It sells its products to customers in approximately 100 countries throughout North America, South America, Europe, the Middle East and Africa.

TECD Chart

TECD data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TECD – June 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 $3,932,557,025 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.35 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 126.12% Pass
6. Moderate PEmg Ratio PEmg < 20 14.00 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.52 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 1.35 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.84 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $7.16
MG Growth Estimate 9.24%
MG Value $193.37
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $103.89
MG Value based on 0% Growth $60.90
Market Implied Growth Rate 2.75%
Current Price $100.33
% of Intrinsic Value 51.88%

Tech Data Corp 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, poor dividend history. The Enterprising Investor has concerns regarding the low current ratio, 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 Undervalued after growing its EPSmg (normalized earnings) from $4.43 in 2014 to an estimated $7.16 for 2018.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.75% 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 Tech Data Corp revealed the company was trading below its Graham Number of $117.13.  The company does not pay a dividend.  Its PEmg (price over earnings per share – ModernGraham) was 14, which was below the industry average of 41.95, 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 $4.81.

Tech Data Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.81
Graham Number $117.13
PEmg 14.00
Current Ratio 1.35
PB Ratio 1.52
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2017
Total Current Assets $8,255,548,000
Total Current Liabilities $6,101,274,000
Long-Term Debt $1,799,646,000
Total Assets $10,556,608,000
Intangible Assets $1,961,909,000
Total Liabilities $8,075,364,000
Shares Outstanding (Diluted Average) 37,468,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.90
Jan2017 $5.51
Jan2016 $7.36
Jan2015 $4.57
Jan2014 $4.71
Jan2013 $4.50
Jan2012 $4.30
Jan2011 $4.25
Jan2010 $3.54
Jan2009 $2.28
Jan2008 $1.96
Jan2007 -$1.76
Jan2006 $0.45
Jan2005 $2.74
Jan2004 $1.81
Jan2003 -$3.55
Jan2002 $1.98
Jan2001 $3.14
Jan2000 $2.34
Jan1999 $2.47
Jan1998 $1.92

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.16
Jan2017 $5.64
Jan2016 $5.50
Jan2015 $4.54
Jan2014 $4.43
Jan2013 $4.12
Jan2012 $3.71
Jan2011 $2.96
Jan2010 $1.98
Jan2009 $1.17
Jan2008 $0.76
Jan2007 $0.09
Jan2006 $0.90
Jan2005 $1.16
Jan2004 $0.63
Jan2003 $0.45
Jan2002 $2.42

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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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.

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