ExlService Holdings Inc Valuation – Initial Coverage $EXLS

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 ExlService Holdings Inc (EXLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ExlService Holdings, Inc. is an operations management and analytics company. The Company segments include Insurance; Healthcare; Travel, Transportation and Logistics; Finance and Accounting (F&A); Analytics, and All Other. The Insurance operating segment serves property and casualty insurance, life insurance, disability insurance, annuity and retirement services companies. The Healthcare operating segment serves healthcare payers and providers. The Travel, Transportation and Logistics operating segment primarily serves clients in the travel, transport and logistics industries. The F&A operating segment provides finance and accounting business process management (BPM) services across an array of F&A processes. The Analytics services focus on driving business outcomes for its customers by generating data-driven insights across all parts of its customers’ businesses. The All Other segment includes banking and financial services, utilities and consulting operating segments.

EXLS Chart

EXLS data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EXLS – July 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 $1,888,493,443 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.46 Pass
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 210.53% Pass
6. Moderate PEmg Ratio PEmg < 20 29.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.45 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 3.46 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.13 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 $1.87
MG Growth Estimate 8.71%
MG Value $48.45
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $27.10
MG Value based on 0% Growth $15.88
Market Implied Growth Rate 10.56%
Current Price $55.34
% of Intrinsic Value 114.22%


ExlService Holdings, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  small size, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends.  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 $1.18 in 2013 to an estimated $1.87 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 10.56% 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 ExlService Holdings, Inc. revealed the company was trading above its Graham Number of $30.42.  The company does not pay a dividend.  Its PEmg (price over earnings per share – ModernGraham) was 29.61, which was below the industry average of 29.87, 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 $6.25.

ExlService Holdings, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $6.25
Graham Number $30.42
PEmg 29.61
Current Ratio 3.46
PB Ratio 3.45
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $383,498,000
Total Current Liabilities $110,970,000
Long-Term Debt $35,000,000
Total Assets $726,693,000
Intangible Assets $238,308,000
Total Liabilities $164,189,000
Shares Outstanding (Diluted Average) 35,109,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.60
Dec2016 $1.79
Dec2015 $1.51
Dec2014 $0.96
Dec2013 $1.42
Dec2012 $1.26
Dec2011 $1.10
Dec2010 $0.88
Dec2009 $0.53
Dec2008 $0.49
Dec2007 $0.93
Dec2006 $0.58
Dec2005 $0.32
Dec2004 $0.26
Dec2003 -$0.10
Dec2002 -$2.14
Dec2001 -$0.17

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.87
Dec2016 $1.46
Dec2015 $1.28
Dec2014 $1.16
Dec2013 $1.18
Dec2012 $0.99
Dec2011 $0.83
Dec2010 $0.70
Dec2009 $0.59
Dec2008 $0.59
Dec2007 $0.56
Dec2006 $0.17
Dec2005 -$0.14
Dec2004 -$0.39
Dec2003 -$0.64
Dec2002 -$0.76
Dec2001 -$0.06

Recommended Reading:

Other ModernGraham posts about the company

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

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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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