IT Hardware Stocks

TE Connectivity Ltd Valuation – March 2018 $TEL

Company Profile (obtained from Marketwatch): TE Connectivity Ltd. engages in the design and manufacture of connectivity and sensors solutions. It operates through the following segments: Transportation Solutions, Industrial Solutions, and Communications Solutions. The Transportation Solutions segment offers products that are used in the automotive, commercial transportation, and sensors markets. The Industrial Solutions segment provides products that connect and distribute power, data, and signal. The Communications Solutions segment supplies electronic components for the data and devices and appliances markets. The company was founded in 2000 and is headquartered in Schaffhausen, Switzerland.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TEL – March 2018

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 $36,721,976,991 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.58 Fail
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 -915.87% Fail
6. Moderate PEmg Ratio PEmg < 20 20.21 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.82 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 1.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.58 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

EPSmg $5.17
MG Growth Estimate 8.63%
MG Value $133.27
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $74.98
MG Value based on 0% Growth $43.96
Market Implied Growth Rate 5.85%
Current Price $104.51
% of Intrinsic Value 78.42%

TE Connectivity Ltd 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 high PEmg and PB ratios. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.28 in 2014 to an estimated $5.17 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 5.85% 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 within a margin of safety relative to the price.

At the time of valuation, further research into TE Connectivity Ltd revealed the company was trading above its Graham Number of $57.39. The company pays a dividend of $1.54 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 20.21, which was below the industry average of 48.19, 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 $-9.79.

TE Connectivity Ltd receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.79
Graham Number $57.39
PEmg 20.21
Current Ratio 1.58
PB Ratio 3.82
Current Dividend $1.54
Dividend Yield 1.47%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $5,733,000,000
Total Current Liabilities $3,635,000,000
Long-Term Debt $3,317,000,000
Total Assets $18,811,000,000
Intangible Assets $7,478,000,000
Total Liabilities $9,180,000,000
Shares Outstanding (Diluted Average) 352,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.28
Sep2017 $4.70
Sep2016 $5.44
Sep2015 $5.89
Sep2014 $4.27
Sep2013 $3.02
Sep2012 $2.59
Sep2011 $2.81
Sep2010 $2.41
Sep2009 -$7.11
Sep2008 $3.67
Sep2007 -$1.11
Sep2006 $2.40
Sep2005 $2.30
Sep2004 $1.53
Sep2003 -$0.46

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.17
Sep2017 $4.97
Sep2016 $4.81
Sep2015 $4.24
Sep2014 $3.28
Sep2013 $2.11
Sep2012 $1.39
Sep2011 $0.57
Sep2010 -$0.35
Sep2009 -$1.14
Sep2008 $1.82
Sep2007 $0.90
Sep2006 $1.66
Sep2005 $1.08
Sep2004 $0.39
Sep2003 -$0.15

Recommended Reading:

Other ModernGraham posts about the company

TE Connectivity Ltd Valuation – June 2016 $TEL
13 Best Stocks For Value Investors This Week – 12/12/15
TE Connectivity Ltd Valuation – December 2015 Update $TEL
The Best Stocks of the IT Hardware Industry – September 2015
19 Best Stocks For Value Investors This Week – 8/29/15

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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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