Defense Stocks

L3 Technologies Inc Valuation – March 2018 $LLL

Company Profile (excerpt from Reuters): L3 Technologies, Inc., formerly L-3 Communications Holdings, Inc., incorporated on March 20, 1997, is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, aircraft sustainment, simulation and training, night vision and image intensification equipment and security and detection systems. The Company provides a broad range of communication and electronic systems and products used on military and commercial platforms. It operates through four segments: Electronic Systems, Aerospace Systems, Communication Systems and Sensor Systems. The Company’s customers include the United States Department of Defense (DoD) and its prime contractors, the United States Government intelligence agencies, the United States Department of Homeland Security (DHS), foreign governments, and domestic and international commercial customers.

LLL Chart

LLL data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LLL – 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 $16,312,039,364 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.87 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 5.70% Fail
6. Moderate PEmg Ratio PEmg < 20 29.30 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.27 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 1.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.61 Fail
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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.12
MG Growth Estimate -1.79%
MG Value $35.02
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $103.18
MG Value based on 0% Growth $60.49
Market Implied Growth Rate 10.40%
Current Price $208.53
% of Intrinsic Value 595.52%

L3 Technologies 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 or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. 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 seeing its EPSmg (normalized earnings) decline from $8.08 in 2014 to an estimated $7.12 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.4% 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 L3 Technologies revealed the company was trading above its Graham Number of $113.74. The company pays a dividend of $3 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 29.3, which was below the industry average of 44.37, 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 $-40.18.

L3 Technologies 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) -$40.18
Graham Number $113.74
PEmg 29.30
Current Ratio 1.87
PB Ratio 3.27
Current Dividend $3.00
Dividend Yield 1.44%
Number of Consecutive Years of Dividend Growth 14

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 12/1/2017
Total Current Assets $4,448,000,000
Total Current Liabilities $2,379,000,000
Long-Term Debt $3,330,000,000
Total Assets $12,729,000,000
Intangible Assets $6,907,000,000
Total Liabilities $7,646,000,000
Shares Outstanding (Diluted Average) 79,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.81
Dec2017 $8.51
Dec2016 $9.01
Dec2015 -$2.97
Dec2014 $7.56
Dec2013 $8.24
Dec2012 $8.03
Dec2011 $9.05
Dec2010 $8.25
Dec2009 $7.61
Dec2008 $7.59
Dec2007 $5.98
Dec2006 $4.22
Dec2005 $4.20
Dec2004 $3.33
Dec2003 $2.62
Dec2002 $1.93
Dec2001 $1.47
Dec2000 $1.19
Dec1999 $0.88
Dec1998 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.12
Dec2017 $6.20
Dec2016 $5.36
Dec2015 $4.35
Dec2014 $8.08
Dec2013 $8.31
Dec2012 $8.26
Dec2011 $8.15
Dec2010 $7.38
Dec2009 $6.60
Dec2008 $5.75
Dec2007 $4.58
Dec2006 $3.67
Dec2005 $3.17
Dec2004 $2.47
Dec2003 $1.90
Dec2002 $1.43

Recommended Reading:

Other ModernGraham posts about the company

47 Companies in the Spotlight This Week – 5/16/15
L3 Communications Holdings Inc. Quarterly Valuation – May 2015 $LLL
34 Companies in the Spotlight This Week – 2/7/15
L-3 Communications Holdings Inc. Quarterly Valuation – February 2015 $LLL
28 Companies in the Spotlight This Week – 11/1/14

Other ModernGraham posts about related companies

Textron Inc Valuation – March 2018 $TXT
Lockheed Martin Corp Valuation – February 2018 $LMT
United Technologies Corp Valuation – February 2018 $UTX
Triumph Group Inc Valuation – Initial Coverage $TGI
Raytheon Company Valuation – April 2017 $RTN
General Dynamics Corp Valuation – March 2017 $GD
TASER International Inc Valuation – Initial Coverage $TASR
Cubic Corporation Valuation – Initial Coverage $CUB
Northrop Grumman Corp Valuation – February 2017 $NOC
Rockwell Collins Inc Valuation – January 2017 $COL

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

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top