Infosys Ltd Valuation – June 2018 $INFY

Company Profile (excerpt from Reuters): Infosys Limited, incorporated on July 2, 1981, is engaged in consulting, technology, outsourcing and next-generation services. The Company, along with its subsidiaries, provides business information technology (IT) services comprising application development and maintenance, independent validation, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; consulting and systems integration services comprising consulting, enterprise solutions, systems integration and advanced technologies; products, business platforms and solutions to accelerate intellectual property-led innovation, including Finacle, its banking solution, and offerings in the areas of Analytics, Cloud and Digital Transformation. The Company’s segments are Financial Services and Insurance (FSI), Manufacturing and Hi-tech (MFG & Hi-TECH), Energy & utilities, Communication and Services (ECS), Retail, Consumer packaged goods and Logistics (RCL), and Life Sciences and Healthcare (LSH). The Company operates in North America, Europe, India and Rest of the World.


Downloadable PDF version of this valuation:

ModernGraham Valuation of INFY – June 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 $2,843,573,514,131 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.55 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
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 53.03% Pass
6. Moderate PEmg Ratio PEmg < 20 19.63 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.24 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 3.55 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
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 $0.99
MG Growth Estimate 3.72%
MG Value $15.78
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $14.36
MG Value based on 0% Growth $8.42
Market Implied Growth Rate 5.56%
Current Price $19.43
% of Intrinsic Value 123.15%

Infosys Ltd ADR qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all value 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 $0.79 in 2015 to an estimated $0.99 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.56% 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 Infosys Ltd ADR revealed the company was trading above its Graham Number of $10.1. The company pays a dividend of $0.43 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.63, which was below the industry average of 44.18, 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 $2.47.

Infosys Ltd ADR performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.47
Graham Number $10.10
PEmg 19.63
Current Ratio 3.55
PB Ratio 4.24
Current Dividend $0.43
Dividend Yield 2.22%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $7,673,000,000
Total Current Liabilities $2,164,000,000
Long-Term Debt $0
Total Assets $12,255,000,000
Intangible Assets $377,000,000
Total Liabilities $2,295,000,000
Shares Outstanding (Diluted Average) 2,174,809,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.99
Mar2018 $1.10
Mar2017 $0.94
Mar2016 $0.90
Mar2015 $0.88
Mar2014 $0.77
Mar2013 $0.76
Mar2012 $0.75
Mar2011 $0.66
Mar2010 $0.58
Mar2009 $0.56
Mar2008 $0.51
Mar2007 $0.38
Mar2006 $0.25
Mar2005 $0.19
Mar2004 $0.13
Mar2003 $0.09
Mar2002 $0.08
Mar2001 $0.06
Mar2000 $0.03
Mar1999 $0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.99
Mar2018 $0.97
Mar2017 $0.88
Mar2016 $0.84
Mar2015 $0.79
Mar2014 $0.73
Mar2013 $0.70
Mar2012 $0.65
Mar2011 $0.58
Mar2010 $0.51
Mar2009 $0.44
Mar2008 $0.35
Mar2007 $0.25
Mar2006 $0.18
Mar2005 $0.13
Mar2004 $0.09
Mar2003 $0.07

Recommended Reading:

Other ModernGraham posts about the company

Infosys Ltd Valuation – July 2016 $INFY
Infosys Ltd Valuation – January 2016 Update $INFY
Infosys Limited Analysis – October 2015 Update $INFY
The 8 Best Stocks For Value Investors This Week – 6/27/15
Infosys Analysis – June 2015 Update $INFY

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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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