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Software Stocks

ACI Worldwide Inc Valuation – July 2018 $ACIW

Company Profile (excerpt from Reuters): ACI Worldwide, Inc., incorporated on November 2, 1993, develops, markets, installs and supports a line of software products and services primarily focused on facilitating electronic payments. The Company also distributes or acts as a sales agent for software developed by third parties. These products and services are used principally by financial institutions, retailers, billers and electronic payment processors, both in domestic and international markets. The Company’s products are sold and supported through distribution networks covering three geographic regions, including the Americas, Europe/Middle East/Africa (EMEA) and Asia/Pacific.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ACIW – July 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 $2,823,315,998 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.55 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 95.80% Pass
6. Moderate PEmg Ratio PEmg < 20 42.78 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.91 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 1.55 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.42 Fail
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 $0.58
MG Growth Estimate 2.51%
MG Value $7.79
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $8.36
MG Value based on 0% Growth $4.90
Market Implied Growth Rate 17.14%
Current Price $24.67
% of Intrinsic Value 316.53%

ACI Worldwide Inc 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, 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 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 Overvalued after growing its EPSmg (normalized earnings) from $0.49 in 2014 to an estimated $0.58 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.14% 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 ACI Worldwide Inc revealed the company was trading above its Graham Number of $9.7. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 42.78, which was below the industry average of 46.21, 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 $-5.33.

ACI Worldwide Inc 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) -$5.33
Graham Number $9.70
PEmg 42.78
Current Ratio 1.55
PB Ratio 2.91
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 3/1/2018
Total Current Assets $419,294,000
Total Current Liabilities $270,337,000
Long-Term Debt $658,861,000
Total Assets $2,015,169,000
Intangible Assets $1,249,032,000
Total Liabilities $1,036,147,000
Shares Outstanding (Diluted Average) 115,642,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.64
Dec2017 $0.04
Dec2016 $1.09
Dec2015 $0.72
Dec2014 $0.58
Dec2013 $0.53
Dec2012 $0.41
Dec2011 $0.45
Dec2010 $0.27
Dec2009 $0.19
Dec2008 $0.10
Sep2007 -$0.08
Sep2006 $0.48
Sep2005 $0.37
Sep2004 $0.40
Sep2003 $0.13
Sep2002 $0.14
Sep2001 -$0.78
Sep2000 $0.02
Sep1999 $0.46
Sep1998 $0.34

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.58
Dec2017 $0.56
Dec2016 $0.77
Dec2015 $0.59
Dec2014 $0.49
Dec2013 $0.42
Dec2012 $0.34
Dec2011 $0.27
Dec2010 $0.18
Dec2009 $0.16
Dec2008 $0.18
Sep2007 $0.24
Sep2006 $0.37
Sep2005 $0.22
Sep2004 $0.09
Sep2003 -$0.04
Sep2002 -$0.07

Recommended Reading:

Other ModernGraham posts about the company

ACI Worldwide Inc Valuation – November 2016 $ACIW
ACI Worldwide Inc. Analysis – Initial Coverage $ACIW

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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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