ARRIS International PLC Valuation – July 2018 $ARRS

Company Profile (excerpt from Reuters): ARRIS International plc, incorporated on April 20, 2015, is a media entertainment and data communications solutions provider. The Company operates in two segments: Customer Premises Equipment (CPE), and Network & Cloud (N&C). The Company enables service providers, including cable, telephone, and digital broadcast satellite operators, and media programmers to deliver media, voice and Internet Protocol (IP) data services to their subscribers. It is engaged in offering set-tops, digital video and IP television (IPTV) distribution systems, broadband access infrastructure platforms, and associated data and voice CPE, which it also sells directly to consumers through retail channels. Its solutions are complemented by an array of services, including technical support, repair and refurbishment, and system design and integration.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ARRS – 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 $4,691,966,732 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.65 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 233.02% Pass
6. Moderate PEmg Ratio PEmg < 20 18.49 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.47 Pass
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 1.65 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.88 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 $1.36
MG Growth Estimate 12.48%
MG Value $45.58
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $19.75
MG Value based on 0% Growth $11.58
Market Implied Growth Rate 5.00%
Current Price $25.19
% of Intrinsic Value 55.26%

ARRIS International plc 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 over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.74 in 2014 to an estimated $1.36 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5% 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 above the price.

At the time of valuation, further research into ARRIS International plc revealed the company was trading below its Graham Number of $33.7. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.49, which was below the industry average of 38.56, 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 $-7.45.

ARRIS International plc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.45
Graham Number $33.70
PEmg 18.49
Current Ratio 1.65
PB Ratio 1.47
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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 3/1/2018
Total Current Assets $2,832,112,000
Total Current Liabilities $1,714,791,000
Long-Term Debt $2,095,320,000
Total Assets $7,366,488,000
Intangible Assets $3,920,119,000
Total Liabilities $4,209,114,000
Shares Outstanding (Diluted Average) 184,805,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.95
Dec2017 $0.49
Dec2016 $0.09
Dec2015 $0.62
Dec2014 $2.21
Dec2013 -$0.37
Dec2012 $0.46
Dec2011 -$0.15
Dec2010 $0.50
Dec2009 $0.71
Dec2008 -$1.04
Dec2007 $0.87
Dec2006 $1.30
Dec2005 $0.52
Dec2004 -$0.33
Dec2003 -$0.62
Dec2002 -$2.33
Dec2001 -$3.13
Dec2000 $0.52
Dec1999 $1.33
Dec1998 $0.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.36
Dec2017 $0.58
Dec2016 $0.62
Dec2015 $0.77
Dec2014 $0.74
Dec2013 $0.08
Dec2012 $0.24
Dec2011 $0.14
Dec2010 $0.35
Dec2009 $0.34
Dec2008 $0.19
Dec2007 $0.66
Dec2006 $0.27
Dec2005 -$0.56
Dec2004 -$1.12
Dec2003 -$1.30
Dec2002 -$1.32

Recommended Reading:

Other ModernGraham posts about the company

ARRIS International PLC Valuation – January 2017 $ARRS
Arris Group Inc. Analysis – Initial Coverage $ARRS

Other ModernGraham posts about related companies

CenturyLink Inc Valuation – June 2018 $CTL
American Tower Corp Valuation – June 2018 $AMT
Charter Communications Inc Valuation – May 2018 $CHTR
DISH Network Corp Valuation – Initial Coverage $DISH
AT&T Inc Valuation – April 2018 $T
Comcast Corporation Valuation – March 2018 $CMCSA
Spok Holdings Inc Valuation – March 2018 $SPOK
SBA Communications Corp Valuation – Initial Coverage $SBAC
Harris Corporation Valuation – February 2018 $HRS
Verizon Communications Inc Valuation – February 2018 $VZ


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.