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:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||12.48%|
|MG Value based on 3% Growth||$19.75|
|MG Value based on 0% Growth||$11.58|
|Market Implied Growth Rate||5.00%|
|% 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|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
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|
|Shares Outstanding (Diluted Average)||184,805,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.95|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.36|
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
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.