SPX Corp Valuation – August 2018 $SPXC

Company Profile (excerpt from Reuters): SPX Corporation, incorporated on February 9, 1968, is a global supplier of infrastructure equipment. The Company operates through three segments: HVAC; Detection and Measurement, and Engineered Solutions. The HVAC solutions offered by its businesses include package cooling towers, residential and commercial boilers, heating and ventilation products. Its detection and measurement product lines encompass underground pipe and cable locators, and inspection equipment. Within its power platform, it is a manufacturer of medium and large power transformers, as well as equipment for various types of power plant, including cooling equipment, heat exchangers and pollution control systems. As of February 21, 2018, the Company had operations in approximately 15 countries.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SPXC – August 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 $1,509,048,236 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.14 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 -75.12% Fail
6. Moderate PEmg Ratio PEmg < 20 30.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.34 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 1.14 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.34 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $1.15
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $16.63
MG Value based on 0% Growth $9.75
Market Implied Growth Rate 10.92%
Current Price $34.80
% of Intrinsic Value N/A

SPX Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years, 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 seeing its EPSmg (normalized earnings) decline from $5.7 in 2014 to an estimated $1.15 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.92% 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 SPX Corp revealed the company was trading above its Graham Number of $18.36. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 30.35, which was above the industry average of 29.32. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-25.55.

SPX Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$25.55
Graham Number $18.36
PEmg 30.35
Current Ratio 1.14
PB Ratio 4.34
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 6/1/2018
Total Current Assets $622,400,000
Total Current Liabilities $543,900,000
Long-Term Debt $340,600,000
Total Assets $2,123,800,000
Intangible Assets $595,200,000
Total Liabilities $1,765,200,000
Shares Outstanding (Diluted Average) 44,723,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.03
Dec2017 $2.03
Dec2016 -$2.05
Dec2015 -$2.03
Dec2014 $9.14
Dec2013 $4.56
Dec2012 $3.61
Dec2011 $3.36
Dec2010 $4.08
Dec2009 $0.64
Dec2008 $4.56
Dec2007 $5.22
Dec2006 $2.83
Dec2005 $15.10
Dec2004 -$0.23
Dec2003 $2.84
Dec2002 $1.53
Dec2001 $2.13
Dec2000 $2.99
Dec1999 $1.63
Dec1998 -$0.97

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.15
Dec2017 $1.25
Dec2016 $1.45
Dec2015 $3.38
Dec2014 $5.70
Dec2013 $3.74
Dec2012 $3.30
Dec2011 $3.29
Dec2010 $3.33
Dec2009 $3.86
Dec2008 $5.48
Dec2007 $5.67
Dec2006 $5.40
Dec2005 $5.89
Dec2004 $1.47
Dec2003 $2.29
Dec2002 $1.83

Recommended Reading:

Other ModernGraham posts about the company

SPX Corporation Valuation – Initial Coverage $SPXC

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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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