Linamar Corp Valuation – October 2018 $TSE-LNR

Company Profile (excerpt from Reuters): Linamar Corporation is a Canada-based diversified manufacturing company of engineered products powering vehicles, motion, work and lives. The Company operates through two segments: the Powertrain/Driveline and the Industrial. The segments are divided into four operating groups: Machining & Assembly, Light Metal Casting, Forging and Skyjack. The Company’s Machining and Assembly, Casting and Forging operating groups focus on precision metallic components, modules and systems for engine, transmission, driveline and body systems designed for global vehicle and industrial markets. The Company’s Skyjack operating group is noted for its mobile industrial equipment, notably its aerial work platforms and tele handlers. The Company provides core engine components, including cylinder blocks and heads, camshafts and connecting rods. For transmission, it builds differential assemblies, gear sets, shaft and shell assemblies, as well as clutch modules.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-LNR- October 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 $3,840,394,427 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.92 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 1044.39% Pass
6. Moderate PEmg Ratio PEmg < 20 7.25 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.11 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 1.92 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.62 Fail
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 $8.11
MG Growth Estimate 15.00%
MG Value $312.11
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $117.55
MG Value based on 0% Growth $68.91
Market Implied Growth Rate -0.63%
Current Price $58.76
% of Intrinsic Value 18.83%

Linamar Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.32 in 2014 to an estimated $8.11 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.63% annual earnings loss 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 Linamar Corporation revealed the company was trading below its Graham Number of $99.21. The company pays a dividend of $0.48 per share, for a yield of 0.8% Its PEmg (price over earnings per share – ModernGraham) was 7.25, which was below the industry average of 26.58, 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 $-18.85.

Linamar Corporation performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$18.85
Graham Number $99.21
PEmg 7.25
Current Ratio 1.92
PB Ratio 1.11
Current Dividend $0.48
Dividend Yield 0.82%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $3,291,655,000
Total Current Liabilities $1,715,388,000
Long-Term Debt $2,551,147,000
Total Assets $8,048,907,000
Intangible Assets $1,809,028,000
Total Liabilities $4,538,710,000
Shares Outstanding (Diluted Average) 66,148,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.28
Dec2017 $8.32
Dec2016 $7.92
Dec2015 $6.63
Dec2014 $4.90
Dec2013 $3.52
Dec2012 $2.25
Dec2011 $1.56
Dec2010 $1.40
Dec2009 -$0.73
Dec2008 $1.05
Dec2007 $1.57
Dec2006 $1.40
Dec2005 $1.41
Dec2004 $1.31
Dec2003 $0.57
Dec2002 $0.81
Dec2001 $0.60
Dec2000 $1.12
Dec1999 $0.92
Dec1998 $1.17

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.11
Dec2017 $7.10
Dec2016 $6.01
Dec2015 $4.62
Dec2014 $3.32
Dec2013 $2.22
Dec2012 $1.42
Dec2011 $0.99
Dec2010 $0.78
Dec2009 $0.63
Dec2008 $1.32
Dec2007 $1.39
Dec2006 $1.23
Dec2005 $1.08
Dec2004 $0.91
Dec2003 $0.74
Dec2002 $0.85

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Stocks for the Enterprising Investor – August 2017
10 Low PE Stock Picks for the Enterprising Investor – July 2017
10 Undervalued Stocks for the Enterprising Investor – July 2017
10 Low PE Stock Picks for the Enterprising Investor – April 2017
Best Stocks Below Their Graham Number – March 2017

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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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