L3 Technologies Inc Valuation – January 2019 $LLL

Company Profile (excerpt from Reuters): L3 Technologies, Inc., formerly L-3 Communications Holdings, Inc., incorporated on March 20, 1997, is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, aircraft sustainment, simulation and training, night vision and image intensification equipment and security and detection systems. The Company provides a broad range of communication and electronic systems and products used on military and commercial platforms. It operates through three segments: Electronic Systems, Communication Systems and Intelligence, Surveillance & Reconnaissance (ISR) Systems segment. The Company’s customers include the United States Department of Defense (DoD) and its prime contractors, the United States Government intelligence agencies, the United States Department of Homeland Security (DHS), foreign governments, and domestic and international commercial customers.


Downloadable PDF version of this valuation:

ModernGraham Valuation of LLL – January 2019

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 $14,315,953,468 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.96 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 20.03% Fail
6. Moderate PEmg Ratio PEmg < 20 21.88 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.53 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 1.96 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.53 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $8.31
MG Growth Estimate 0.42%
MG Value $77.57
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $120.44
MG Value based on 0% Growth $70.60
Market Implied Growth Rate 6.69%
Current Price $181.70
% of Intrinsic Value 234.24%

L3 Technologies 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, insufficient earnings stability or growth over the last ten years, 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 earnings stability over the last five years. 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 $8.08 in 2014 to an estimated $8.31 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.69% 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 L3 Technologies Inc revealed the company was trading above its Graham Number of $134.83. The company pays a dividend of $3 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 21.88, which was below the industry average of 47.17, 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 $-38.26.

L3 Technologies 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) -$38.26
Graham Number $134.83
PEmg 21.88
Current Ratio 1.96
PB Ratio 2.53
Current Dividend $3.00
Dividend Yield 1.65%
Number of Consecutive Years of Dividend Growth 14

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $4,435,000,000
Total Current Liabilities $2,260,000,000
Long-Term Debt $3,320,000,000
Total Assets $13,184,000,000
Intangible Assets $7,248,000,000
Total Liabilities $7,473,000,000
Shares Outstanding (Diluted Average) 79,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.38
Dec2017 $8.51
Dec2016 $9.01
Dec2015 -$2.97
Dec2014 $7.56
Dec2013 $8.24
Dec2012 $8.03
Dec2011 $9.05
Dec2010 $8.25
Dec2009 $7.61
Dec2008 $7.59
Dec2007 $5.98
Dec2006 $4.22
Dec2005 $4.20
Dec2004 $3.33
Dec2003 $2.62
Dec2002 $1.93
Dec2001 $1.47
Dec2000 $1.19
Dec1999 $0.88
Dec1998 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.31
Dec2017 $6.20
Dec2016 $5.36
Dec2015 $4.35
Dec2014 $8.08
Dec2013 $8.31
Dec2012 $8.26
Dec2011 $8.15
Dec2010 $7.38
Dec2009 $6.60
Dec2008 $5.75
Dec2007 $4.58
Dec2006 $3.67
Dec2005 $3.17
Dec2004 $2.47
Dec2003 $1.90
Dec2002 $1.43

Recommended Reading:

Other ModernGraham posts about the company

L3 Technologies Inc Valuation – March 2018 $LLL
L-3 Communications Holdings Inc Valuation – July 2016 $LLL
47 Companies in the Spotlight This Week – 5/16/15
L3 Communications Holdings Inc. Quarterly Valuation – May 2015 $LLL
34 Companies in the Spotlight This Week – 2/7/15

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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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