Motorola Solutions Inc Valuation – February 2019 $MSI

Company Profile (excerpt from Reuters): Motorola Solutions, Inc., incorporated on March 9, 1973, is a provider of communication infrastructure, devices, accessories, software and services. The Company operates through two segments: Products and Services. It serves global customer base spanning federal, state, county, province, territory, municipal and departmental independent bodies, along with its commercial and industrial customers. The Company, through VaaS International Holdings, Inc. (VaaS), provides data and image analytics for vehicle location. The Company’s image capture and analysis platform, which includes fixed and mobile license plate reader cameras driven by machine learning and artificial intelligence, provides vehicle location data to public safety and commercial customers. VaaS platform enables controllable, audited data-sharing across multiple law enforcement agencies. Vehicle location information can help accelerate time to resolution and improve outcomes for public safety agencies, particularly when combined with police records.


Downloadable PDF version of this valuation:

ModernGraham Valuation of MSI – February 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 $22,938,661,879 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.38 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 48.30% Pass
6. Moderate PEmg Ratio PEmg < 20 31.40 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -19.00 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 1.38 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.50 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 $4.46
MG Growth Estimate 2.37%
MG Value $58.99
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $64.65
MG Value based on 0% Growth $37.90
Market Implied Growth Rate 11.45%
Current Price $139.98
% of Intrinsic Value 237.29%

Motorola Solutions 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 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 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 $3.85 in 2015 to an estimated $4.46 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.45% 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 Motorola Solutions Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $2.13 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 31.4, which was below the industry average of 51.56, 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 $-37.03.

Motorola Solutions 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) -$37.03
Graham Number $0.00
PEmg 31.40
Current Ratio 1.38
PB Ratio -19.00
Current Dividend $2.13
Dividend Yield 1.52%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,272,000,000
Total Current Liabilities $3,096,000,000
Long-Term Debt $5,289,000,000
Total Assets $9,409,000,000
Intangible Assets $2,744,000,000
Total Liabilities $10,685,000,000
Shares Outstanding (Diluted Average) 173,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.55
Dec2018 $5.62
Dec2017 -$0.95
Dec2016 $3.24
Dec2015 $3.02
Dec2014 $5.29
Dec2013 $4.06
Dec2012 $2.96
Dec2011 $3.41
Dec2010 $1.87
Dec2009 -$0.14
Dec2008 -$13.09
Dec2007 -$0.14
Dec2006 $10.22
Dec2005 $12.67
Dec2004 $4.38
Dec2003 $2.66
Dec2002 -$7.63
Dec2001 -$12.46
Dec2000 $4.06
Dec1999 $2.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.46
Dec2018 $3.02
Dec2017 $2.13
Dec2016 $3.68
Dec2015 $3.85
Dec2014 $4.02
Dec2013 $3.06
Dec2012 $1.38
Dec2011 -$0.15
Dec2010 -$1.37
Dec2009 -$1.36
Dec2008 -$0.38
Dec2007 $5.97
Dec2006 $7.51
Dec2005 $4.08
Dec2004 -$0.75
Dec2003 -$2.91

Recommended Reading:

Other ModernGraham posts about the company

Motorola Solutions Inc Valuation – May 2018 $MSI
5 Undervalued Companies for Value Investors with a Low Beta – July 2017
5 Undervalued Companies for Value Investors with a Low Beta – January 2017
8 Best Stocks for Value Investors This Week – 12/27/16
Motorola Solutions Inc Valuation – December 2016 $MSI

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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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