United Technologies Corp Valuation – November 2018 $UTX

Company Profile (excerpt from Reuters): United Technologies Corporation, incorporated on July 21, 1934, is engaged in providing high technology products and services to the building systems and aerospace industries around the world. The Company operates through four segments: Otis; UTC Climate, Controls & Security; Pratt & Whitney, and UTC Aerospace Systems. Otis, UTC Climate and Controls & Security (collectively, referred to as the commercial businesses) serve customers in the commercial, government, infrastructure and residential property sectors and transport and refrigeration businesses around the world. Pratt & Whitney and UTC Aerospace Systems (collectively referred to as the aerospace businesses) primarily serve commercial and government customers in both the original equipment and aftermarket parts and services markets of the aerospace industry.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of UTX – November 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 $101,829,144,572 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.52 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 32.06% Fail
6. Moderate PEmg Ratio PEmg < 20 18.91 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.98 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 1.52 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.79 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 $6.72
MG Growth Estimate 1.48%
MG Value $77.03
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $97.49
MG Value based on 0% Growth $57.15
Market Implied Growth Rate 5.20%
Current Price $127.13
% of Intrinsic Value 165.03%

United Technologies 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 growth over the last ten years, and the high PB ratio. 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 Overvalued after growing its EPSmg (normalized earnings) from $6.12 in 2014 to an estimated $6.72 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.2% 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 United Technologies Corporation revealed the company was trading above its Graham Number of $77.1. The company pays a dividend of $2.72 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.91, which was below the industry average of 52.6, 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 $-50.49.

United Technologies Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$50.49
Graham Number $77.10
PEmg 18.91
Current Ratio 1.52
PB Ratio 2.98
Current Dividend $2.72
Dividend Yield 2.14%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $40,204,000,000
Total Current Liabilities $26,504,000,000
Long-Term Debt $38,275,000,000
Total Assets $114,939,000,000
Intangible Assets $43,380,000,000
Total Liabilities $80,689,000,000
Shares Outstanding (Diluted Average) 801,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.13
Dec2017 $5.70
Dec2016 $6.12
Dec2015 $8.61
Dec2014 $6.82
Dec2013 $6.25
Dec2012 $5.66
Dec2011 $5.49
Dec2010 $4.74
Dec2009 $4.12
Dec2008 $4.90
Dec2007 $4.27
Dec2006 $3.71
Dec2005 $3.03
Dec2004 $2.64
Dec2003 $4.69
Dec2002 $2.21
Dec2001 $1.92
Dec2000 $1.78
Dec1999 $1.51
Dec1998 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.72
Dec2017 $6.58
Dec2016 $6.91
Dec2015 $7.06
Dec2014 $6.12
Dec2013 $5.60
Dec2012 $5.17
Dec2011 $4.86
Dec2010 $4.48
Dec2009 $4.23
Dec2008 $4.09
Dec2007 $3.68
Dec2006 $3.35
Dec2005 $3.07
Dec2004 $2.95
Dec2003 $2.87
Dec2002 $1.85

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Disclaimer:

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.

United Technologies Corp Valuation – February 2018 $UTX

Company Profile (obtained from Marketwatch): United Technologies Corp. engages in the provision of products and services to the building systems and aerospace industries worldwide. It operates through the following business segments: Otis; UTC Climate, Controls & Security; Pratt and Whitney; UTC Aerospace Systems; and Other. The Otis segment designs, manufactures, and markets elevators, escalators, moving walkways, and service. The UTC Climate, Controls & Security segment provides heating, ventilating, air conditioning, and refrigeration solutions. The Pratt and Whitney segment offers aircraft engines for the commercial, military, business jet, and general aviation markets. The UTC Aerospace Systems segment comprises aerospace products and aftermarket services for diversified industries worldwide. The Other segment involves other activities. The company was founded in 1934 and is headquartered in Farmington, CT.

UTX Chart

UTX data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of UTX – February 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 $108,345,986,920 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.35 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 30.59% Fail
6. Moderate PEmg Ratio PEmg < 20 20.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.65 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 1.35 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.95 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 $6.65
MG Growth Estimate 1.31%
MG Value $73.95
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $96.47
MG Value based on 0% Growth $56.55
Market Implied Growth Rate 5.93%
Current Price $135.47
% of Intrinsic Value 183.20%

United Technologies Corporation 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 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 current assets. 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 $6.12 in 2014 to an estimated $6.65 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.93% 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 United Technologies Corporation revealed the company was trading above its Graham Number of $75.98. The company pays a dividend of $2.72 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 20.36, which was below the industry average of 32.41, 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 $-43.16.

United Technologies Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$43.16
Graham Number $75.98
PEmg 20.36
Current Ratio 1.35
PB Ratio 3.65
Current Dividend $2.72
Dividend Yield 2.01%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $32,858,000,000
Total Current Liabilities $24,391,000,000
Long-Term Debt $24,989,000,000
Total Assets $96,920,000,000
Intangible Assets $43,793,000,000
Total Liabilities $67,310,000,000
Shares Outstanding (Diluted Average) 798,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.92
Dec2017 $5.70
Dec2016 $6.12
Dec2015 $8.61
Dec2014 $6.82
Dec2013 $6.25
Dec2012 $5.66
Dec2011 $5.49
Dec2010 $4.74
Dec2009 $4.12
Dec2008 $4.90
Dec2007 $4.27
Dec2006 $3.71
Dec2005 $3.03
Dec2004 $2.64
Dec2003 $4.69
Dec2002 $2.21
Dec2001 $1.92
Dec2000 $1.78
Dec1999 $1.51
Dec1998 $1.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.65
Dec2017 $6.58
Dec2016 $6.91
Dec2015 $7.06
Dec2014 $6.12
Dec2013 $5.60
Dec2012 $5.17
Dec2011 $4.86
Dec2010 $4.48
Dec2009 $4.23
Dec2008 $4.09
Dec2007 $3.68
Dec2006 $3.35
Dec2005 $3.07
Dec2004 $2.95
Dec2003 $2.87
Dec2002 $1.89

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Disclaimer:

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.

United Technologies Corporation Valuation – May 2016 $UTX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how United Technologies Corporation (UTX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Technologies Corporation is engaged in providing high technology products and services to the building systems and aerospace industries around the world. The Company operates through four segments: Otis; UTC Climate, Controls & Security; Pratt & Whitney, and UTC Aerospace Systems. Its Otis segment designs, manufactures, sells and installs a range of passenger and freight elevators, as well as a line of escalators and moving walkways. Its UTC Climate, Controls & Security segment, is the provider of heating, ventilating, air conditioning (HVAC) and refrigeration solutions. The Company’s Pratt & Whitney segment supplies aircraft engines for the commercial, military, business jet and general aviation markets. Its UTC Aerospace Systems segment is a provider of aerospace products and aftermarket service solutions.

Downloadable PDF version of this valuation:

ModernGraham Valuation of UTX – May 2016

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 $85,031,199,453 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 78.89% Pass
6. Moderate PEmg Ratio PEmg < 20 13.08 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.93 Pass
Score
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 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.10 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

UTX value Chart May 2016

EPSmg $7.65
MG Growth Estimate 7.18%
MG Value $174.94
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $110.95
MG Value based on 0% Growth $65.04
Market Implied Growth Rate 2.29%
Current Price $100.06
% of Intrinsic Value 57.20%

United Technologies Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value 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 $5.17 in 2012 to an estimated $7.65 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.29% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

United Technologies Corporation fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

UTX Charts May 2016

Net Current Asset Value (NCAV) -$39.33
Graham Number $79.77
PEmg 13.08
Current Ratio 1.34
PB Ratio 2.93
Current Dividend $2.56
Dividend Yield 2.56%
Number of Consecutive Years of Dividend Growth 20

 

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $27,527,000,000
Total Current Liabilities $20,523,000,000
Long-term Debt $21,688,000,000
Total Assets $88,571,000,000
Intangible Assets $43,127,000,000
Total Liabilities $60,218,000,000
Shares Outstanding (Diluted Average) 831,200,000

Earnings Per Share History

Next Fiscal Year Estimate $8.34
12/1/2015 $8.61
12/1/2014 $6.82
12/1/2013 $6.25
12/1/2012 $5.66
12/1/2011 $5.49
12/1/2010 $4.74
12/1/2009 $4.12
12/1/2008 $4.90
12/1/2007 $4.27
12/1/2006 $3.71
12/1/2005 $3.03
12/1/2004 $5.52
12/1/2003 $2.35
12/1/2002 $2.21
12/1/2001 $1.92
12/1/2000 $1.78
12/1/1999 $1.51
12/1/1998 $1.26
12/1/1997 $1.05
12/1/1996 $0.86

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.65
12/1/2015 $7.06
12/1/2014 $6.12
12/1/2013 $5.60
12/1/2012 $5.17
12/1/2011 $4.86
12/1/2010 $4.48
12/1/2009 $4.23
12/1/2008 $4.29
12/1/2007 $3.91
12/1/2006 $3.61
12/1/2005 $3.37
12/1/2004 $3.28
12/1/2003 $2.09
12/1/2002 $1.89
12/1/2001 $1.65
12/1/2000 $1.44

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Disclaimer:

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.

United Technologies Corp Valuation – November 2015 Update $UTX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how United Technologies Corp (UTX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Technologies Corporation (UTC) provides high technology products and services to the building systems and aerospace industries across the world. The Company operates through five segments: Otis; UTC Climate, Controls & Security; Pratt & Whitney; UTC Aerospace Systems and Sikorsky. Otis designs, manufactures, sells and installs a range of passenger and freight elevators for low-, medium- and high-speed applications, as well as a line of escalators and moving walkways. UTC Climate, Controls & Security is a provider of heating, ventilating, air conditioning (HVAC) and refrigeration solutions. Pratt & Whitney segment supplies aircraft engines for the commercial, military, business jet and general aviation markets. UTC Aerospace Systems is a global provider of technologically advanced aerospace products and aftermarket service solutions. Its Sikorsky segment manufactures military and commercial helicopters and also provides aftermarket helicopter and aircraft parts and services.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of UTX – November 2015

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 $85,235,235,135 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.37 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 49.46% Pass
6. Moderate PEmg Ratio PEmg < 20 15.44 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.82 Pass
Score
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 1.37 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.24 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

UTX value Chart November 2015

EPSmg $6.25
MG Growth Estimate 4.30%
MG Value $106.91
Opinion Fairly Valued
MG Value based on 3% Growth $90.62
MG Value based on 0% Growth $53.12
Market Implied Growth Rate 3.47%
Current Price $96.48
% of Intrinsic Value 90.24%

United Technologies Corp qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor is satisfied by default since the company passes the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.86 in 2011 to an estimated $6.25 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.47% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on United Technologies Corp (UTX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

UTX Charts November 2015

Net Current Asset Value (NCAV) -$32.73
Graham Number $69.17
PEmg 15.44
Current Ratio 1.37
PB Ratio 2.82
Dividend Yield 2.60%
Number of Consecutive Years of Dividend Growth 20

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $32,359,000,000
Total Current Liabilities $23,689,000,000
Long-Term Debt $19,428,000,000
Total Assets $92,135,000,000
Intangible Assets $42,926,000,000
Total Liabilities $61,610,000,000
Shares Outstanding (Diluted Average) 893,600,000

Earnings Per Share History

Next Fiscal Year Estimate $6.18
Dec14 $6.82
Dec13 $6.25
Dec12 $5.66
Dec11 $5.49
Dec10 $4.74
Dec09 $4.12
Dec08 $4.90
Dec07 $4.27
Dec06 $3.71
Dec05 $3.03
Dec04 $2.64
Dec03 $4.69
Dec02 $2.21
Dec01 $1.92
Dec00 $1.78
Dec99 $1.51
Dec98 $1.27
Dec97 $1.05
Dec96 $0.87
Dec95 $0.72

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.25
Dec14 $6.12
Dec13 $5.60
Dec12 $5.17
Dec11 $4.86
Dec10 $4.48
Dec09 $4.23
Dec08 $4.09
Dec07 $3.68
Dec06 $3.35
Dec05 $3.07
Dec04 $2.95
Dec03 $2.87
Dec02 $1.89
Dec01 $1.65
Dec00 $1.44
Dec99 $1.21

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ModernGraham Valuation: United Technologies Corp (UTX)

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Disclaimer:

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.

United Technologies Corporation Annual Valuation – 2014 $UTX

UTX logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how United Technologies Corporation (UTX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Technologies Corporation (UTC) provides high technology products and services to the building systems and aerospace industries worldwide. The Company operates in six segments:Otis, Carrier and UTC Fire & Security (collectively referred to as the commercial businesses) serve customers in the commercial, government infrastructure and residential property sectors worldwide. Pratt & Whitney, Hamilton Sundstrand and Sikorsky (collectively referred to as the aerospace businesses) primarily serves commercial and government customers in both the original equipment and aftermarket parts and services markets of the aerospace industry. Hamilton Sundstrand, Pratt & Whitney and UTC Fire & Security also serve customers in certain industrial markets.In April 2014, United Technologies Corp announced that Interlogix, part of UTC Building & Industrial Systems, a unit of United Technologies Corp acquired Ultra High Speed (UHS) from Australian company Hills Ltd.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $107.45
MG Value $119.90
MG Opinion Fairly Valued
Value Based on 3% Growth $88.84
Value Based on 0% Growth $52.08
Market Implied Growth Rate 4.62%
Net Current Asset Value (NCAV) -$31.11
PEmg 17.74
Current Ratio 1.23
PB Ratio 2.91

Balance Sheet – September 2014

Current Assets $29,411,000,000
Current Liabilities $23,908,000,000
Total Debt $17,857,000,000
Total Assets $91,774,000,000
Intangible Assets $43,853,000,000
Total Liabilities $57,725,000,000
Outstanding Shares 910,200,000

Earnings Per Share

2014 (estimate) $6.84
2013 $6.25
2012 $5.66
2011 $5.49
2010 $4.74
2009 $4.12
2008 $4.90
2007 $4.27
2006 $3.71
2005 $3.03
2004 $5.52

Earnings Per Share – ModernGraham

2014 (estimate) $6.13
2013 $5.60
2012 $5.17
2011 $4.86
2010 $4.48
2009 $4.23

Dividend History

Conclusion:

United Technologies Corporation does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio and the high PB ratio, while the Enterprising Investor is concerned by the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.48 in 2010 to an estimated $6.13 for 2014.  This level of demonstrated growth supports than the market’s implied estimate of 4.62% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of United Technologies Corporation (UTX) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on United Technologies Corporation (UTX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in United Technologies Corporation (UTX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

ModernGraham Valuation: United Technologies Corp (UTX)

 

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Company Profile (obtained from Google Finance): United Technologies Corporation (UTC) provides high technology products and services to the building systems and aerospace industries worldwide. The Company operates in six segments: Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand and Sikorsky. Otis, Carrier and UTC Fire & Security serve customers in the commercial, government infrastructure and residential property sectors worldwide. Carrier also serves commercial, industrial, transport refrigeration and food service equipment customers. Pratt & Whitney, Hamilton Sundstrand and Sikorsky primarily serves commercial and government customers. In May 2013, the Company announced that it has completed the divestiture of its Pratt & Whitney Power Systems unit to Mitsubishi Heavy Industries Ltd (MHI). In June 2013, United Technologies Corp announced it has closed on the sale of substantially all operations of its Pratt & Whitney Rocketdyne unit to GenCorp.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Calculator)

Key Data:

MG Value $90
MG Opinion Overvalued
Value Based on 3% Growth $82
Value Based on 0% Growth $48
Market Implied Growth Rate 5.36%
Net Current Asset Value (NCAV) -$34.42
PEmg 19.22
Current Ratio 1.25
PB Ratio 3.58

Balance Sheet – 9/30/2013 

Current Assets $29,351,000,000
Current Liabilities $23,519,000,000
Total Debt $19,785,000,000
Total Assets $90,326,000,000
Intangible Assets $43,595,000,000
Total Liabilities $61,749,000,000
Outstanding Shares 941,270,000

Earnings Per Share – Diluted

2013 (estimate) $6.18
2012 $5.35
2011 $5.93
2010 $5.11
2009 $4.50
2008 $5.29
2007 $4.60
2006 $3.71
2005 $3.12
2004 $3.00
2003 $2.51
2002 $2.21

Earnings Per Share – Modern Graham

2013 (estimate) $5.65
2012 $5.34
2011 $5.25
2010 $4.82
2009 $4.53
2008 $4.35

Conclusion:

United Technologies Corp. has had very stable earnings growth and in many respects is a very intriguing company, but it seems the market is overvaluing it at this time.  In the preliminary assessment, the company does not have a very strong current ratio and is trading at a high PB ratio.  These facts combined eliminate the company from contention for Defensive Investors and Enterprising Investors, and places it in our Speculative realm.  From a valuation standpoint, the market is implying a growth rate that simply has not been accomplished by United Technologies Corp.  The company has grown its EPSmg (normalized earnings) by an average of 4.94%, and while the market’s implied rate of 5.34% is not all that much higher than the average, it is still outside the margin of safety.  As a result, any investor looking to enter a position in United Technologies Corp. should do considerably more research, and pay close attention to the 7 Key Tips to Value Investing.

What do you think?  Is United Technologies Corp. overvalued?  Is the company speculative?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in United Technologies Corp. at the time of publication and had no intention of purchasing a position in the next 72 hours.

Photo Credit:  Andrew Magill

Raytheon Co Valuation – March 2019 #RTN

Company Profile (excerpt from Reuters): Raytheon Company, incorporated on December 17, 1953, is a technology company, which specializes in defense and other government markets. The Company develops integrated products, services and solutions in various markets, including sensing; effects; command, control, communications, computers, cyber and intelligence; mission support, and cybersecurity. The Company operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS), and Forcepoint. The Company serves both domestic and international customers, primarily as a prime contractor or subcontractor on a range of defense and related programs for government customers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of RTN – March 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 $50,836,887,301 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.46 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 80.90% Pass
6. Moderate PEmg Ratio PEmg < 20 19.17 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.47 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 1.46 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.24 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 $9.40
MG Growth Estimate 6.50%
MG Value $202.10
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $136.26
MG Value based on 0% Growth $79.88
Market Implied Growth Rate 5.33%
Current Price $180.12
% of Intrinsic Value 89.12%

Raytheon Company 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, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $6.56 in 2015 to an estimated $9.4 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.33% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Raytheon Company revealed the company was trading above its Graham Number of $102.6. The company pays a dividend of $3.47 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 19.17, which was below the industry average of 51.79, 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 $-29.

Raytheon Company 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) -$29.00
Graham Number $102.60
PEmg 19.17
Current Ratio 1.46
PB Ratio 4.47
Current Dividend $3.47
Dividend Yield 1.93%
Number of Consecutive Years of Dividend Growth 14

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $12,136,000,000
Total Current Liabilities $8,288,000,000
Long-Term Debt $4,755,000,000
Total Assets $31,864,000,000
Intangible Assets $15,486,000,000
Total Liabilities $20,392,000,000
Shares Outstanding (Diluted Average) 284,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.50
Dec2018 $10.15
Dec2017 $6.95
Dec2016 $7.55
Dec2015 $6.91
Dec2014 $7.18
Dec2013 $6.16
Dec2012 $5.65
Dec2011 $5.28
Dec2010 $4.88
Dec2009 $4.89
Dec2008 $3.92
Dec2007 $5.79
Dec2006 $2.85
Dec2005 $1.92
Dec2004 $0.94
Dec2003 $0.88
Dec2002 -$1.59
Dec2001 -$2.12
Dec2000 $0.41
Dec1999 $1.17

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.40
Dec2018 $8.15
Dec2017 $7.08
Dec2016 $6.99
Dec2015 $6.56
Dec2014 $6.20
Dec2013 $5.59
Dec2012 $5.18
Dec2011 $4.95
Dec2010 $4.68
Dec2009 $4.34
Dec2008 $3.74
Dec2007 $3.26
Dec2006 $1.66
Dec2005 $0.71
Dec2004 -$0.03
Dec2003 -$0.42

Recommended Reading:

Other ModernGraham posts about the company

Raytheon Co Valuation – June 2018 $RTN
Raytheon Company Valuation – April 2017 $RTN
Raytheon Company Valuation – August 2016 $RTN
Raytheon Co Valuation – February 2016 $RTN
10 Best Stocks For Value Investors This Week – 10/31/15

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – March 2019 #TDG
Northrop Grumman Corp Valuation – March 2019 #NOC
Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB

Disclaimer:

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.

General Dynamics Corp Valuation – March 2019 #GD

Company Profile (excerpt from Reuters): General Dynamics Corporation, incorporated on February 21, 1952, is a global aerospace and defense company. The Company offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions, and shipbuilding and ship repair. The Company operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems.

GD Chart

GD data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GD – March 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 $48,068,656,138 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 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 153.85% Pass
6. Moderate PEmg Ratio PEmg < 20 15.88 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.21 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 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.32 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 $10.48
MG Growth Estimate 8.33%
MG Value $263.73
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $152.03
MG Value based on 0% Growth $89.12
Market Implied Growth Rate 3.69%
Current Price $166.49
% of Intrinsic Value 63.13%

General Dynamics Corporation 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 high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 $6.74 in 2015 to an estimated $10.48 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.69% 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 above the price.

At the time of valuation, further research into General Dynamics Corporation revealed the company was trading above its Graham Number of $102.99. The company pays a dividend of $3.63 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.88, which was below the industry average of 51.79, 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 $-52.25.

General Dynamics Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$52.25
Graham Number $102.99
PEmg 15.88
Current Ratio 1.23
PB Ratio 4.21
Current Dividend $3.63
Dividend Yield 2.18%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $18,189,000,000
Total Current Liabilities $14,739,000,000
Long-Term Debt $11,444,000,000
Total Assets $45,408,000,000
Intangible Assets $22,179,000,000
Total Liabilities $33,676,000,000
Shares Outstanding (Diluted Average) 296,406,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.60
Dec2018 $11.18
Dec2017 $9.56
Dec2016 $8.29
Dec2015 $9.29
Dec2014 $7.42
Dec2013 $6.67
Dec2012 -$0.94
Dec2011 $6.87
Dec2010 $6.81
Dec2009 $6.17
Dec2008 $6.17
Dec2007 $5.08
Dec2006 $4.56
Dec2005 $3.61
Dec2004 $3.05
Dec2003 $2.52
Dec2002 $2.26
Dec2001 $2.33
Dec2000 $2.24
Dec1999 $2.18

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.48
Dec2018 $9.67
Dec2017 $8.69
Dec2016 $7.55
Dec2015 $6.74
Dec2014 $5.43
Dec2013 $4.67
Dec2012 $4.11
Dec2011 $6.50
Dec2010 $6.13
Dec2009 $5.57
Dec2008 $5.01
Dec2007 $4.21
Dec2006 $3.58
Dec2005 $2.98
Dec2004 $2.60
Dec2003 $2.35

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – September 2018
5 Companies for Enterprising Investors Near 52 Week Lows – July 2018
General Dynamics Corp Valuation – June 2018 $GD
General Dynamics Corp Valuation – March 2017 $GD
General Dynamics Corporation Valuation – January 2016 Update $GD

Other ModernGraham posts about related companies

TransDigm Group Inc Valuation – March 2019 #TDG
Northrop Grumman Corp Valuation – March 2019 #NOC
Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB

Disclaimer:

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.

TransDigm Group Inc Valuation – March 2019 #TDG

Company Profile (excerpt from Reuters): TransDigm Group Incorporated, incorporated on July 8, 2003, is a global designer, producer and supplier of engineered aircraft components for commercial and military aircraft in service. Through its subsidiary, Skandia Inc., the Company provides seating foam, foam fabrication, flammability testing and acoustic solutions for the business jet market. The Company operates through three segments: Power & Control, Airframe and Non-aviation.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TDG – March 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 $23,267,803,131 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.13 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
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 249.49% Pass
6. Moderate PEmg Ratio PEmg < 20 32.92 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -14.85 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 4.13 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.20 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

EPSmg $13.36
MG Growth Estimate 15.00%
MG Value $514.39
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $193.73
MG Value based on 0% Growth $113.57
Market Implied Growth Rate 12.21%
Current Price $439.87
% of Intrinsic Value 85.51%

TransDigm Group Incorporated does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, 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 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 Fairly Valued after growing its EPSmg (normalized earnings) from $4.94 in 2015 to an estimated $13.36 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 12.21% 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 within a margin of safety relative to the price.

At the time of valuation, further research into TransDigm Group Incorporated revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 32.92, which was below the industry average of 51.79, 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 $-180.03.

TransDigm Group Incorporated 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) -$180.03
Graham Number $0.00
PEmg 32.92
Current Ratio 4.13
PB Ratio -14.85
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,926,618,000
Total Current Liabilities $951,266,000
Long-Term Debt $12,507,616,000
Total Assets $12,389,278,000
Intangible Assets $8,001,467,000
Total Liabilities $14,056,171,000
Shares Outstanding (Diluted Average) 56,266,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $16.67
Sep2018 $16.20
Sep2017 $7.88
Sep2016 $10.39
Sep2015 $7.84
Sep2014 $3.16
Sep2013 $2.39
Sep2012 $5.97
Sep2011 $3.17
Sep2010 $2.52
Sep2009 $3.10
Sep2008 $2.65
Sep2007 $1.83
Sep2006 $0.53
Sep2005 $0.75
Sep2004 $0.29
Sep2003 -$10.92
Sep2002 $221.95

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $13.36
Sep2018 $10.84
Sep2017 $7.55
Sep2016 $6.90
Sep2015 $4.94
Sep2014 $3.48
Sep2013 $3.57
Sep2012 $3.93
Sep2011 $2.82
Sep2010 $2.48
Sep2009 $2.23
Sep2008 $1.60
Sep2007 $0.21
Sep2006 $13.78
Sep2005 $27.74
Sep2004 $41.57
Sep2003 $55.55

Recommended Reading:

Other ModernGraham posts about the company

TransDigm Group Inc Valuation – June 2018 $TDG
TransDigm Group Inc Valuation – Initial Coverage $TDG

Other ModernGraham posts about related companies

Huntington Ingalls Industries Inc Valuation – February 2019 $HII
L3 Technologies Inc Valuation – January 2019 $LLL
Textron Inc Valuation – January 2019 $TXT
Lockheed Martin Corp Valuation – January 2019 $LMT
United Technologies Corp Valuation – November 2018 $UTX
Boeing Co Valuation – November 2018 $BA
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Disclaimer:

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.

Northrop Grumman Corp Valuation – March 2019 #NOC

Company Profile (excerpt from Reuters): Northrop Grumman Corporation, incorporated on August 4, 2010, is a global security company. The Company provides products, systems and solutions in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); strike, and logistics and modernization. The Company’s segments include Aerospace Systems, Mission Systems and Technology Services. The Company participates in a range of defense and government programs in the United States and abroad. The Company also conducts business with foreign, state and local governments, as well as commercial customers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NOC – March 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 $47,326,350,403 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.17 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 138.28% Pass
6. Moderate PEmg Ratio PEmg < 20 17.02 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.88 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 1.17 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.87 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 $16.38
MG Growth Estimate 11.49%
MG Value $515.91
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $237.57
MG Value based on 0% Growth $139.26
Market Implied Growth Rate 4.26%
Current Price $278.82
% of Intrinsic Value 54.04%

Northrop Grumman Corporation 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, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 $9.28 in 2015 to an estimated $16.38 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.26% 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 Northrop Grumman Corporation revealed the company was trading above its Graham Number of $139.21. The company pays a dividend of $4.7 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 17.02, which was below the industry average of 51.79, 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 $-114.5.

Northrop Grumman Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$114.50
Graham Number $139.21
PEmg 17.02
Current Ratio 1.17
PB Ratio 5.88
Current Dividend $4.70
Dividend Yield 1.69%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $9,680,000,000
Total Current Liabilities $8,274,000,000
Long-Term Debt $13,883,000,000
Total Assets $37,653,000,000
Intangible Assets $20,044,000,000
Total Liabilities $29,466,000,000
Shares Outstanding (Diluted Average) 172,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.95
Dec2018 $18.49
Dec2017 $16.34
Dec2016 $11.32
Dec2015 $10.39
Dec2014 $9.75
Dec2013 $8.35
Dec2012 $7.81
Dec2011 $7.52
Dec2010 $6.82
Dec2009 $5.21
Dec2008 -$3.77
Dec2007 $5.12
Dec2006 $4.37
Dec2005 $3.85
Dec2004 $2.97
Dec2003 $2.09
Dec2002 $1.84
Dec2001 $2.37
Dec2000 $4.29
Dec1999 $3.35

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $16.38
Dec2018 $14.82
Dec2017 $12.40
Dec2016 $10.13
Dec2015 $9.28
Dec2014 $8.50
Dec2013 $7.63
Dec2012 $6.42
Dec2011 $5.21
Dec2010 $3.88
Dec2009 $2.59
Dec2008 $1.69
Dec2007 $4.18
Dec2006 $3.48
Dec2005 $2.90
Dec2004 $2.52
Dec2003 $2.46

Recommended Reading:

Other ModernGraham posts about the company

Northrop Grumman Corp Valuation – May 2018 $NOC
Northrop Grumman Corp Valuation – February 2017 $NOC
Northrop Grumman Corporation Valuation – November 2015 Update $NOC
30 Companies in the Spotlight This Week – 11/15/14
Northrop Grumman Corporation Annual Valuation – 2014 $NOC

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Axon Enterprises Inc Valuation – October 2018 $AAXN
Cubic Corp Valuation – September 2018 $CUB
KLX Inc Valuation – August 2018 $KLXI
Kaman Corp Valuation – August 2018 $KAMN

Disclaimer:

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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