ModernGraham Quarterly Valuation Of CA Technologies

Jan.31.14 | About: CA Inc. (CA)

CA Technologies (NASDAQ:CA) is one of a number of companies engaged in information technology, a sector that as a whole may continue to see growth as companies across the world seek to become ever more efficient with technology. However, Intelligent Investors must go beyond speculating about how a sector or even a specific company will perform. Rather, Intelligent Investors must analyze the fundamentals of each potential investment to determine whether the company presents low risk at a solid price. Through a ModernGraham analysis, one can maintain a systematic analysis across companies and even industries to easily compare one potential investment's risk level and opportunity for value against another potential investment. What follows is a specific look at how CA Technologies fares in the ModernGraham valuation model.

Defensive and Enterprising Investor Tests:

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

  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 - PASS

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:

MG Value $71.93
MG Opinion Undervalued
Value Based on 3% Growth $29.27
Value Based on 0% Growth $17.16
Market Implied Growth Rate 3.73%
Net Current Asset Value (NCAV) -$4.28
PEmg 15.95
Current Ratio 1.18
PB Ratio 2.51
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Balance Sheet - 12/31/2013

Current Assets $4,190,000,000
Current Liabilities $3,537,000,000
Total Debt $1,253,000,000
Total Assets $11,777,000,000
Intangible Assets $7,051,000,000
Total Liabilities $6,087,000,000
Outstanding Shares 443,170,000
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Earnings Per Share

2014 (estimate) $2.33
2013 $2.07
2012 $1.90
2011 $1.60
2010 $1.45
2009 $1.29
2008 $0.93
2007 $0.22
2006 $0.26
2005 $0.02
2004 -$0.06
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Earnings Per Share - ModernGraham

2014 (estimate) $2.02
2013 $1.80
2012 $1.58
2011 $1.32
2010 $1.06
2009 $0.76
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CA Technologies looks very good in the ModernGraham approach based on Benjamin Graham's methods for value investors. The company passes the requirements of the Defensive Investor, failing only the current ratio requirement, and as a result is suitable for both Defensive Investors and Enterprising Investors. All Intelligent Investors should feel comfortable proceeding with further research to determine if CA Technologies would be right for their individual portfolios, and that research may include reviewing other companies that pass the ModernGraham requirements with a particular emphasis on a comparison with ModernGraham's valuation of International Business Machines (NYSE:IBM) and ModernGraham's valuation of Oracle Corp. (NASDAQ:ORCL). From a valuation perspective, CA Technologies also looks good, having grown its EPSmg (normalized earnings) from $0.76 in 2009 to an estimated $2.02 for 2013. This is a solid level of growth that leads the ModernGraham valuation model to calculate an intrinsic value that surpasses the market's current price. Therefore, the company appears to be undervalued at the present time.

Disclaimer: The author did not hold a position in CA Technologies (CA) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.