Undervalued InterDigital Inc FCF/EV Yield 16% – All Investable Stock Screener

One of the most undervalued stocks in our U.S. All Investable stock screener is InterDigital Inc (NASDAQ:IDCC).

InterDigital, Inc. (InterDigital) designs and develops technologies for wireless communications. The company is focused on three technology areas: cellular wireless technology, Internet of things (IoT) technology, and, through its Hillcrest Laboratories, Inc. (Hillcrest Labs) subsidiary, sensor and sensor fusion technology.

A quick look at the company’s share price history (below) shows that the company has had a great run over the past twelve month, up 49.85%, but InterDigital still remains undervalued.

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(Source: Google Finance)

To get an idea of why the company remains undervalued lets start with its latest balance sheet dated March 2017.

InterDigital currently has cash and cash equivalents of $886 million, which is made up of $139 million in cash and $747 million in short term investments. The company also has $275 million in long term debt. If we subtract the total debt $275 million from its cash and cash equivalents $886 million, that means InterDigital has a net cash position of $611 million.

Now, if we have a look at the company’s current market value, it’s currently trading at $2.82 Billion. When we subtract the net cash of $611 million, that means InterDigital has an Enterprise Value of $2.21 Billion. A quick look at the company’s trailing twelve month income statement shows that InterDigital generated $423 million in operating earnings. Therefore the company is currently trading on an Acquirer’s Multiple of 5.22 times operating earnings (EV $2.21 Billion divided by operating earnings $423 million).

The Acquirer’s Multiple is defined as:

Enterprise Value/Operating Earnings*

*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.

Moreover, when we take a look at the company’s latest cashflow statement, InterDigital generated $348 million in free cashflow over the trailing twelve months which means the company has a FCF/EV yield of 16%. In addition to its strong balance sheet, other financial strength indicators are also solid with a Piotroski F-Score of 7, a Altman Z-Score of 4.07, and a Beneish M-Score of -1.11. The company has also maintained solid gross margins and operating margins of 69% and 36% respectively. Finally, the company has a buyback yield of 1% and a dividend yield of 1%, giving it a total shareholder yield of 2%.

To summarize, InterDigital has a strong balance sheet and solid free cashflows. It’s currently trading at 5.22 times operating earnings and a FCF/EV yield of 16%, plus it has a 2% total shareholder yield. With solid gross and operating margins InterDigital remains undervalued in spite of its 49.85% share price gain over the past twelve months. For more undervalued stocks like InterDigital, subscriber to our U.S. and Canadian deep value stock screener.

 

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”