Is Teleflex (TFX) Significantly Undervalued? A Deep Dive into Its Intrinsic Value
Despite a daily loss of 4.76% and a 3-month loss of 11.38%, Teleflex (NYSE:TFX) boasts an Earnings Per Share (EPS) (EPS) of 7.79. The question, however, is whether the stock is significantly undervalued. This analysis aims to answer that question by providing a comprehensive valuation analysis of Teleflex. Let's delve into the details.
Introduction to Teleflex Inc (NYSE:TFX)
Teleflex is a Pennsylvania-based manufacturer of hospital supplies and medical devices, primarily in the vascular and surgical areas. The company's business operations are spread across seven segments, with the majority of its revenue coming from the U.S. Interestingly, the stock price of Teleflex is currently at $228.75, while its GF Value, an estimation of its fair value, stands at $340.21. This discrepancy paves the way for a deeper exploration of the company's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
For Teleflex (NYSE:TFX), the stock is estimated to be significantly undervalued according to the GuruFocus Value calculation. With a current price of $228.75 per share and a market cap of $10.70 billion, Teleflex stock is likely to offer a higher long-term return than its business growth due to its undervalued status.
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Financial Strength of Teleflex
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy its stock. A great starting point for understanding a company's financial strength is looking at its cash-to-debt ratio and interest coverage. Teleflex has a cash-to-debt ratio of 0.15, which is worse than 89.24% of companies in the Medical Devices & Instruments industry. However, the overall financial strength of Teleflex is ranked at 6 out of 10, indicating fair financial strength.
Profitability and Growth of Teleflex
Companies that have been consistently profitable over the long term offer less risk for investors. Teleflex has been profitable 10 out of the past 10 years, with an operating margin of 18.45%, ranking better than 80.58% of companies in the Medical Devices & Instruments industry. This high profitability is reflected in its profitability rank of 8 out of 10.
However, growth is an equally important factor in a company's valuation. Teleflex's growth rank is lower due to its 3-year average revenue growth rate being worse than 63.76% of companies in the industry. Moreover, its 3-year average EBITDA growth rate of 4.7% ranks worse than 56.77% of companies in the Medical Devices & Instruments industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to determine its profitability. For Teleflex, the ROIC is 7.11, and the WACC is 9.31, implying that the company is not creating value for shareholders as the ROIC is lower than the WACC.
Conclusion
In conclusion, Teleflex (NYSE:TFX) is estimated to be significantly undervalued. Despite its fair financial condition and strong profitability, its growth ranks lower than 56.77% of companies in the Medical Devices & Instruments industry. To learn more about Teleflex stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
