With CA Inc. (CA) showing some life and rallying more than 12% in January, I decided to take a closer look at the company. Please use my analysis as a starting point for your own due diligence.
Valuation: CA’s trailing valuation metrics suggest that the stock is undervalued as both of them are trading below their respective five-year averages. CA’s current P/B ratio is 2.0 and it has averaged 2.6 over the past five years with a high of 4.1 and low of 1.7. CA’s current P/S ratio is 2.5 and it has averaged 2.7 over the past five years with a high of 3.5 and low of 2.1.
Price Target: The consensus price target for the analysts who follow CA is $25. That is upside of 13% and suggests that the stock is fairly at these levels and has little upside from here.
Forward Valuation: CA is currently trading at about $22.50 a share and analysts expect the company to report earnings of $2.33 next fiscal year for a forward P/E of 10. Revenues are expected to rise 5%. Publicly traded comparisons include other large tech companies such as Hewlett-Packard (HPQ), IBM (IBM), and Oracle (ORCL). Hewlett-Packard is trading at a forward P/E of 7 with revenues expected to decline 3%. IBM is trading at a forward P/E of 12 with revenues expected to jump 3%. Oracle is trading at a forward P/E of 11 with revenues expected to jump 7%. The average forward P/E of the three large cap tech companies is 10 which suggests that CA is fairly valued at these prices.
Earnings Estimates: CA beat earnings estimates three out of the past four quarters. The earnings have come in between 2-4 cents from consensus estimates which equates to about a 4-8% difference. This suggests that analysts have a pretty good idea on forecasting CA’s results and upside earnings surprises will be limited.
Dividend: CA has paid a dividend since 1990. CA’s current quarterly dividend is 5 cents a share for an annual dividend of 20 cents a share. That equates to a dividend yield of 0.9%. The dividend last increased in 2011 when the company raised the quarterly dividend by 25% to 5 cents a share from 4 cents a share.
Price Action: The stock had a rough first half of last year, falling from over $25 a share to just above $18.50 a share in mid-August. The stock then stabilized in the $18.50 area and rallied to nearly $22.50 a share before running into some resistance. CA then fell again but was able to recover and is now trading in the same $22.50 area. The stock is above its 50 day moving average, which sits at $20.84, and its 200 day moving average, which sits at $21.61. The $22.50 level should continue to be a solid resistance level followed by $23.50. On the downside, the 200 day moving average should be a solid support level since it has been a key level for the stock over the past year followed by $21 a share.
About the author:
Dividend KingI am primarily an investor interested in creating passive income streams through dividends. I focus on finding and analyzing dividend paying stocks, MLPs and REITs that are a good fit for income investors.
I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.