Teledyne: Shares Are Attractive Now That Growth Is Returning

Core Viewpoint - Teledyne Technologies Inc is experiencing improved growth prospects and is now considered an attractive investment opportunity after a period of stagnant share prices [1][11]. Financial Performance - Teledyne reported second-quarter revenue of $1.37 billion, a decrease of 3.5% year-on-year, with adjusted earnings per share at $3.77, down 2.6% year-on-year [4]. - The company expects adjusted EPS for the full year 2024 to be between $19.25 and $19.45, reflecting a growth of approximately 5% from the previous year [4]. - Free cash flow reached a record high of $301 million in the last quarter, compared to $163 million in 2023 [4]. Market Position and Growth Drivers - Teledyne's revenue is significantly driven by its Digital Imaging segment, which accounts for 54% of total revenues, with over 22% of revenue contracted by the US government [4]. - The company has a strong order backlog, enabling stable annual revenue growth [4]. - Teledyne's EBITDA margin has increased to nearly 24%, up from 8% in 2002, indicating strong profitability improvements [4]. Research and Development - R&D spending has fluctuated, peaking at 8% of revenues in 2016 and stabilizing around 6% recently, with a noted decline below 6% in the first half of 2024 [6]. - The reduction in R&D spending raises concerns about the company's future innovation capabilities [6]. Valuation and Investment Appeal - Teledyne's 10-year average EV/EBITDA ratio is approximately 17x, aligning with current valuations, while the price/earnings ratio indicates a 17% undervaluation based on historical data [7][8]. - The company is now positioned at an inflection point where growth and valuation are attractively aligned, making it a suitable time for investment [11]. Competitive Landscape - Teledyne operates in a diverse range of markets, making it challenging to find direct competitors, although Hexagon AB is mentioned as a comparable company [7][10].