Intrinsic value of Sierra Wireless Inc. - SW

Previous Close

$24.47

  Intrinsic Value

$14.99

stock screener

  Rating & Target

sell

-39%

Previous close

$24.47

 
Intrinsic value

$14.99

 
Up/down potential

-39%

 
Rating

sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of SW stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.34
  13.00
  12.20
  11.48
  10.83
  10.25
  9.72
  9.25
  8.83
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
Revenue, $m
  832
  940
  1,055
  1,176
  1,303
  1,437
  1,577
  1,723
  1,875
  2,033
  2,197
  2,369
  2,547
  2,731
  2,924
  3,123
  3,331
  3,547
  3,771
  4,005
  4,249
  4,503
  4,767
  5,043
  5,331
  5,631
  5,945
  6,273
  6,616
  6,975
  7,350
Variable operating expenses, $m
 
  922
  1,032
  1,149
  1,271
  1,399
  1,533
  1,673
  1,818
  1,970
  2,128
  2,272
  2,442
  2,619
  2,804
  2,995
  3,194
  3,401
  3,617
  3,841
  4,075
  4,318
  4,572
  4,836
  5,112
  5,401
  5,702
  6,016
  6,345
  6,689
  7,048
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  803
  922
  1,032
  1,149
  1,271
  1,399
  1,533
  1,673
  1,818
  1,970
  2,128
  2,272
  2,442
  2,619
  2,804
  2,995
  3,194
  3,401
  3,617
  3,841
  4,075
  4,318
  4,572
  4,836
  5,112
  5,401
  5,702
  6,016
  6,345
  6,689
  7,048
Operating income, $m
  29
  18
  22
  27
  33
  38
  44
  50
  56
  63
  69
  97
  104
  112
  120
  128
  137
  145
  155
  164
  174
  185
  195
  207
  219
  231
  244
  257
  271
  286
  301
EBITDA, $m
  64
  54
  60
  67
  75
  82
  90
  99
  107
  116
  126
  135
  146
  156
  167
  179
  190
  203
  216
  229
  243
  257
  273
  288
  305
  322
  340
  359
  378
  399
  420
Interest expense (income), $m
  0
  0
  1
  3
  4
  6
  7
  9
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  33
  36
  39
  42
  45
  49
  52
  55
  59
  63
  67
  71
  76
Earnings before tax, $m
  27
  18
  21
  25
  28
  32
  36
  41
  45
  50
  54
  80
  85
  91
  96
  102
  108
  115
  121
  128
  135
  142
  150
  158
  167
  175
  185
  194
  204
  215
  226
Tax expense, $m
  6
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  22
  23
  25
  26
  28
  29
  31
  33
  35
  36
  38
  41
  43
  45
  47
  50
  52
  55
  58
  61
Net income, $m
  21
  13
  15
  18
  21
  24
  27
  30
  33
  36
  40
  59
  62
  66
  70
  75
  79
  84
  88
  93
  99
  104
  110
  116
  122
  128
  135
  142
  149
  157
  165

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  139
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  782
  727
  815
  909
  1,007
  1,110
  1,218
  1,331
  1,449
  1,571
  1,698
  1,830
  1,968
  2,111
  2,259
  2,414
  2,574
  2,741
  2,914
  3,095
  3,283
  3,480
  3,684
  3,897
  4,120
  4,352
  4,595
  4,848
  5,113
  5,390
  5,680
Adjusted assets (=assets-cash), $m
  643
  727
  815
  909
  1,007
  1,110
  1,218
  1,331
  1,449
  1,571
  1,698
  1,830
  1,968
  2,111
  2,259
  2,414
  2,574
  2,741
  2,914
  3,095
  3,283
  3,480
  3,684
  3,897
  4,120
  4,352
  4,595
  4,848
  5,113
  5,390
  5,680
Revenue / Adjusted assets
  1.294
  1.293
  1.294
  1.294
  1.294
  1.295
  1.295
  1.295
  1.294
  1.294
  1.294
  1.295
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
  1.294
Average production assets, $m
  131
  148
  166
  185
  205
  226
  248
  270
  294
  319
  345
  372
  400
  429
  459
  490
  523
  557
  592
  629
  667
  707
  748
  792
  837
  884
  933
  985
  1,039
  1,095
  1,154
Working capital, $m
  164
  28
  32
  35
  39
  43
  47
  52
  56
  61
  66
  71
  76
  82
  88
  94
  100
  106
  113
  120
  127
  135
  143
  151
  160
  169
  178
  188
  198
  209
  220
Total debt, $m
  0
  38
  79
  121
  166
  213
  263
  314
  368
  423
  481
  542
  604
  670
  737
  808
  881
  957
  1,036
  1,118
  1,204
  1,294
  1,387
  1,484
  1,586
  1,691
  1,802
  1,918
  2,039
  2,165
  2,297
Total liabilities, $m
  293
  331
  372
  414
  459
  506
  556
  607
  661
  716
  774
  835
  897
  963
  1,030
  1,101
  1,174
  1,250
  1,329
  1,411
  1,497
  1,587
  1,680
  1,777
  1,879
  1,984
  2,095
  2,211
  2,332
  2,458
  2,590
Total equity, $m
  489
  395
  443
  494
  548
  604
  663
  724
  788
  855
  924
  996
  1,071
  1,148
  1,229
  1,313
  1,400
  1,491
  1,585
  1,684
  1,786
  1,893
  2,004
  2,120
  2,241
  2,367
  2,499
  2,637
  2,781
  2,932
  3,090
Total liabilities and equity, $m
  782
  726
  815
  908
  1,007
  1,110
  1,219
  1,331
  1,449
  1,571
  1,698
  1,831
  1,968
  2,111
  2,259
  2,414
  2,574
  2,741
  2,914
  3,095
  3,283
  3,480
  3,684
  3,897
  4,120
  4,351
  4,594
  4,848
  5,113
  5,390
  5,680
Debt-to-equity ratio
  0.000
  0.100
  0.180
  0.250
  0.300
  0.350
  0.400
  0.430
  0.470
  0.500
  0.520
  0.540
  0.560
  0.580
  0.600
  0.620
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.710
  0.710
  0.720
  0.730
  0.730
  0.740
  0.740
Adjusted equity ratio
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  21
  13
  15
  18
  21
  24
  27
  30
  33
  36
  40
  59
  62
  66
  70
  75
  79
  84
  88
  93
  99
  104
  110
  116
  122
  128
  135
  142
  149
  157
  165
Depreciation, amort., depletion, $m
  35
  36
  38
  40
  42
  44
  46
  49
  51
  54
  56
  38
  41
  44
  47
  51
  54
  57
  61
  65
  69
  73
  77
  82
  86
  91
  96
  102
  107
  113
  119
Funds from operations, $m
  84
  49
  53
  58
  63
  68
  73
  78
  84
  90
  96
  97
  104
  111
  118
  125
  133
  141
  149
  158
  167
  177
  187
  197
  208
  219
  231
  243
  256
  270
  284
Change in working capital, $m
  20
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  64
  46
  50
  54
  59
  64
  69
  74
  79
  85
  91
  92
  98
  105
  112
  119
  127
  135
  143
  151
  160
  169
  179
  189
  199
  210
  222
  233
  246
  259
  272
Maintenance CAPEX, $m
  0
  -13
  -15
  -17
  -19
  -21
  -23
  -26
  -28
  -30
  -33
  -36
  -38
  -41
  -44
  -47
  -51
  -54
  -57
  -61
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -102
  -107
  -113
New CAPEX, $m
  -24
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
Cash from investing activities, $m
  -36
  -30
  -33
  -36
  -39
  -42
  -45
  -49
  -52
  -55
  -59
  -63
  -66
  -70
  -74
  -78
  -84
  -88
  -92
  -98
  -103
  -109
  -115
  -120
  -127
  -133
  -140
  -147
  -156
  -163
  -172
Free cash flow, $m
  28
  15
  17
  18
  20
  22
  23
  26
  28
  30
  32
  29
  32
  35
  38
  41
  44
  47
  50
  53
  57
  61
  64
  68
  72
  77
  81
  86
  90
  95
  101
Issuance/(repayment) of debt, $m
  -1
  38
  40
  43
  45
  47
  49
  51
  54
  56
  58
  60
  63
  65
  68
  70
  73
  76
  79
  82
  86
  89
  93
  97
  101
  106
  111
  116
  121
  126
  132
Issuance/(repurchase) of shares, $m
  -17
  32
  33
  33
  33
  33
  32
  32
  31
  30
  29
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -18
  70
  73
  76
  78
  80
  81
  83
  85
  86
  87
  73
  75
  76
  78
  79
  81
  83
  85
  87
  90
  92
  95
  97
  101
  106
  111
  116
  121
  126
  132
Total cash flow (excl. dividends), $m
  12
  86
  90
  94
  97
  101
  105
  109
  112
  116
  120
  103
  107
  111
  116
  120
  125
  130
  135
  141
  147
  153
  159
  166
  174
  183
  192
  201
  211
  222
  233
Retained Cash Flow (-), $m
  -5
  -45
  -48
  -51
  -54
  -56
  -59
  -61
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -107
  -111
  -116
  -121
  -126
  -132
  -138
  -144
  -151
  -158
Prev. year cash balance distribution, $m
 
  139
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  180
  42
  43
  44
  45
  46
  47
  48
  50
  51
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  53
  56
  60
  63
  67
  71
  75
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  172
  38
  37
  36
  35
  34
  32
  30
  28
  27
  15
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  94.6
  89.9
  86.0
  82.6
  79.6
  77.1
  74.8
  72.9
  71.2
  69.7
  69.1
  68.6
  68.1
  67.7
  67.4
  67.1
  66.9
  66.8
  66.6
  66.5
  66.5
  66.4
  66.4
  66.4
  66.4
  66.4
  66.4
  66.4
  66.4
  66.4

Sierra Wireless, Inc. is engaged in building the Internet of Things (IoT) with wireless solutions for organizations. The Company's OEM Solution segment offers cellular embedded wireless modules for IoT connectivity, including an embedded application framework to support customer applications. The Company's Enterprise Solution segment offers intelligent routers and gateways, including management tools and applications that enable cellular connectivity. The Company's Cloud and Connectivity Services segment offers a cloud based platform for deploying and managing IoT applications, Smart SIM supported by mobile core networks, and managed wireless broadband services to enable customer IoT deployments. The Company offers a portfolio of second generation, third generation, and fourth generation cellular embedded wireless modules and gateways, integrated with its secure cloud and connectivity services. The Company offers its products to original equipment manufacturers (OEMs) and enterprises.

FINANCIAL RATIOS  of  Sierra Wireless Inc. (SW)

Valuation Ratios
P/E Ratio 36.7
Price to Sales 0.9
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 12
Price to Free Cash Flow 19.3
Growth Rates
Sales Growth Rate 1.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. -0.4%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. -0.4%
Return On Equity 4.3%
Return On Equity - 3 Yr. Avg. -0.4%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 35.3%
Gross Margin - 3 Yr. Avg. 33.3%
EBITDA Margin 7.5%
EBITDA Margin - 3 Yr. Avg. 3.9%
Operating Margin 3.5%
Oper. Margin - 3 Yr. Avg. 1.3%
Pre-Tax Margin 3.2%
Pre-Tax Margin - 3 Yr. Avg. -0.1%
Net Profit Margin 2.5%
Net Profit Margin - 3 Yr. Avg. -0.4%
Effective Tax Rate 22.2%
Eff/ Tax Rate - 3 Yr. Avg. -24.5%
Payout Ratio 0%

SW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SW stock intrinsic value calculation we used $832 million for the last fiscal year's total revenue generated by Sierra Wireless Inc.. The default revenue input number comes from 2016 income statement of Sierra Wireless Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SW stock valuation model: a) initial revenue growth rate of 13% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for SW is calculated based on our internal credit rating of Sierra Wireless Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Sierra Wireless Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SW stock the variable cost ratio is equal to 98.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SW stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Sierra Wireless Inc..

Corporate tax rate of 27% is the nominal tax rate for Sierra Wireless Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SW stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SW are equal to 15.7%.

Life of production assets of 9.7 years is the average useful life of capital assets used in Sierra Wireless Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SW is equal to 3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $489 million for Sierra Wireless Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 32.142 million for Sierra Wireless Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Sierra Wireless Inc. at the current share price and the inputted number of shares is $0.8 billion.

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Financial statements of SW
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