Intrinsic value of Celestica Inc. Subordinate Voting Shares - CLS

Previous Close

$13.55

  Intrinsic Value

$20.33

stock screener

  Rating & Target

str. buy

+50%

Previous close

$13.55

 
Intrinsic value

$20.33

 
Up/down potential

+50%

 
Rating

str. buy

We calculate the intrinsic value of CLS 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

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.9

 

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, %
  6.69
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  8,129
  8,292
  8,482
  8,700
  8,945
  9,216
  9,514
  9,838
  10,188
  10,566
  10,972
  11,406
  11,869
  12,361
  12,885
  13,441
  14,030
  14,654
  15,313
  16,010
  16,745
  17,521
  18,340
  19,203
  20,112
  21,069
  22,078
  23,139
  24,255
  25,430
  26,665
Variable operating expenses, $m
 
  7,379
  7,549
  7,743
  7,961
  8,202
  8,467
  8,755
  9,067
  9,403
  9,764
  10,147
  10,559
  10,997
  11,463
  11,957
  12,481
  13,036
  13,623
  14,243
  14,897
  15,587
  16,316
  17,083
  17,892
  18,744
  19,641
  20,585
  21,578
  22,623
  23,722
Fixed operating expenses, $m
 
  715
  733
  752
  770
  790
  809
  830
  850
  872
  893
  916
  939
  962
  986
  1,011
  1,036
  1,062
  1,089
  1,116
  1,144
  1,172
  1,202
  1,232
  1,262
  1,294
  1,326
  1,360
  1,394
  1,428
  1,464
Total operating expenses, $m
  7,917
  8,094
  8,282
  8,495
  8,731
  8,992
  9,276
  9,585
  9,917
  10,275
  10,657
  11,063
  11,498
  11,959
  12,449
  12,968
  13,517
  14,098
  14,712
  15,359
  16,041
  16,759
  17,518
  18,315
  19,154
  20,038
  20,967
  21,945
  22,972
  24,051
  25,186
Operating income, $m
  212
  197
  200
  206
  214
  224
  238
  253
  271
  292
  314
  343
  371
  402
  436
  473
  512
  555
  602
  651
  705
  762
  823
  888
  957
  1,032
  1,111
  1,195
  1,284
  1,379
  1,479
EBITDA, $m
  314
  296
  301
  310
  321
  334
  351
  370
  392
  417
  445
  475
  509
  546
  586
  629
  675
  725
  779
  837
  899
  965
  1,035
  1,111
  1,191
  1,276
  1,367
  1,463
  1,565
  1,674
  1,789
Interest expense (income), $m
  13
  9
  11
  13
  15
  17
  20
  22
  25
  29
  32
  36
  40
  44
  49
  54
  59
  65
  71
  77
  83
  90
  98
  105
  113
  122
  131
  140
  150
  161
  172
Earnings before tax, $m
  218
  187
  189
  193
  199
  207
  218
  231
  246
  263
  282
  307
  331
  358
  387
  419
  453
  491
  531
  574
  621
  671
  725
  783
  844
  910
  980
  1,054
  1,133
  1,218
  1,307
Tax expense, $m
  34
  51
  51
  52
  54
  56
  59
  62
  66
  71
  76
  83
  89
  97
  104
  113
  122
  132
  143
  155
  168
  181
  196
  211
  228
  246
  265
  285
  306
  329
  353
Net income, $m
  184
  137
  138
  141
  145
  151
  159
  168
  179
  192
  206
  224
  242
  261
  282
  306
  331
  358
  388
  419
  454
  490
  529
  571
  616
  664
  715
  770
  827
  889
  954

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  753
  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
  3,813
  3,121
  3,192
  3,274
  3,367
  3,469
  3,581
  3,703
  3,835
  3,977
  4,129
  4,293
  4,467
  4,652
  4,850
  5,059
  5,280
  5,515
  5,763
  6,025
  6,302
  6,594
  6,903
  7,227
  7,569
  7,930
  8,309
  8,709
  9,129
  9,571
  10,036
Adjusted assets (=assets-cash), $m
  3,060
  3,121
  3,192
  3,274
  3,367
  3,469
  3,581
  3,703
  3,835
  3,977
  4,129
  4,293
  4,467
  4,652
  4,850
  5,059
  5,280
  5,515
  5,763
  6,025
  6,302
  6,594
  6,903
  7,227
  7,569
  7,930
  8,309
  8,709
  9,129
  9,571
  10,036
Revenue / Adjusted assets
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
  2.657
Average production assets, $m
  470
  481
  492
  505
  519
  535
  552
  571
  591
  613
  636
  662
  688
  717
  747
  780
  814
  850
  888
  929
  971
  1,016
  1,064
  1,114
  1,166
  1,222
  1,280
  1,342
  1,407
  1,475
  1,547
Working capital, $m
  1,487
  829
  848
  870
  895
  922
  951
  984
  1,019
  1,057
  1,097
  1,141
  1,187
  1,236
  1,289
  1,344
  1,403
  1,465
  1,531
  1,601
  1,675
  1,752
  1,834
  1,920
  2,011
  2,107
  2,208
  2,314
  2,426
  2,543
  2,667
Total debt, $m
  331
  295
  344
  399
  461
  530
  605
  688
  777
  872
  975
  1,085
  1,203
  1,328
  1,461
  1,602
  1,751
  1,909
  2,076
  2,253
  2,440
  2,637
  2,844
  3,063
  3,294
  3,537
  3,792
  4,062
  4,345
  4,643
  4,956
Total liabilities, $m
  2,139
  2,103
  2,152
  2,207
  2,269
  2,338
  2,413
  2,496
  2,585
  2,680
  2,783
  2,893
  3,011
  3,136
  3,269
  3,410
  3,559
  3,717
  3,884
  4,061
  4,248
  4,445
  4,652
  4,871
  5,102
  5,345
  5,600
  5,870
  6,153
  6,451
  6,764
Total equity, $m
  1,674
  1,017
  1,041
  1,067
  1,098
  1,131
  1,167
  1,207
  1,250
  1,296
  1,346
  1,399
  1,456
  1,517
  1,581
  1,649
  1,721
  1,798
  1,879
  1,964
  2,055
  2,150
  2,250
  2,356
  2,468
  2,585
  2,709
  2,839
  2,976
  3,120
  3,272
Total liabilities and equity, $m
  3,813
  3,120
  3,193
  3,274
  3,367
  3,469
  3,580
  3,703
  3,835
  3,976
  4,129
  4,292
  4,467
  4,653
  4,850
  5,059
  5,280
  5,515
  5,763
  6,025
  6,303
  6,595
  6,902
  7,227
  7,570
  7,930
  8,309
  8,709
  9,129
  9,571
  10,036
Debt-to-equity ratio
  0.198
  0.290
  0.330
  0.370
  0.420
  0.470
  0.520
  0.570
  0.620
  0.670
  0.720
  0.780
  0.830
  0.880
  0.920
  0.970
  1.020
  1.060
  1.110
  1.150
  1.190
  1.230
  1.260
  1.300
  1.330
  1.370
  1.400
  1.430
  1.460
  1.490
  1.510
Adjusted equity ratio
  0.301
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  184
  137
  138
  141
  145
  151
  159
  168
  179
  192
  206
  224
  242
  261
  282
  306
  331
  358
  388
  419
  454
  490
  529
  571
  616
  664
  715
  770
  827
  889
  954
Depreciation, amort., depletion, $m
  102
  99
  101
  104
  107
  110
  113
  117
  121
  126
  130
  132
  138
  143
  149
  156
  163
  170
  178
  186
  194
  203
  213
  223
  233
  244
  256
  268
  281
  295
  309
Funds from operations, $m
  83
  236
  239
  245
  252
  261
  273
  286
  301
  318
  336
  356
  379
  405
  432
  462
  494
  528
  565
  605
  648
  693
  742
  794
  850
  909
  971
  1,038
  1,109
  1,184
  1,264
Change in working capital, $m
  -151
  16
  19
  22
  24
  27
  30
  32
  35
  38
  41
  43
  46
  49
  52
  56
  59
  62
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  117
  124
Cash from operations, $m
  234
  220
  220
  223
  228
  234
  243
  253
  266
  280
  296
  313
  333
  355
  380
  406
  435
  466
  499
  535
  574
  616
  660
  708
  759
  813
  870
  932
  997
  1,067
  1,140
Maintenance CAPEX, $m
  0
  -94
  -96
  -98
  -101
  -104
  -107
  -110
  -114
  -118
  -123
  -127
  -132
  -138
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -194
  -203
  -213
  -223
  -233
  -244
  -256
  -268
  -281
  -295
New CAPEX, $m
  -87
  -11
  -11
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -53
  -56
  -58
  -62
  -65
  -68
  -72
Cash from investing activities, $m
  -86
  -105
  -107
  -111
  -115
  -120
  -124
  -129
  -134
  -140
  -147
  -152
  -159
  -167
  -173
  -181
  -190
  -199
  -208
  -218
  -229
  -239
  -250
  -263
  -276
  -289
  -302
  -318
  -333
  -349
  -367
Free cash flow, $m
  148
  114
  113
  112
  113
  115
  119
  124
  131
  140
  150
  161
  174
  189
  206
  224
  245
  267
  291
  317
  346
  377
  410
  445
  483
  524
  568
  614
  664
  717
  774
Issuance/(repayment) of debt, $m
  -53
  40
  48
  55
  62
  69
  75
  82
  89
  96
  103
  110
  117
  125
  133
  141
  149
  158
  167
  177
  187
  197
  208
  219
  231
  243
  256
  269
  283
  298
  313
Issuance/(repurchase) of shares, $m
  -65
  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 from financing (excl. dividends), $m  
  -132
  40
  48
  55
  62
  69
  75
  82
  89
  96
  103
  110
  117
  125
  133
  141
  149
  158
  167
  177
  187
  197
  208
  219
  231
  243
  256
  269
  283
  298
  313
Total cash flow (excl. dividends), $m
  16
  155
  161
  167
  175
  184
  194
  206
  220
  235
  253
  271
  291
  314
  339
  365
  394
  425
  458
  494
  532
  573
  617
  664
  714
  767
  823
  883
  947
  1,015
  1,087
Retained Cash Flow (-), $m
  -200
  -20
  -23
  -27
  -30
  -33
  -37
  -40
  -43
  -46
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -77
  -81
  -85
  -90
  -95
  -100
  -106
  -112
  -117
  -124
  -130
  -137
  -144
  -152
Prev. year cash balance distribution, $m
 
  677
  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
 
  811
  138
  141
  145
  150
  158
  167
  177
  189
  203
  217
  235
  254
  274
  297
  322
  349
  377
  409
  442
  478
  517
  558
  602
  649
  700
  753
  810
  871
  935
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
 
  778
  126
  122
  119
  117
  114
  112
  111
  109
  106
  103
  100
  96
  92
  87
  82
  76
  70
  63
  56
  49
  43
  37
  31
  25
  20
  16
  13
  10
  7
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Celestica Inc. is a provider of supply chain solutions. The Company operates in electronics manufacturing services business segment. The Company offers a range of services to its customers, including design and development, engineering services, supply chain management, new product introduction, component sourcing, electronics manufacturing, assembly and test, complex mechanical assembly, systems integration, precision machining, order fulfillment, logistics and after-market repair and return services. Its products and services serve a range of applications, including servers; storage systems; optical equipment; aerospace and defense electronics; healthcare products and applications; semiconductor equipment, and a range of industrial and alternative energy products, including solar panels and inverters. It designs, manufactures and tests solar panels for the residential, commercial and utility scale markets. It uses technologies in the assembly and testing of its products.

FINANCIAL RATIOS  of  Celestica Inc. Subordinate Voting Shares (CLS)

Valuation Ratios
P/E Ratio 10.4
Price to Sales 0.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 8.2
Price to Free Cash Flow 13
Growth Rates
Sales Growth Rate 6.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.4%
Cap. Spend. - 3 Yr. Gr. Rate 4.1%
Financial Strength
Quick Ratio 10
Current Ratio 0.1
LT Debt to Equity 15.2%
Total Debt to Equity 19.8%
Interest Coverage 18
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 9.5%
Ret/ On T. Cap. - 3 Yr. Avg. 7.4%
Return On Equity 11.7%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 2.2
Profitability Ratios
Gross Margin 7.1%
Gross Margin - 3 Yr. Avg. 7.1%
EBITDA Margin 4.1%
EBITDA Margin - 3 Yr. Avg. 3.6%
Operating Margin 2.6%
Oper. Margin - 3 Yr. Avg. 2.3%
Pre-Tax Margin 2.7%
Pre-Tax Margin - 3 Yr. Avg. 2.3%
Net Profit Margin 2.3%
Net Profit Margin - 3 Yr. Avg. 1.8%
Effective Tax Rate 15.6%
Eff/ Tax Rate - 3 Yr. Avg. 22.5%
Payout Ratio 0%

CLS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CLS stock intrinsic value calculation we used $8129 million for the last fiscal year's total revenue generated by Celestica Inc. Subordinate Voting Shares. The default revenue input number comes from 2016 income statement of Celestica Inc. Subordinate Voting Shares. 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 CLS stock valuation model: a) initial revenue growth rate of 2% 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 CLS is calculated based on our internal credit rating of Celestica Inc. Subordinate Voting Shares, 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 Celestica Inc. Subordinate Voting Shares.
    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 CLS stock the variable cost ratio is equal to 89%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $698 million in the base year in the intrinsic value calculation for CLS 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 3.7% for Celestica Inc. Subordinate Voting Shares.

Corporate tax rate of 27% is the nominal tax rate for Celestica Inc. Subordinate Voting Shares. 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 CLS 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 CLS are equal to 5.8%.

Life of production assets of 4.9 years is the average useful life of capital assets used in Celestica Inc. Subordinate Voting Shares 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 CLS is equal to 10%. 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 - $1674 million for Celestica Inc. Subordinate Voting Shares - 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 142.969 million for Celestica Inc. Subordinate Voting Shares 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 Celestica Inc. Subordinate Voting Shares at the current share price and the inputted number of shares is $1.9 billion.

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Financial statements of CLS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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