Intrinsic value of Celestica Inc. Subordinate Voting Shares - CLS

Previous Close

$15.38

  Intrinsic Value

$30.43

stock screener

  Rating & Target

str. buy

+98%

  Value-price divergence*

0%

Previous close

$15.38

 
Intrinsic value

$30.43

 
Up/down potential

+98%

 
Rating

str. buy

 
Value-price divergence*

0%

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

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 2.2

 

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
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  5.00
Revenue, $m
  8,129
  8,527
  8,946
  9,386
  9,849
  10,334
  10,845
  11,382
  11,945
  12,537
  13,159
  13,813
  14,499
  15,220
  15,977
  16,772
  17,607
  18,485
  19,406
  20,373
  21,389
  22,456
  23,576
  24,753
  25,988
  27,285
  28,648
  30,078
  31,580
  33,158
  34,814
Variable operating expenses, $m
 
  7,589
  7,962
  8,353
  8,765
  9,197
  9,651
  10,128
  10,630
  11,157
  11,710
  12,288
  12,899
  13,540
  14,213
  14,921
  15,664
  16,444
  17,264
  18,124
  19,028
  19,977
  20,974
  22,020
  23,119
  24,274
  25,485
  26,758
  28,094
  29,498
  30,971
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
  8,304
  8,695
  9,105
  9,535
  9,987
  10,460
  10,958
  11,480
  12,029
  12,603
  13,204
  13,838
  14,502
  15,199
  15,932
  16,700
  17,506
  18,353
  19,240
  20,172
  21,149
  22,176
  23,252
  24,381
  25,568
  26,811
  28,118
  29,488
  30,926
  32,435
Operating income, $m
  212
  223
  251
  281
  314
  348
  385
  424
  465
  509
  556
  609
  662
  718
  777
  840
  907
  978
  1,053
  1,133
  1,217
  1,306
  1,401
  1,501
  1,606
  1,718
  1,836
  1,961
  2,092
  2,232
  2,379
EBITDA, $m
  314
  325
  358
  393
  431
  471
  513
  559
  607
  658
  712
  769
  830
  894
  963
  1,035
  1,112
  1,193
  1,278
  1,369
  1,465
  1,567
  1,674
  1,788
  1,908
  2,034
  2,168
  2,309
  2,459
  2,616
  2,783
Interest expense (income), $m
  13
  9
  13
  17
  21
  26
  30
  35
  40
  45
  51
  57
  63
  69
  76
  83
  91
  98
  107
  115
  124
  134
  144
  154
  165
  177
  189
  202
  215
  230
  244
Earnings before tax, $m
  218
  213
  238
  264
  292
  322
  354
  389
  425
  464
  505
  552
  599
  649
  701
  757
  817
  880
  947
  1,018
  1,093
  1,172
  1,257
  1,346
  1,441
  1,541
  1,647
  1,759
  1,877
  2,002
  2,134
Tax expense, $m
  34
  58
  64
  71
  79
  87
  96
  105
  115
  125
  136
  149
  162
  175
  189
  204
  221
  238
  256
  275
  295
  317
  339
  363
  389
  416
  445
  475
  507
  541
  576
Net income, $m
  184
  156
  174
  193
  213
  235
  259
  284
  310
  339
  369
  403
  437
  473
  512
  553
  596
  642
  691
  743
  798
  856
  917
  983
  1,052
  1,125
  1,202
  1,284
  1,370
  1,462
  1,558

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
  3,209
  3,367
  3,533
  3,707
  3,890
  4,082
  4,284
  4,496
  4,719
  4,953
  5,199
  5,457
  5,728
  6,013
  6,312
  6,627
  6,957
  7,304
  7,668
  8,050
  8,452
  8,873
  9,316
  9,781
  10,269
  10,782
  11,320
  11,886
  12,479
  13,103
Adjusted assets (=assets-cash), $m
  3,060
  3,209
  3,367
  3,533
  3,707
  3,890
  4,082
  4,284
  4,496
  4,719
  4,953
  5,199
  5,457
  5,728
  6,013
  6,312
  6,627
  6,957
  7,304
  7,668
  8,050
  8,452
  8,873
  9,316
  9,781
  10,269
  10,782
  11,320
  11,886
  12,479
  13,103
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
  495
  519
  544
  571
  599
  629
  660
  693
  727
  763
  801
  841
  883
  927
  973
  1,021
  1,072
  1,126
  1,182
  1,241
  1,302
  1,367
  1,436
  1,507
  1,583
  1,662
  1,745
  1,832
  1,923
  2,019
Working capital, $m
  1,487
  853
  895
  939
  985
  1,033
  1,085
  1,138
  1,195
  1,254
  1,316
  1,381
  1,450
  1,522
  1,598
  1,677
  1,761
  1,848
  1,941
  2,037
  2,139
  2,246
  2,358
  2,475
  2,599
  2,729
  2,865
  3,008
  3,158
  3,316
  3,481
Total debt, $m
  331
  355
  461
  573
  690
  814
  943
  1,079
  1,222
  1,372
  1,530
  1,696
  1,870
  2,053
  2,245
  2,447
  2,658
  2,881
  3,115
  3,360
  3,618
  3,888
  4,173
  4,471
  4,784
  5,113
  5,459
  5,822
  6,203
  6,603
  7,023
Total liabilities, $m
  2,139
  2,163
  2,269
  2,381
  2,498
  2,622
  2,751
  2,887
  3,030
  3,180
  3,338
  3,504
  3,678
  3,861
  4,053
  4,255
  4,466
  4,689
  4,923
  5,168
  5,426
  5,696
  5,981
  6,279
  6,592
  6,921
  7,267
  7,630
  8,011
  8,411
  8,831
Total equity, $m
  1,674
  1,046
  1,098
  1,152
  1,208
  1,268
  1,331
  1,396
  1,466
  1,538
  1,615
  1,695
  1,779
  1,867
  1,960
  2,058
  2,160
  2,268
  2,381
  2,500
  2,624
  2,755
  2,893
  3,037
  3,189
  3,348
  3,515
  3,690
  3,875
  4,068
  4,271
Total liabilities and equity, $m
  3,813
  3,209
  3,367
  3,533
  3,706
  3,890
  4,082
  4,283
  4,496
  4,718
  4,953
  5,199
  5,457
  5,728
  6,013
  6,313
  6,626
  6,957
  7,304
  7,668
  8,050
  8,451
  8,874
  9,316
  9,781
  10,269
  10,782
  11,320
  11,886
  12,479
  13,102
Debt-to-equity ratio
  0.198
  0.340
  0.420
  0.500
  0.570
  0.640
  0.710
  0.770
  0.830
  0.890
  0.950
  1.000
  1.050
  1.100
  1.150
  1.190
  1.230
  1.270
  1.310
  1.340
  1.380
  1.410
  1.440
  1.470
  1.500
  1.530
  1.550
  1.580
  1.600
  1.620
  1.640
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
  156
  174
  193
  213
  235
  259
  284
  310
  339
  369
  403
  437
  473
  512
  553
  596
  642
  691
  743
  798
  856
  917
  983
  1,052
  1,125
  1,202
  1,284
  1,370
  1,462
  1,558
Depreciation, amort., depletion, $m
  102
  102
  107
  112
  117
  123
  129
  135
  142
  149
  156
  160
  168
  177
  185
  195
  204
  214
  225
  236
  248
  260
  273
  287
  301
  317
  332
  349
  366
  385
  404
Funds from operations, $m
  83
  258
  281
  305
  331
  358
  388
  419
  452
  487
  525
  563
  605
  650
  697
  747
  801
  857
  916
  979
  1,046
  1,116
  1,191
  1,270
  1,353
  1,441
  1,534
  1,633
  1,736
  1,846
  1,962
Change in working capital, $m
  -151
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  92
  97
  102
  107
  112
  118
  124
  130
  136
  143
  150
  158
  166
Cash from operations, $m
  234
  218
  239
  261
  284
  310
  337
  365
  396
  428
  462
  498
  537
  578
  622
  668
  717
  769
  824
  883
  944
  1,010
  1,079
  1,152
  1,230
  1,312
  1,398
  1,490
  1,586
  1,688
  1,796
Maintenance CAPEX, $m
  0
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -132
  -139
  -145
  -153
  -160
  -168
  -177
  -185
  -195
  -204
  -214
  -225
  -236
  -248
  -260
  -273
  -287
  -301
  -317
  -332
  -349
  -366
  -385
New CAPEX, $m
  -87
  -25
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
  -96
Cash from investing activities, $m
  -86
  -119
  -123
  -130
  -136
  -142
  -150
  -157
  -165
  -173
  -181
  -191
  -200
  -210
  -221
  -231
  -243
  -255
  -267
  -281
  -295
  -310
  -325
  -341
  -359
  -376
  -396
  -415
  -436
  -457
  -481
Free cash flow, $m
  148
  99
  115
  132
  149
  167
  187
  208
  231
  255
  281
  307
  337
  368
  401
  436
  474
  514
  556
  601
  649
  700
  753
  810
  871
  935
  1,003
  1,074
  1,150
  1,231
  1,316
Issuance/(repayment) of debt, $m
  -53
  100
  106
  112
  117
  123
  130
  136
  143
  150
  158
  166
  174
  183
  192
  202
  212
  222
  234
  245
  258
  271
  284
  298
  313
  329
  346
  363
  381
  400
  420
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
  100
  106
  112
  117
  123
  130
  136
  143
  150
  158
  166
  174
  183
  192
  202
  212
  222
  234
  245
  258
  271
  284
  298
  313
  329
  346
  363
  381
  400
  420
Total cash flow (excl. dividends), $m
  16
  199
  222
  243
  266
  291
  317
  344
  374
  405
  439
  473
  511
  551
  593
  638
  686
  736
  790
  847
  907
  970
  1,038
  1,109
  1,184
  1,264
  1,348
  1,437
  1,531
  1,631
  1,736
Retained Cash Flow (-), $m
  -200
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -93
  -98
  -102
  -108
  -113
  -119
  -125
  -131
  -137
  -144
  -152
  -159
  -167
  -176
  -184
  -194
  -203
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
 
  827
  170
  189
  209
  231
  254
  279
  305
  333
  362
  393
  427
  462
  500
  541
  583
  629
  677
  728
  782
  839
  900
  965
  1,033
  1,105
  1,181
  1,262
  1,347
  1,437
  1,533
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
 
  793
  156
  165
  172
  179
  184
  188
  190
  191
  190
  187
  182
  176
  168
  159
  148
  137
  125
  112
  99
  87
  75
  63
  53
  43
  34
  27
  21
  16
  12
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 11.8
Price to Sales 0.3
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 9.3
Price to Free Cash Flow 14.7
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 4.9% 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 143.158 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 $2.2 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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