Intrinsic value of Cabot Microelectronics - CCMP

Previous Close

$79.92

  Intrinsic Value

$47.03

stock screener

  Rating & Target

sell

-41%

  Value-price divergence*

+31%

Previous close

$79.92

 
Intrinsic value

$47.03

 
Up/down potential

-41%

 
Rating

sell

 
Value-price divergence*

+31%

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

We calculate the intrinsic value of CCMP 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 2.0

 

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, %
  3.86
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  430
  447
  465
  484
  504
  526
  549
  573
  598
  625
  654
  684
  716
  750
  785
  822
  862
  903
  946
  992
  1,040
  1,091
  1,144
  1,200
  1,259
  1,321
  1,386
  1,454
  1,526
  1,601
  1,681
Variable operating expenses, $m
 
  366
  380
  395
  411
  428
  446
  466
  486
  508
  530
  544
  570
  596
  625
  654
  685
  718
  753
  789
  828
  868
  910
  955
  1,002
  1,051
  1,102
  1,157
  1,214
  1,274
  1,337
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
  356
  366
  380
  395
  411
  428
  446
  466
  486
  508
  530
  544
  570
  596
  625
  654
  685
  718
  753
  789
  828
  868
  910
  955
  1,002
  1,051
  1,102
  1,157
  1,214
  1,274
  1,337
Operating income, $m
  75
  81
  85
  89
  93
  97
  102
  107
  112
  118
  124
  140
  146
  153
  161
  168
  176
  185
  194
  203
  213
  223
  234
  245
  257
  270
  283
  297
  312
  327
  344
EBITDA, $m
  101
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  166
  173
  182
  190
  200
  209
  219
  230
  241
  253
  266
  279
  292
  307
  322
  338
  354
Interest expense (income), $m
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
Earnings before tax, $m
  70
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  131
  137
  143
  150
  157
  164
  172
  180
  188
  197
  207
  217
  227
  238
  250
  262
  275
  288
  303
  317
Tax expense, $m
  10
  21
  21
  22
  23
  25
  26
  27
  28
  30
  31
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  68
  71
  74
  78
  82
  86
Net income, $m
  60
  56
  58
  61
  63
  66
  69
  73
  76
  80
  84
  95
  100
  104
  109
  114
  120
  125
  131
  138
  144
  151
  158
  166
  174
  183
  191
  201
  211
  221
  232

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  287
  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
  727
  457
  476
  495
  516
  538
  561
  586
  612
  640
  669
  700
  733
  767
  804
  842
  882
  924
  969
  1,016
  1,065
  1,117
  1,171
  1,228
  1,289
  1,352
  1,418
  1,488
  1,562
  1,639
  1,720
Adjusted assets (=assets-cash), $m
  440
  457
  476
  495
  516
  538
  561
  586
  612
  640
  669
  700
  733
  767
  804
  842
  882
  924
  969
  1,016
  1,065
  1,117
  1,171
  1,228
  1,289
  1,352
  1,418
  1,488
  1,562
  1,639
  1,720
Revenue / Adjusted assets
  0.977
  0.978
  0.977
  0.978
  0.977
  0.978
  0.979
  0.978
  0.977
  0.977
  0.978
  0.977
  0.977
  0.978
  0.976
  0.976
  0.977
  0.977
  0.976
  0.976
  0.977
  0.977
  0.977
  0.977
  0.977
  0.977
  0.977
  0.977
  0.977
  0.977
  0.977
Average production assets, $m
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  63
  67
  70
  73
  77
  81
  85
  89
  93
  98
  102
  108
Working capital, $m
  371
  96
  99
  104
  108
  112
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  203
  212
  223
  233
  245
  257
  269
  283
  297
  311
  327
  343
  360
Total debt, $m
  155
  156
  165
  175
  185
  196
  208
  220
  233
  247
  262
  278
  294
  311
  329
  349
  369
  390
  412
  436
  461
  487
  514
  543
  573
  605
  638
  673
  710
  749
  789
Total liabilities, $m
  230
  230
  239
  249
  259
  270
  282
  294
  307
  321
  336
  352
  368
  385
  403
  423
  443
  464
  486
  510
  535
  561
  588
  617
  647
  679
  712
  747
  784
  823
  863
Total equity, $m
  498
  228
  237
  247
  257
  268
  280
  292
  305
  319
  333
  349
  365
  382
  400
  419
  439
  460
  482
  506
  530
  556
  583
  612
  642
  673
  706
  741
  778
  816
  857
Total liabilities and equity, $m
  728
  458
  476
  496
  516
  538
  562
  586
  612
  640
  669
  701
  733
  767
  803
  842
  882
  924
  968
  1,016
  1,065
  1,117
  1,171
  1,229
  1,289
  1,352
  1,418
  1,488
  1,562
  1,639
  1,720
Debt-to-equity ratio
  0.311
  0.680
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.770
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.830
  0.840
  0.850
  0.850
  0.860
  0.870
  0.870
  0.880
  0.890
  0.890
  0.900
  0.900
  0.910
  0.910
  0.920
  0.920
Adjusted equity ratio
  0.480
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  60
  56
  58
  61
  63
  66
  69
  73
  76
  80
  84
  95
  100
  104
  109
  114
  120
  125
  131
  138
  144
  151
  158
  166
  174
  183
  191
  201
  211
  221
  232
Depreciation, amort., depletion, $m
  26
  13
  13
  13
  13
  13
  14
  14
  14
  14
  14
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
Funds from operations, $m
  91
  69
  71
  74
  77
  80
  83
  87
  90
  94
  98
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
  231
  242
Change in working capital, $m
  -4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
Cash from operations, $m
  95
  65
  67
  70
  72
  75
  78
  81
  85
  88
  92
  93
  98
  102
  107
  112
  117
  122
  128
  134
  141
  147
  154
  162
  170
  178
  186
  195
  205
  215
  226
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
New CAPEX, $m
  -18
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from investing activities, $m
  -144
  -4
  -4
  -4
  -4
  -4
  -4
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -12
  -13
  -14
  -15
  -15
Free cash flow, $m
  -49
  61
  63
  66
  68
  71
  73
  76
  79
  83
  86
  87
  91
  95
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
  182
  191
  200
  210
Issuance/(repayment) of debt, $m
  -9
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
Issuance/(repurchase) of shares, $m
  -9
  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  
  -15
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
Total cash flow (excl. dividends), $m
  -58
  70
  72
  75
  78
  82
  85
  89
  93
  97
  101
  103
  108
  113
  118
  123
  129
  135
  142
  149
  156
  163
  171
  180
  188
  198
  207
  217
  228
  239
  251
Retained Cash Flow (-), $m
  -69
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
Prev. year cash balance distribution, $m
 
  279
  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
 
  340
  63
  66
  68
  71
  73
  76
  80
  83
  86
  87
  91
  95
  100
  104
  109
  114
  120
  125
  131
  138
  144
  151
  158
  166
  174
  182
  191
  201
  211
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
 
  326
  58
  57
  56
  55
  53
  52
  50
  48
  45
  41
  39
  36
  33
  31
  28
  25
  22
  19
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
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Cabot Microelectronics Corporation, together with its subsidiaries, develops, manufactures, and sells polishing slurries and pads used in the manufacture of advanced integrated circuit (IC) devices in the semiconductor industry in a process called chemical mechanical planarization (CMP). The CMP technology is a polishing process used by IC device manufacturers to planarize or flatten the multiple layers of material that are deposited upon silicon wafers. The company offers CMP slurries, which are liquid solutions composed of high-purity deionized water, proprietary chemical additives, and engineered abrasives that chemically and mechanically interact with the surface material of the IC device at an atomic level; and CMP pads that are engineered polymeric materials designed to distribute and transport the slurry to the surface of the wafer and distribute it evenly across the wafer. Its CMP slurries are used for polishing various materials that conduct electrical signals, including tungsten, copper, tantalum, and aluminum; and certain materials that are used in the production of rigid disks and magnetic heads for hard disk drives, as well as used in the dielectric insulating materials that separate conductive layers within logic and memory IC devices. The company also designs and produces precision polishing and metrology systems to attain near-perfect shape and surface finish on various optical components, such as mirrors, lenses, and prisms. It serves the producers of logic IC devices or memory IC devices, and providers of IC foundry services directly, as well as through distributors. The company operates in the United States, Asia, and Europe. Cabot Microelectronics Corporation was founded in 1999 and is headquartered in Aurora, Illinois.

FINANCIAL RATIOS  of  Cabot Microelectronics (CCMP)

Valuation Ratios
P/E Ratio 32.7
Price to Sales 4.6
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 20.6
Price to Free Cash Flow 25.4
Growth Rates
Sales Growth Rate 3.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.6%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 36
Current Ratio 0
LT Debt to Equity 29.5%
Total Debt to Equity 31.1%
Interest Coverage 19
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 9.6%
Ret/ On T. Cap. - 3 Yr. Avg. 9.8%
Return On Equity 12.9%
Return On Equity - 3 Yr. Avg. 13.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 48.8%
Gross Margin - 3 Yr. Avg. 49.3%
EBITDA Margin 23.3%
EBITDA Margin - 3 Yr. Avg. 22.5%
Operating Margin 17.2%
Oper. Margin - 3 Yr. Avg. 17.4%
Pre-Tax Margin 16.3%
Pre-Tax Margin - 3 Yr. Avg. 16.6%
Net Profit Margin 14%
Net Profit Margin - 3 Yr. Avg. 13.2%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 20.5%
Payout Ratio 15%

CCMP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CCMP stock intrinsic value calculation we used $430 million for the last fiscal year's total revenue generated by Cabot Microelectronics. The default revenue input number comes from 2016 income statement of Cabot Microelectronics. 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 CCMP stock valuation model: a) initial revenue growth rate of 3.9% 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 CCMP is calculated based on our internal credit rating of Cabot Microelectronics, 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 Cabot Microelectronics.
    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 CCMP stock the variable cost ratio is equal to 81.9%.

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 CCMP 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 Cabot Microelectronics.

Corporate tax rate of 27% is the nominal tax rate for Cabot Microelectronics. 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 CCMP 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 CCMP are equal to 6.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Cabot Microelectronics 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 CCMP is equal to 21.4%. 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 - $498 million for Cabot Microelectronics - 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 24.679 million for Cabot Microelectronics 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 Cabot Microelectronics at the current share price and the inputted number of shares is $2.0 billion.

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COMPANY NEWS

▶ STOCKS SLIP LOWER: Here's what you need to know   [May-12-17 04:02PM  Business Insider]
▶ STOCKS SLIDE LOWER: Here's what you need to know   [May-11-17 04:06PM  Business Insider]
▶ STOCKS DO NOTHING: Here's what you need to know   [May-10-17 04:00PM  Business Insider]
▶ STOCKS EDGE LOWER: Here's what you need to know   [May-09-17 04:00PM  Business Insider]
▶ STOCKS GO NOWHERE: Here's what you need to know   [May-08-17 04:04PM  Business Insider]
▶ Cabot posts 2Q profit   [Apr-27-17 09:32AM  Associated Press]
▶ Cabot posts 1Q profit   [06:07AM  Associated Press]
▶ Is Cabot Microelectronics Corporation (CCMP) A Good Stock To Buy?   [Dec-08-16 10:40AM  at Insider Monkey]
▶ Cabot posts 3Q profit   [Jul-28-16 10:31AM  AP]
▶ Cabot Microelectronics Trades Ex-Dividend Tuesday (CCMP)   [Jun-21-16 10:53AM  at Investopedia]
Stock chart of CCMP Financial statements of CCMP Annual reports of CCMP
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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