Intrinsic value of Syneron Medical - ELOS

Previous Close

$11.00

  Intrinsic Value

$14.51

stock screener

  Rating & Target

buy

+32%

  Value-price divergence*

-51%

Previous close

$11.00

 
Intrinsic value

$14.51

 
Up/down potential

+32%

 
Rating

buy

 
Value-price divergence*

-51%

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

We calculate the intrinsic value of ELOS 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 0.4

 

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, %
  7.19
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
Revenue, $m
  298
  319
  342
  365
  389
  414
  440
  467
  496
  525
  556
  588
  621
  656
  693
  731
  771
  812
  856
  902
  949
  999
  1,052
  1,107
  1,164
  1,224
  1,288
  1,354
  1,423
  1,496
  1,572
Variable operating expenses, $m
 
  176
  188
  200
  213
  227
  241
  256
  271
  287
  304
  320
  338
  357
  377
  398
  419
  442
  466
  490
  516
  544
  572
  602
  633
  666
  700
  736
  774
  814
  855
Fixed operating expenses, $m
 
  137
  141
  144
  148
  152
  155
  159
  163
  167
  172
  176
  180
  185
  189
  194
  199
  204
  209
  214
  220
  225
  231
  236
  242
  248
  255
  261
  268
  274
  281
Total operating expenses, $m
  295
  313
  329
  344
  361
  379
  396
  415
  434
  454
  476
  496
  518
  542
  566
  592
  618
  646
  675
  704
  736
  769
  803
  838
  875
  914
  955
  997
  1,042
  1,088
  1,136
Operating income, $m
  3
  7
  13
  20
  28
  35
  44
  52
  61
  70
  80
  92
  103
  115
  127
  139
  153
  167
  181
  197
  213
  231
  249
  268
  289
  310
  333
  356
  381
  408
  436
EBITDA, $m
  11
  11
  18
  25
  32
  40
  49
  57
  66
  76
  86
  97
  108
  119
  132
  145
  158
  173
  188
  204
  220
  238
  257
  276
  297
  319
  342
  366
  392
  419
  448
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
Earnings before tax, $m
  4
  7
  13
  20
  27
  35
  43
  51
  60
  69
  78
  90
  101
  112
  124
  136
  149
  163
  177
  192
  208
  225
  243
  262
  282
  303
  325
  348
  373
  399
  426
Tax expense, $m
  4
  2
  4
  5
  7
  9
  11
  14
  16
  19
  21
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  61
  66
  71
  76
  82
  88
  94
  101
  108
  115
Net income, $m
  0
  5
  10
  15
  20
  25
  31
  37
  43
  50
  57
  66
  74
  82
  90
  99
  109
  119
  129
  140
  152
  165
  178
  191
  206
  221
  237
  254
  272
  291
  311

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  68
  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
  277
  224
  240
  256
  273
  290
  309
  328
  348
  368
  390
  412
  436
  460
  486
  513
  540
  570
  600
  632
  666
  701
  738
  776
  816
  859
  903
  949
  998
  1,049
  1,103
Adjusted assets (=assets-cash), $m
  209
  224
  240
  256
  273
  290
  309
  328
  348
  368
  390
  412
  436
  460
  486
  513
  540
  570
  600
  632
  666
  701
  738
  776
  816
  859
  903
  949
  998
  1,049
  1,103
Revenue / Adjusted assets
  1.426
  1.424
  1.425
  1.426
  1.425
  1.428
  1.424
  1.424
  1.425
  1.427
  1.426
  1.427
  1.424
  1.426
  1.426
  1.425
  1.428
  1.425
  1.427
  1.427
  1.425
  1.425
  1.425
  1.427
  1.426
  1.425
  1.426
  1.427
  1.426
  1.426
  1.425
Average production assets, $m
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  95
  100
  105
  111
  116
Working capital, $m
  121
  57
  61
  65
  69
  74
  78
  83
  88
  93
  99
  105
  111
  117
  123
  130
  137
  145
  152
  160
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
Total debt, $m
  0
  5
  10
  16
  21
  27
  33
  40
  46
  53
  61
  68
  76
  84
  93
  102
  111
  121
  131
  142
  153
  165
  177
  190
  203
  218
  232
  248
  264
  281
  299
Total liabilities, $m
  70
  75
  80
  86
  91
  97
  103
  110
  116
  123
  131
  138
  146
  154
  163
  172
  181
  191
  201
  212
  223
  235
  247
  260
  273
  288
  302
  318
  334
  351
  369
Total equity, $m
  207
  149
  159
  170
  181
  193
  205
  218
  231
  245
  259
  274
  290
  306
  323
  341
  359
  379
  399
  420
  443
  466
  490
  516
  543
  571
  600
  631
  664
  698
  733
Total liabilities and equity, $m
  277
  224
  239
  256
  272
  290
  308
  328
  347
  368
  390
  412
  436
  460
  486
  513
  540
  570
  600
  632
  666
  701
  737
  776
  816
  859
  902
  949
  998
  1,049
  1,102
Debt-to-equity ratio
  0.000
  0.030
  0.060
  0.090
  0.120
  0.140
  0.160
  0.180
  0.200
  0.220
  0.230
  0.250
  0.260
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.350
  0.350
  0.360
  0.370
  0.370
  0.380
  0.390
  0.390
  0.400
  0.400
  0.410
Adjusted equity ratio
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  0
  5
  10
  15
  20
  25
  31
  37
  43
  50
  57
  66
  74
  82
  90
  99
  109
  119
  129
  140
  152
  165
  178
  191
  206
  221
  237
  254
  272
  291
  311
Depreciation, amort., depletion, $m
  8
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
Funds from operations, $m
  -4
  9
  14
  19
  25
  30
  36
  42
  49
  56
  63
  70
  78
  87
  95
  105
  114
  125
  136
  147
  159
  172
  185
  199
  214
  230
  247
  264
  283
  302
  323
Change in working capital, $m
  -12
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Cash from operations, $m
  8
  5
  10
  15
  20
  26
  32
  38
  44
  51
  58
  64
  72
  80
  89
  98
  107
  117
  128
  139
  151
  163
  176
  190
  204
  219
  235
  252
  270
  289
  309
Maintenance CAPEX, $m
  0
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
New CAPEX, $m
  -4
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
Cash from investing activities, $m
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
Free cash flow, $m
  5
  1
  6
  11
  16
  21
  27
  32
  38
  45
  51
  58
  65
  73
  81
  90
  99
  109
  119
  129
  140
  152
  165
  178
  192
  206
  222
  238
  255
  273
  292
Issuance/(repayment) of debt, $m
  0
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
Issuance/(repurchase) of shares, $m
  -4
  5
  1
  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  
  -5
  10
  6
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
Total cash flow (excl. dividends), $m
  0
  12
  12
  16
  21
  27
  33
  39
  45
  52
  59
  66
  73
  81
  90
  99
  108
  118
  129
  140
  152
  164
  177
  191
  205
  220
  237
  254
  271
  290
  310
Retained Cash Flow (-), $m
  2
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
Prev. year cash balance distribution, $m
 
  68
  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
 
  70
  2
  5
  10
  15
  20
  26
  32
  38
  44
  51
  58
  65
  73
  81
  90
  99
  109
  119
  129
  141
  153
  165
  178
  192
  207
  223
  239
  256
  275
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
 
  67
  1
  5
  8
  12
  15
  18
  20
  22
  23
  24
  25
  25
  24
  24
  23
  22
  20
  18
  16
  15
  13
  11
  9
  7
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  97.9
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6

Syneron Medical Ltd., together with its subsidiaries, researches, develops, manufactures, markets, and sells aesthetic medical products worldwide. The company develops products based on its proprietary Electro-Optical Synergy technology, which uses the synergy between electrical energy and optical energy to provide aesthetic medical treatments. It offers products, which are used for various non-invasive aesthetic medical procedures, including hair removal, wrinkle reduction, rejuvenation of the skin’s appearance through the treatment of superficial benign vascular and pigmented lesions, acne treatment, treatment of leg veins, treatment for the temporary reduction in the appearance of cellulite and thigh circumference, ablation and resurfacing of the skin, laser-assisted lipolysis, and tattoo removal. The company also provides cosmetic and aesthetic lasers, and light-based systems used by physicians and personal care practitioners; non-invasive technologies for fat cell destruction and body sculpting; Viador system, a handheld device with a radiofrequency-needle array for use in transdermal delivery of biologic drug-products through a system-specific skin patch. It sells its products to dermatologists, plastic surgeons, other cosmetic physicians, qualified practitioners, and aestheticians and medical spas through direct sales force and distributors; and directly to end-users. Syneron Medical Ltd. was founded in 2000 and is headquartered in Yokneam Illit, Israel.

FINANCIAL RATIOS  of  Syneron Medical (ELOS)

Valuation Ratios
P/E Ratio 0
Price to Sales 1.3
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 47.8
Price to Free Cash Flow 95.5
Growth Rates
Sales Growth Rate 7.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -20%
Cap. Spend. - 3 Yr. Gr. Rate 0%
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 0%
Ret/ On Assets - 3 Yr. Avg. -1.2%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. -1.6%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. -1.6%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 52.3%
Gross Margin - 3 Yr. Avg. 53%
EBITDA Margin 4%
EBITDA Margin - 3 Yr. Avg. 2.4%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. -0.6%
Pre-Tax Margin 1.3%
Pre-Tax Margin - 3 Yr. Avg. -0.7%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. -1.4%
Effective Tax Rate 100%
Eff/ Tax Rate - 3 Yr. Avg. 11.1%
Payout Ratio 0%

ELOS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ELOS stock intrinsic value calculation we used $298 million for the last fiscal year's total revenue generated by Syneron Medical. The default revenue input number comes from 2016 income statement of Syneron Medical. 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 ELOS stock valuation model: a) initial revenue growth rate of 7.2% 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 ELOS is calculated based on our internal credit rating of Syneron Medical, 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 Syneron Medical.
    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 ELOS stock the variable cost ratio is equal to 55%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $134 million in the base year in the intrinsic value calculation for ELOS 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 Syneron Medical.

Corporate tax rate of 27% is the nominal tax rate for Syneron Medical. 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 ELOS 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 ELOS are equal to 7.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Syneron Medical 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 ELOS is equal to 17.8%. 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 - $207 million for Syneron Medical - 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 32.939 million for Syneron Medical 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 Syneron Medical at the current share price and the inputted number of shares is $0.4 billion.

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Stock chart of ELOS Financial statements of ELOS
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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