Intrinsic value of Exponent - EXPO

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$60.95

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$60.95

 
Intrinsic value

$34.58

 
Up/down potential

-43%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of EXPO 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 1.6

 

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, %
  0.64
  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
  315
  321
  329
  337
  347
  357
  369
  381
  395
  409
  425
  442
  460
  479
  499
  521
  544
  568
  593
  620
  649
  679
  711
  744
  779
  816
  856
  897
  940
  985
  1,033
Variable operating expenses, $m
 
  251
  257
  263
  271
  279
  288
  298
  308
  320
  332
  344
  358
  373
  389
  405
  423
  442
  462
  483
  505
  528
  553
  579
  606
  635
  666
  698
  731
  767
  804
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
  253
  251
  257
  263
  271
  279
  288
  298
  308
  320
  332
  344
  358
  373
  389
  405
  423
  442
  462
  483
  505
  528
  553
  579
  606
  635
  666
  698
  731
  767
  804
Operating income, $m
  62
  70
  72
  74
  76
  78
  81
  84
  87
  90
  93
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  229
EBITDA, $m
  68
  76
  78
  80
  82
  85
  87
  90
  93
  97
  101
  105
  109
  113
  118
  123
  129
  134
  141
  147
  154
  161
  168
  176
  185
  193
  203
  212
  223
  233
  245
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
Earnings before tax, $m
  69
  70
  72
  74
  76
  78
  80
  83
  86
  89
  92
  96
  100
  104
  108
  113
  118
  123
  128
  134
  140
  146
  152
  159
  167
  174
  182
  191
  200
  210
  219
Tax expense, $m
  22
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
Net income, $m
  47
  51
  53
  54
  55
  57
  59
  61
  63
  65
  67
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  174
  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
  404
  235
  240
  246
  253
  261
  269
  278
  288
  299
  310
  323
  336
  350
  364
  380
  397
  414
  433
  453
  474
  496
  519
  543
  569
  596
  624
  654
  686
  719
  754
Adjusted assets (=assets-cash), $m
  230
  235
  240
  246
  253
  261
  269
  278
  288
  299
  310
  323
  336
  350
  364
  380
  397
  414
  433
  453
  474
  496
  519
  543
  569
  596
  624
  654
  686
  719
  754
Revenue / Adjusted assets
  1.370
  1.366
  1.371
  1.370
  1.372
  1.368
  1.372
  1.371
  1.372
  1.368
  1.371
  1.368
  1.369
  1.369
  1.371
  1.371
  1.370
  1.372
  1.370
  1.369
  1.369
  1.369
  1.370
  1.370
  1.369
  1.369
  1.372
  1.372
  1.370
  1.370
  1.370
Average production assets, $m
  33
  33
  34
  35
  36
  37
  38
  39
  41
  42
  44
  46
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
Working capital, $m
  194
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
Total debt, $m
  0
  3
  6
  9
  13
  18
  22
  28
  33
  39
  46
  53
  60
  68
  77
  86
  95
  105
  116
  127
  139
  151
  165
  179
  193
  209
  225
  242
  260
  279
  299
Total liabilities, $m
  130
  134
  137
  140
  144
  149
  153
  159
  164
  170
  177
  184
  191
  199
  208
  217
  226
  236
  247
  258
  270
  282
  296
  310
  324
  340
  356
  373
  391
  410
  430
Total equity, $m
  273
  101
  103
  106
  109
  112
  116
  120
  124
  129
  133
  139
  144
  150
  157
  163
  171
  178
  186
  195
  204
  213
  223
  234
  245
  256
  269
  281
  295
  309
  324
Total liabilities and equity, $m
  403
  235
  240
  246
  253
  261
  269
  279
  288
  299
  310
  323
  335
  349
  365
  380
  397
  414
  433
  453
  474
  495
  519
  544
  569
  596
  625
  654
  686
  719
  754
Debt-to-equity ratio
  0.000
  0.030
  0.060
  0.090
  0.120
  0.160
  0.190
  0.230
  0.270
  0.310
  0.340
  0.380
  0.420
  0.450
  0.490
  0.520
  0.560
  0.590
  0.620
  0.650
  0.680
  0.710
  0.740
  0.760
  0.790
  0.810
  0.840
  0.860
  0.880
  0.900
  0.920
Adjusted equity ratio
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  47
  51
  53
  54
  55
  57
  59
  61
  63
  65
  67
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
Depreciation, amort., depletion, $m
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
Funds from operations, $m
  67
  57
  58
  60
  61
  63
  65
  67
  69
  72
  74
  77
  80
  83
  87
  90
  94
  98
  102
  107
  112
  117
  122
  127
  133
  139
  146
  153
  160
  168
  176
Change in working capital, $m
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Cash from operations, $m
  67
  60
  58
  59
  61
  62
  64
  66
  69
  71
  73
  76
  79
  82
  85
  89
  93
  96
  101
  105
  110
  115
  120
  125
  131
  137
  144
  150
  157
  165
  173
Maintenance CAPEX, $m
  0
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
New CAPEX, $m
  -14
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
Cash from investing activities, $m
  -27
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -17
  -19
  -20
Free cash flow, $m
  40
  55
  52
  53
  55
  56
  58
  60
  61
  63
  66
  68
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
Issuance/(repayment) of debt, $m
  0
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Issuance/(repurchase) of shares, $m
  -23
  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  
  -30
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  8
  58
  55
  57
  59
  61
  63
  65
  67
  70
  72
  75
  78
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
  150
  158
  165
  173
Retained Cash Flow (-), $m
  -10
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
Prev. year cash balance distribution, $m
 
  174
  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
 
  230
  53
  54
  56
  57
  59
  61
  63
  65
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  110
  115
  120
  125
  131
  137
  144
  151
  158
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
 
  220
  49
  47
  46
  44
  43
  41
  39
  37
  35
  33
  31
  29
  26
  24
  22
  19
  17
  15
  13
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
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
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Exponent, Inc., together with its subsidiaries, operates as a science and engineering consulting company worldwide. It operates in two segments, Engineering and Other Scientific; and Environmental and Health. The Engineering and Other Scientific segment provides services in the areas of biomechanics, biomedical engineering, buildings and structures, civil engineering, construction consulting, electrical engineering and computer science, engineering management consulting, human factors, industrial structures, materials and corrosion engineering, mechanical engineering, polymer science and materials chemistry, statistical and data sciences, technology development, thermal sciences, and vehicle analysis. The Environmental and Health segment offers services in the areas of chemical regulation and food safety, ecological and biological sciences, environmental and earth sciences, occupational and environmental health risk assessment, and toxicology and mechanistic biology, as well as epidemiology, biostatistics, and computational biology. The company offers approximately 90 different technical disciplines to solve complicated issues facing industry and government. It serves clients in automotive, aviation, chemical, construction, consumer products, energy, government, health, insurance, manufacturing, technology, and other sectors. The company was formerly known as The Failure Group, Inc. and changed its name to Exponent, Inc. in 1998. Exponent, Inc. was founded in 1967 and is headquartered in Menlo Park, California.

FINANCIAL RATIOS  of  Exponent (EXPO)

Valuation Ratios
P/E Ratio 33.2
Price to Sales 5
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 23.3
Price to Free Cash Flow 29.4
Growth Rates
Sales Growth Rate 0.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 180%
Cap. Spend. - 3 Yr. Gr. Rate 18.5%
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 11.9%
Ret/ On Assets - 3 Yr. Avg. 11.7%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 17.3%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 17.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 33.7%
Gross Margin - 3 Yr. Avg. 34.6%
EBITDA Margin 23.8%
EBITDA Margin - 3 Yr. Avg. 24%
Operating Margin 19.7%
Oper. Margin - 3 Yr. Avg. 20.9%
Pre-Tax Margin 21.9%
Pre-Tax Margin - 3 Yr. Avg. 22.3%
Net Profit Margin 14.9%
Net Profit Margin - 3 Yr. Avg. 14.1%
Effective Tax Rate 31.9%
Eff/ Tax Rate - 3 Yr. Avg. 36.5%
Payout Ratio 40.4%

EXPO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EXPO stock intrinsic value calculation we used $315 million for the last fiscal year's total revenue generated by Exponent. The default revenue input number comes from 2016 income statement of Exponent. 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 EXPO 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 EXPO is calculated based on our internal credit rating of Exponent, 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 Exponent.
    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 EXPO stock the variable cost ratio is equal to 78.1%.

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 EXPO 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 Exponent.

Corporate tax rate of 27% is the nominal tax rate for Exponent. 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 EXPO 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 EXPO are equal to 10.3%.

Life of production assets of 6.9 years is the average useful life of capital assets used in Exponent 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 EXPO is equal to 6.3%. 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 - $273 million for Exponent - 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 25.525 million for Exponent 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 Exponent at the current share price and the inputted number of shares is $1.6 billion.


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COMPANY NEWS

▶ Exponent to Present at Upcoming Investor Conferences   [May-18-17 04:05PM  GlobeNewswire]
▶ Exponent posts 1Q profit   [Apr-19-17 05:05PM  Associated Press]
▶ Exponent Declares Regular Quarterly Dividend   [04:05PM  GlobeNewswire]
▶ Exponent to Present at Upcoming Investor Conference   [Feb-15-17 04:15PM  GlobeNewswire]
▶ [$$] Samsungs Conclusions on Galaxy Note 7 Recall Backed Up by Regulator   [Feb-07-17 12:13AM  The Wall Street Journal]
▶ Do Hedge Funds Love Exponent, Inc. (EXPO)?   [Dec-10-16 03:04PM  at Insider Monkey]
▶ Exponent Appoints Dr. Catherine Corrigan to President   [Jul-29-16 02:00PM  GlobeNewswire]
▶ Exponent Declares Regular Quarterly Dividend   [04:05PM  GlobeNewswire]
▶ Exponent Declares Regular Quarterly Dividend   [04:05PM  GlobeNewswire]
Stock chart of EXPO Financial statements of EXPO Annual reports of EXPO
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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