Intrinsic value of Kimball Electronics - KE

Previous Close

$18.30

  Intrinsic Value

$4.53

stock screener

  Rating & Target

str. sell

-75%

  Value-price divergence*

-107%

Previous close

$18.30

 
Intrinsic value

$4.53

 
Up/down potential

-75%

 
Rating

str. sell

 
Value-price divergence*

-107%

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

We calculate the intrinsic value of KE 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 0.5

 

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, %
  2.81
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.59
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
Revenue, $m
  842
  917
  995
  1,076
  1,161
  1,248
  1,339
  1,434
  1,533
  1,635
  1,741
  1,852
  1,967
  2,088
  2,213
  2,343
  2,479
  2,621
  2,769
  2,924
  3,085
  3,254
  3,431
  3,615
  3,809
  4,011
  4,223
  4,444
  4,677
  4,920
  5,175
Variable operating expenses, $m
 
  877
  951
  1,029
  1,109
  1,193
  1,280
  1,371
  1,465
  1,562
  1,664
  1,769
  1,880
  1,994
  2,114
  2,238
  2,368
  2,504
  2,645
  2,793
  2,947
  3,108
  3,277
  3,454
  3,638
  3,831
  4,034
  4,246
  4,468
  4,700
  4,944
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
  812
  877
  951
  1,029
  1,109
  1,193
  1,280
  1,371
  1,465
  1,562
  1,664
  1,769
  1,880
  1,994
  2,114
  2,238
  2,368
  2,504
  2,645
  2,793
  2,947
  3,108
  3,277
  3,454
  3,638
  3,831
  4,034
  4,246
  4,468
  4,700
  4,944
Operating income, $m
  30
  40
  44
  48
  51
  55
  59
  64
  68
  73
  77
  83
  88
  93
  99
  105
  111
  117
  124
  131
  138
  145
  153
  162
  170
  179
  189
  199
  209
  220
  231
EBITDA, $m
  50
  54
  59
  63
  68
  73
  79
  84
  90
  96
  102
  109
  116
  123
  130
  138
  146
  154
  163
  172
  181
  191
  202
  213
  224
  236
  248
  261
  275
  289
  304
Interest expense (income), $m
  0
  0
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  23
  25
  27
  28
  30
Earnings before tax, $m
  28
  40
  43
  46
  50
  53
  56
  60
  64
  67
  71
  76
  81
  85
  90
  95
  100
  105
  111
  116
  123
  129
  136
  143
  150
  157
  165
  174
  182
  192
  201
Tax expense, $m
  6
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  38
  40
  42
  45
  47
  49
  52
  54
Net income, $m
  22
  29
  32
  34
  36
  39
  41
  44
  46
  49
  52
  56
  59
  62
  65
  69
  73
  77
  81
  85
  89
  94
  99
  104
  109
  115
  121
  127
  133
  140
  147

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  55
  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
  511
  497
  539
  583
  629
  676
  726
  777
  830
  886
  943
  1,003
  1,066
  1,131
  1,199
  1,269
  1,343
  1,420
  1,500
  1,584
  1,671
  1,763
  1,858
  1,958
  2,063
  2,173
  2,287
  2,408
  2,533
  2,665
  2,803
Adjusted assets (=assets-cash), $m
  456
  497
  539
  583
  629
  676
  726
  777
  830
  886
  943
  1,003
  1,066
  1,131
  1,199
  1,269
  1,343
  1,420
  1,500
  1,584
  1,671
  1,763
  1,858
  1,958
  2,063
  2,173
  2,287
  2,408
  2,533
  2,665
  2,803
Revenue / Adjusted assets
  1.846
  1.845
  1.846
  1.846
  1.846
  1.846
  1.844
  1.846
  1.847
  1.845
  1.846
  1.846
  1.845
  1.846
  1.846
  1.846
  1.846
  1.846
  1.846
  1.846
  1.846
  1.846
  1.847
  1.846
  1.846
  1.846
  1.847
  1.846
  1.846
  1.846
  1.846
Average production assets, $m
  119
  129
  140
  152
  164
  176
  189
  202
  216
  231
  246
  261
  277
  294
  312
  330
  350
  370
  390
  412
  435
  459
  484
  510
  537
  566
  595
  627
  659
  694
  730
Working capital, $m
  187
  153
  166
  180
  194
  208
  224
  240
  256
  273
  291
  309
  329
  349
  370
  391
  414
  438
  462
  488
  515
  543
  573
  604
  636
  670
  705
  742
  781
  822
  864
Total debt, $m
  9
  16
  32
  49
  67
  86
  105
  125
  146
  167
  190
  213
  238
  263
  289
  317
  346
  376
  407
  440
  474
  509
  547
  586
  627
  669
  714
  761
  810
  861
  915
Total liabilities, $m
  186
  194
  210
  227
  245
  264
  283
  303
  324
  345
  368
  391
  416
  441
  467
  495
  524
  554
  585
  618
  652
  687
  725
  764
  805
  847
  892
  939
  988
  1,039
  1,093
Total equity, $m
  324
  303
  329
  356
  383
  412
  443
  474
  506
  540
  575
  612
  650
  690
  731
  774
  819
  866
  915
  966
  1,019
  1,075
  1,134
  1,195
  1,259
  1,325
  1,395
  1,469
  1,545
  1,626
  1,710
Total liabilities and equity, $m
  510
  497
  539
  583
  628
  676
  726
  777
  830
  885
  943
  1,003
  1,066
  1,131
  1,198
  1,269
  1,343
  1,420
  1,500
  1,584
  1,671
  1,762
  1,859
  1,959
  2,064
  2,172
  2,287
  2,408
  2,533
  2,665
  2,803
Debt-to-equity ratio
  0.028
  0.050
  0.100
  0.140
  0.180
  0.210
  0.240
  0.260
  0.290
  0.310
  0.330
  0.350
  0.370
  0.380
  0.400
  0.410
  0.420
  0.430
  0.440
  0.460
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.510
  0.520
  0.520
  0.530
  0.540
Adjusted equity ratio
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  22
  29
  32
  34
  36
  39
  41
  44
  46
  49
  52
  56
  59
  62
  65
  69
  73
  77
  81
  85
  89
  94
  99
  104
  109
  115
  121
  127
  133
  140
  147
Depreciation, amort., depletion, $m
  20
  14
  15
  16
  17
  18
  19
  21
  22
  24
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  69
  73
Funds from operations, $m
  27
  43
  46
  50
  53
  57
  61
  65
  69
  73
  77
  82
  87
  91
  97
  102
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
  180
  189
  199
  209
  220
Change in working capital, $m
  -10
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
Cash from operations, $m
  37
  31
  33
  36
  39
  42
  45
  49
  52
  56
  60
  63
  67
  71
  76
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  152
  160
  169
  177
Maintenance CAPEX, $m
  0
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
New CAPEX, $m
  -35
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
Cash from investing activities, $m
  -43
  -23
  -24
  -25
  -27
  -28
  -31
  -32
  -34
  -36
  -38
  -41
  -42
  -45
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -83
  -87
  -91
  -96
  -100
  -105
Free cash flow, $m
  -6
  8
  9
  11
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  44
  47
  50
  53
  55
  58
  62
  65
  68
  72
Issuance/(repayment) of debt, $m
  9
  16
  16
  17
  18
  19
  19
  20
  21
  22
  22
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
Issuance/(repurchase) of shares, $m
  -13
  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  
  -4
  16
  16
  17
  18
  19
  19
  20
  21
  22
  22
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
Total cash flow (excl. dividends), $m
  -10
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  84
  89
  93
  98
  103
  108
  114
  120
  126
Retained Cash Flow (-), $m
  -12
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
Prev. year cash balance distribution, $m
 
  46
  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
 
  45
  0
  1
  2
  3
  4
  5
  6
  8
  9
  10
  11
  12
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  30
  31
  33
  35
  37
  39
  42
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
 
  43
  0
  1
  2
  2
  3
  3
  4
  4
  5
  5
  5
  5
  5
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
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

Kimball Electronics, Inc., a contract electronic manufacturing services company, engages in producing durable electronics for the automotive, medical, industrial, and public safety markets primarily in the United States, China, Mexico, Poland, Romania, and Thailand. Its engineering, manufacturing, and supply chain services include design services; rapid prototyping and new product introduction support; production and testing of printed circuit board assemblies; industrialization and automation of manufacturing processes; product design and process validation and qualification; reliability testing; assembly, production, and packaging of other related non-electronic products; supply chain services; and product life cycle management services. The company was founded in 1961 and is headquartered in Jasper, Indiana.

FINANCIAL RATIOS  of  Kimball Electronics (KE)

Valuation Ratios
P/E Ratio 23.5
Price to Sales 0.6
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 14
Price to Free Cash Flow 258.2
Growth Rates
Sales Growth Rate 2.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.4%
Cap. Spend. - 3 Yr. Gr. Rate 20.1%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 2.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. 5.6%
Return On Total Capital 6.8%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 6.9%
Return On Equity - 3 Yr. Avg. 8.8%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 7.7%
Gross Margin - 3 Yr. Avg. 8.2%
EBITDA Margin 5.7%
EBITDA Margin - 3 Yr. Avg. 6.3%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin 3.3%
Pre-Tax Margin - 3 Yr. Avg. 3.9%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 3.1%
Effective Tax Rate 21.4%
Eff/ Tax Rate - 3 Yr. Avg. 21.3%
Payout Ratio 0%

KE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KE stock intrinsic value calculation we used $842 million for the last fiscal year's total revenue generated by Kimball Electronics. The default revenue input number comes from 2016 income statement of Kimball Electronics. 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 KE stock valuation model: a) initial revenue growth rate of 8.9% 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 KE is calculated based on our internal credit rating of Kimball Electronics, 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 Kimball Electronics.
    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 KE stock the variable cost ratio is equal to 95.6%.

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 KE 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 Kimball Electronics.

Corporate tax rate of 27% is the nominal tax rate for Kimball Electronics. 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 KE 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 KE are equal to 14.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Kimball Electronics 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 KE is equal to 16.7%. 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 - $324 million for Kimball Electronics - 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 26.667 million for Kimball Electronics 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 Kimball Electronics at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Kimball Electronics posts 4Q profit   [Aug-04-17 12:11AM  Associated Press]
▶ Kimball Electronics posts 3Q profit   [May-01-17 04:14PM  Associated Press]
▶ Kimball Electronics posts 2Q profit   [Feb-01-17 05:56PM  Associated Press]
▶ Here is What Hedge Funds Think About Kimball Electronics Inc (KE)   [Dec-12-16 11:07AM  at Insider Monkey]
▶ Kimball Electronics, Inc. Announces Stock Repurchase Plan   [Sep-29-16 04:15PM  GlobeNewswire]
Stock chart of KE Financial statements of KE
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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