Intrinsic value of Kimball Electronics - KE

Previous Close

$21.90

  Intrinsic Value

$28.16

stock screener

  Rating & Target

buy

+29%

Previous close

$21.90

 
Intrinsic value

$28.16

 
Up/down potential

+29%

 
Rating

buy

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 2017), $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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.57
  9.50
  9.05
  8.64
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
  6.74
  6.57
  6.41
  6.27
  6.14
  6.03
  5.93
  5.83
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
Revenue, $m
  931
  1,019
  1,112
  1,208
  1,308
  1,412
  1,520
  1,632
  1,749
  1,870
  1,996
  2,128
  2,264
  2,406
  2,554
  2,708
  2,868
  3,036
  3,210
  3,392
  3,583
  3,781
  3,989
  4,206
  4,433
  4,671
  4,920
  5,180
  5,452
  5,738
  6,037
Variable operating expenses, $m
 
  859
  937
  1,018
  1,102
  1,190
  1,281
  1,376
  1,474
  1,576
  1,682
  1,792
  1,907
  2,027
  2,151
  2,281
  2,416
  2,557
  2,704
  2,858
  3,018
  3,185
  3,360
  3,543
  3,734
  3,935
  4,144
  4,363
  4,593
  4,833
  5,085
Fixed operating expenses, $m
 
  108
  110
  113
  116
  119
  122
  125
  128
  131
  134
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  176
  181
  185
  190
  195
  200
  205
  210
  215
  220
Total operating expenses, $m
  887
  967
  1,047
  1,131
  1,218
  1,309
  1,403
  1,501
  1,602
  1,707
  1,816
  1,930
  2,048
  2,172
  2,299
  2,433
  2,572
  2,717
  2,868
  3,026
  3,190
  3,361
  3,541
  3,728
  3,924
  4,130
  4,344
  4,568
  4,803
  5,048
  5,305
Operating income, $m
  44
  52
  64
  77
  90
  103
  117
  132
  147
  163
  180
  198
  216
  235
  254
  275
  296
  319
  342
  367
  393
  420
  448
  478
  509
  542
  576
  612
  650
  690
  731
EBITDA, $m
  68
  78
  92
  107
  122
  138
  155
  172
  190
  209
  229
  250
  271
  293
  317
  341
  366
  393
  421
  450
  480
  512
  545
  580
  617
  656
  696
  738
  783
  830
  879
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  30
  32
  35
  37
Earnings before tax, $m
  44
  52
  64
  75
  88
  100
  114
  127
  142
  157
  173
  190
  207
  224
  243
  262
  283
  304
  326
  350
  374
  400
  426
  454
  484
  515
  547
  582
  617
  655
  695
Tax expense, $m
  10
  14
  17
  20
  24
  27
  31
  34
  38
  42
  47
  51
  56
  61
  66
  71
  76
  82
  88
  94
  101
  108
  115
  123
  131
  139
  148
  157
  167
  177
  188
Net income, $m
  34
  38
  46
  55
  64
  73
  83
  93
  104
  115
  126
  138
  151
  164
  177
  192
  206
  222
  238
  255
  273
  292
  311
  332
  353
  376
  400
  425
  451
  478
  507

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  45
  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
  555
  559
  609
  662
  717
  774
  833
  894
  958
  1,025
  1,094
  1,166
  1,241
  1,318
  1,399
  1,484
  1,572
  1,663
  1,759
  1,859
  1,963
  2,072
  2,186
  2,305
  2,429
  2,559
  2,696
  2,838
  2,988
  3,144
  3,308
Adjusted assets (=assets-cash), $m
  510
  559
  609
  662
  717
  774
  833
  894
  958
  1,025
  1,094
  1,166
  1,241
  1,318
  1,399
  1,484
  1,572
  1,663
  1,759
  1,859
  1,963
  2,072
  2,186
  2,305
  2,429
  2,559
  2,696
  2,838
  2,988
  3,144
  3,308
Revenue / Adjusted assets
  1.825
  1.823
  1.826
  1.825
  1.824
  1.824
  1.825
  1.826
  1.826
  1.824
  1.824
  1.825
  1.824
  1.825
  1.826
  1.825
  1.824
  1.826
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
  1.825
Average production assets, $m
  135
  147
  160
  174
  188
  203
  219
  235
  252
  269
  287
  306
  326
  346
  368
  390
  413
  437
  462
  489
  516
  545
  574
  606
  638
  673
  708
  746
  785
  826
  869
Working capital, $m
  189
  168
  183
  199
  216
  233
  251
  269
  289
  309
  329
  351
  374
  397
  421
  447
  473
  501
  530
  560
  591
  624
  658
  694
  731
  771
  812
  855
  900
  947
  996
Total debt, $m
  10
  19
  39
  60
  82
  105
  128
  153
  178
  205
  232
  261
  291
  322
  354
  388
  423
  459
  497
  537
  578
  622
  667
  714
  764
  816
  870
  927
  986
  1,048
  1,114
Total liabilities, $m
  213
  222
  242
  263
  285
  308
  331
  356
  381
  408
  435
  464
  494
  525
  557
  591
  626
  662
  700
  740
  781
  825
  870
  917
  967
  1,019
  1,073
  1,130
  1,189
  1,251
  1,317
Total equity, $m
  342
  336
  367
  398
  431
  466
  501
  538
  577
  617
  659
  702
  747
  794
  842
  893
  946
  1,001
  1,059
  1,119
  1,182
  1,247
  1,316
  1,387
  1,462
  1,541
  1,623
  1,709
  1,799
  1,893
  1,991
Total liabilities and equity, $m
  555
  558
  609
  661
  716
  774
  832
  894
  958
  1,025
  1,094
  1,166
  1,241
  1,319
  1,399
  1,484
  1,572
  1,663
  1,759
  1,859
  1,963
  2,072
  2,186
  2,304
  2,429
  2,560
  2,696
  2,839
  2,988
  3,144
  3,308
Debt-to-equity ratio
  0.029
  0.060
  0.110
  0.150
  0.190
  0.230
  0.260
  0.280
  0.310
  0.330
  0.350
  0.370
  0.390
  0.410
  0.420
  0.430
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.510
  0.520
  0.530
  0.540
  0.540
  0.550
  0.550
  0.560
Adjusted equity ratio
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  34
  38
  46
  55
  64
  73
  83
  93
  104
  115
  126
  138
  151
  164
  177
  192
  206
  222
  238
  255
  273
  292
  311
  332
  353
  376
  400
  425
  451
  478
  507
Depreciation, amort., depletion, $m
  24
  25
  28
  30
  33
  35
  38
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  103
  108
  114
  120
  126
  133
  140
  147
Funds from operations, $m
  33
  64
  74
  85
  96
  108
  121
  133
  147
  161
  175
  190
  206
  223
  240
  258
  276
  296
  317
  338
  360
  384
  409
  434
  462
  490
  520
  551
  584
  618
  655
Change in working capital, $m
  -14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
Cash from operations, $m
  47
  49
  59
  69
  80
  91
  103
  115
  128
  141
  154
  169
  184
  199
  215
  232
  250
  268
  288
  308
  329
  351
  374
  399
  424
  451
  479
  508
  539
  571
  605
Maintenance CAPEX, $m
  0
  -23
  -25
  -27
  -29
  -32
  -34
  -37
  -40
  -43
  -46
  -49
  -52
  -55
  -59
  -62
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -103
  -108
  -114
  -120
  -126
  -133
  -140
New CAPEX, $m
  -34
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
Cash from investing activities, $m
  -36
  -35
  -38
  -41
  -43
  -47
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -75
  -80
  -84
  -89
  -94
  -99
  -104
  -110
  -116
  -122
  -128
  -136
  -142
  -150
  -157
  -165
  -174
  -183
Free cash flow, $m
  11
  14
  21
  28
  36
  44
  53
  62
  71
  81
  91
  101
  112
  123
  135
  148
  161
  174
  188
  203
  219
  235
  252
  270
  289
  308
  329
  350
  373
  397
  422
Issuance/(repayment) of debt, $m
  1
  19
  20
  21
  22
  23
  24
  25
  25
  26
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  59
  62
  65
Issuance/(repurchase) of shares, $m
  -22
  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  
  -22
  19
  20
  21
  22
  23
  24
  25
  25
  26
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  59
  62
  65
Total cash flow (excl. dividends), $m
  -10
  33
  41
  49
  58
  67
  76
  86
  96
  107
  118
  130
  142
  154
  168
  181
  196
  211
  227
  243
  260
  278
  297
  317
  338
  360
  383
  407
  433
  459
  487
Retained Cash Flow (-), $m
  -18
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -90
  -94
  -99
Prev. year cash balance distribution, $m
 
  35
  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
 
  39
  11
  18
  25
  33
  41
  49
  58
  67
  77
  86
  97
  108
  119
  131
  143
  156
  169
  183
  198
  213
  229
  246
  263
  282
  301
  321
  343
  365
  389
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
 
  38
  10
  15
  20
  25
  30
  33
  36
  39
  40
  41
  41
  41
  40
  38
  36
  34
  31
  28
  25
  22
  19
  16
  13
  11
  9
  7
  5
  4
  3
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. (Kimball Electronics) is an electronics manufacturing services (EMS) company. The Company is engaged in producing electronics for the automotive, medical, industrial and public safety markets. It provides design, engineering, manufacturing, packaging and distribution of electronic assemblies and circuit boards on a contract basis to a range of industries. The Company offers various engineering, manufacturing and supply chain services, such as design services; production and testing of printed circuit board assemblies (PCBAS); industrialization and automation of manufacturing processes; product design and process validation and qualification; reliability testing, which include testing of products under a series of environmental conditions; assembly, production and packaging of other related non-electronic products, and product life cycle management. It is engaged in producing safety critical electronic assemblies for the automotive market.

FINANCIAL RATIOS  of  Kimball Electronics (KE)

Valuation Ratios
P/E Ratio 17.3
Price to Sales 0.6
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow 45.2
Growth Rates
Sales Growth Rate 10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.9%
Cap. Spend. - 3 Yr. Gr. Rate 10.1%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 2.9%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 9.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 10.2%
Return On Equity - 3 Yr. Avg. 8.8%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 8.2%
Gross Margin - 3 Yr. Avg. 8.2%
EBITDA Margin 7.3%
EBITDA Margin - 3 Yr. Avg. 6.6%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 4.2%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 4.1%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 3.1%
Effective Tax Rate 22.7%
Eff/ Tax Rate - 3 Yr. Avg. 23.3%
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 $931 million for the last fiscal year's total revenue generated by Kimball Electronics. The default revenue input number comes from 2017 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 9.5% 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 84.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $105 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 14.4%.

Life of production assets of 5.9 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 16.5%. 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 - $342 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 26.891 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 $0.6 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]
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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