Intrinsic value of LSI Industries - LYTS

Previous Close

$5.98

  Intrinsic Value

$31.10

stock screener

  Rating & Target

str. buy

+420%

  Value-price divergence*

-64%

Previous close

$5.98

 
Intrinsic value

$31.10

 
Up/down potential

+420%

 
Rating

str. buy

 
Value-price divergence*

-64%

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

We calculate the intrinsic value of LYTS 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 0.1

 

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, %
  4.55
  9.90
  9.41
  8.97
  8.57
  8.21
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
Revenue, $m
  322
  354
  387
  422
  458
  496
  535
  575
  618
  662
  707
  755
  804
  855
  909
  965
  1,022
  1,083
  1,146
  1,212
  1,280
  1,352
  1,427
  1,505
  1,587
  1,672
  1,762
  1,855
  1,953
  2,056
  2,164
Variable operating expenses, $m
 
  202
  221
  241
  261
  282
  305
  328
  352
  377
  403
  428
  456
  486
  516
  547
  580
  615
  650
  688
  727
  767
  810
  854
  901
  949
  1,000
  1,053
  1,109
  1,167
  1,228
Fixed operating expenses, $m
 
  130
  133
  137
  140
  144
  147
  151
  155
  159
  163
  167
  171
  175
  179
  184
  189
  193
  198
  203
  208
  213
  219
  224
  230
  235
  241
  247
  254
  260
  266
Total operating expenses, $m
  308
  332
  354
  378
  401
  426
  452
  479
  507
  536
  566
  595
  627
  661
  695
  731
  769
  808
  848
  891
  935
  980
  1,029
  1,078
  1,131
  1,184
  1,241
  1,300
  1,363
  1,427
  1,494
Operating income, $m
  14
  22
  33
  45
  57
  70
  83
  97
  111
  126
  142
  160
  177
  195
  214
  233
  254
  275
  297
  321
  345
  371
  398
  427
  456
  488
  520
  555
  591
  629
  669
EBITDA, $m
  21
  29
  40
  52
  65
  79
  93
  107
  122
  138
  155
  172
  190
  209
  228
  249
  270
  292
  316
  340
  366
  393
  421
  451
  482
  514
  549
  585
  622
  662
  704
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
Earnings before tax, $m
  14
  22
  33
  44
  56
  69
  82
  96
  110
  125
  141
  158
  175
  193
  211
  231
  251
  272
  294
  317
  342
  367
  394
  422
  451
  482
  515
  549
  584
  622
  662
Tax expense, $m
  5
  6
  9
  12
  15
  19
  22
  26
  30
  34
  38
  43
  47
  52
  57
  62
  68
  73
  79
  86
  92
  99
  106
  114
  122
  130
  139
  148
  158
  168
  179
Net income, $m
  9
  16
  24
  32
  41
  50
  60
  70
  80
  91
  103
  115
  128
  141
  154
  168
  183
  199
  215
  232
  249
  268
  287
  308
  329
  352
  376
  401
  427
  454
  483

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  34
  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
  196
  178
  195
  212
  230
  249
  269
  289
  311
  333
  356
  380
  404
  430
  457
  485
  514
  545
  576
  609
  644
  680
  718
  757
  798
  841
  886
  933
  983
  1,034
  1,088
Adjusted assets (=assets-cash), $m
  162
  178
  195
  212
  230
  249
  269
  289
  311
  333
  356
  380
  404
  430
  457
  485
  514
  545
  576
  609
  644
  680
  718
  757
  798
  841
  886
  933
  983
  1,034
  1,088
Revenue / Adjusted assets
  1.988
  1.989
  1.985
  1.991
  1.991
  1.992
  1.989
  1.990
  1.987
  1.988
  1.986
  1.987
  1.990
  1.988
  1.989
  1.990
  1.988
  1.987
  1.990
  1.990
  1.988
  1.988
  1.987
  1.988
  1.989
  1.988
  1.989
  1.988
  1.987
  1.988
  1.989
Average production assets, $m
  52
  57
  62
  68
  73
  79
  86
  92
  99
  106
  113
  121
  129
  137
  145
  154
  164
  173
  183
  194
  205
  216
  228
  241
  254
  268
  282
  297
  313
  329
  346
Working capital, $m
  89
  61
  66
  72
  78
  85
  91
  98
  106
  113
  121
  129
  138
  146
  155
  165
  175
  185
  196
  207
  219
  231
  244
  257
  271
  286
  301
  317
  334
  352
  370
Total debt, $m
  0
  4
  8
  12
  17
  22
  26
  32
  37
  42
  48
  54
  60
  66
  73
  80
  87
  95
  102
  111
  119
  128
  137
  147
  157
  168
  179
  191
  203
  215
  229
Total liabilities, $m
  40
  44
  48
  52
  57
  62
  66
  72
  77
  82
  88
  94
  100
  106
  113
  120
  127
  135
  142
  151
  159
  168
  177
  187
  197
  208
  219
  231
  243
  255
  269
Total equity, $m
  156
  134
  147
  160
  174
  188
  203
  218
  234
  251
  268
  286
  305
  324
  344
  365
  387
  410
  434
  459
  485
  512
  540
  570
  601
  633
  667
  703
  740
  779
  820
Total liabilities and equity, $m
  196
  178
  195
  212
  231
  250
  269
  290
  311
  333
  356
  380
  405
  430
  457
  485
  514
  545
  576
  610
  644
  680
  717
  757
  798
  841
  886
  934
  983
  1,034
  1,089
Debt-to-equity ratio
  0.000
  0.030
  0.060
  0.080
  0.100
  0.110
  0.130
  0.140
  0.160
  0.170
  0.180
  0.190
  0.200
  0.200
  0.210
  0.220
  0.220
  0.230
  0.240
  0.240
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.280
  0.280
Adjusted equity ratio
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753
  0.753

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9
  16
  24
  32
  41
  50
  60
  70
  80
  91
  103
  115
  128
  141
  154
  168
  183
  199
  215
  232
  249
  268
  287
  308
  329
  352
  376
  401
  427
  454
  483
Depreciation, amort., depletion, $m
  7
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
Funds from operations, $m
  16
  23
  31
  40
  50
  59
  70
  80
  91
  103
  115
  127
  141
  154
  169
  184
  199
  216
  233
  251
  270
  290
  310
  332
  355
  379
  404
  430
  458
  487
  518
Change in working capital, $m
  -2
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
Cash from operations, $m
  18
  17
  26
  34
  43
  53
  63
  73
  84
  96
  107
  119
  132
  146
  160
  174
  190
  206
  222
  240
  258
  277
  297
  319
  341
  364
  389
  414
  441
  469
  499
Maintenance CAPEX, $m
  0
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
New CAPEX, $m
  -10
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
Cash from investing activities, $m
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -24
  -26
  -27
  -29
  -30
  -31
  -34
  -36
  -37
  -39
  -41
  -43
  -46
  -47
  -50
Free cash flow, $m
  8
  7
  15
  22
  31
  40
  49
  58
  68
  79
  89
  100
  112
  125
  137
  151
  165
  180
  195
  211
  228
  245
  264
  283
  304
  325
  347
  371
  396
  422
  449
Issuance/(repayment) of debt, $m
  0
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
Issuance/(repurchase) of shares, $m
  4
  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
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
Total cash flow (excl. dividends), $m
  11
  11
  19
  27
  35
  44
  54
  63
  73
  84
  95
  106
  118
  131
  144
  158
  172
  187
  203
  219
  236
  254
  273
  293
  314
  336
  359
  383
  408
  435
  462
Retained Cash Flow (-), $m
  -13
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -41
Prev. year cash balance distribution, $m
 
  34
  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
 
  33
  6
  14
  22
  30
  39
  48
  57
  67
  78
  88
  100
  111
  124
  137
  150
  164
  179
  194
  210
  227
  245
  263
  283
  303
  325
  347
  371
  396
  422
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
 
  31
  6
  12
  18
  23
  28
  32
  36
  39
  41
  42
  43
  42
  42
  40
  38
  36
  33
  30
  27
  23
  20
  17
  14
  12
  9
  7
  6
  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
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LSI Industries Inc. provides corporate visual image solutions in the United States, Canada, Australia, and Latin America. It operates in three segments: Lighting, Graphics, and Technology. The Lighting segment manufactures and markets outdoor and indoor lighting and lighting controls for the commercial, industrial, and multi-site retail markets, including the petroleum/convenience store, quick-service, and automotive markets. It primarily offers exterior area, interior, canopy, and landscape lightings, as well as lighting controls, light poles, and photometric layouts; lighting system design services; and solid-state LED solutions. The Graphics segment manufactures and sells exterior and interior visual image elements used in graphics displays and visual image programs in various markets that include the petroleum/convenience store market and multi-site retail operations. Its products comprise signage and canopy graphics, pump dispenser graphics, building fascia graphics and ACM systems, decals, interior signage and marketing graphics, aisle markers, wall mural graphics, fleet graphics, prototype program graphics, and digital signage and media content management products. This segment also provides installation management services for the installation of interior or exterior products. The Technology segment designs, engineers, and manufactures electronic circuit boards, assemblies, lighting controls, and solid state LED video displays for use in original equipment manufacturer, transportation, commercial, industrial, entertainment, sports, and medical markets. The company was founded in 1976 and is headquartered in Cincinnati, Ohio.

FINANCIAL RATIOS  of  LSI Industries (LYTS)

Valuation Ratios
P/E Ratio 16.6
Price to Sales 0.5
Price to Book 1
Price to Tangible Book
Price to Cash Flow 8.3
Price to Free Cash Flow 18.7
Growth Rates
Sales Growth Rate 4.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
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 4.8%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.4%
Return On Equity 6%
Return On Equity - 3 Yr. Avg. 3.4%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 26.1%
Gross Margin - 3 Yr. Avg. 24%
EBITDA Margin 6.5%
EBITDA Margin - 3 Yr. Avg. 4.6%
Operating Margin 4.3%
Oper. Margin - 3 Yr. Avg. 2.5%
Pre-Tax Margin 4.3%
Pre-Tax Margin - 3 Yr. Avg. 2.5%
Net Profit Margin 2.8%
Net Profit Margin - 3 Yr. Avg. 1.6%
Effective Tax Rate 35.7%
Eff/ Tax Rate - 3 Yr. Avg. 41.1%
Payout Ratio 44.4%

LYTS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LYTS stock intrinsic value calculation we used $322 million for the last fiscal year's total revenue generated by LSI Industries. The default revenue input number comes from 2016 income statement of LSI Industries. 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 LYTS stock valuation model: a) initial revenue growth rate of 9.9% 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 LYTS is calculated based on our internal credit rating of LSI Industries, 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 LSI Industries.
    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 LYTS stock the variable cost ratio is equal to 57.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $127 million in the base year in the intrinsic value calculation for LYTS 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 LSI Industries.

Corporate tax rate of 27% is the nominal tax rate for LSI Industries. 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 LYTS 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 LYTS are equal to 16%.

Life of production assets of 10 years is the average useful life of capital assets used in LSI Industries 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 LYTS is equal to 17.1%. 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 - $156 million for LSI Industries - 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 24.51 million for LSI Industries 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 LSI Industries at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ LSI posts 4Q profit   [Aug-17-17 08:56PM  Associated Press]
▶ One of Greater Cincinnati's top public companies lays off 75   [Aug-04-17 12:55PM  American City Business Journals]
▶ ETFs with exposure to LSI Industries, Inc. : July 4, 2017   [Jul-04-17 03:08PM  Capital Cube]
▶ Cincinnati public company shifts leadership team   [Jun-13-17 01:55PM  American City Business Journals]
▶ LSI reports 3Q loss   [Apr-27-17 06:56AM  Associated Press]
▶ 6 Stocks With Strong Yields but Falling Prices   [Feb-17-17 04:06PM  GuruFocus.com]
▶ LSI posts 2Q profit   [06:52AM  Associated Press]
▶ Is LSI Industries, Inc. (LYTS) A Good Stock To Buy?   [Dec-12-16 05:09PM  at Insider Monkey]
▶ Why Are Investors Losing Confidence in These 5 Stocks Today?   [Apr-21-16 01:09PM  at Insider Monkey]
▶ These were Cincinnati's top stocks of 2015   [Dec-15  12:40PM  at bizjournals.com]
▶ Hedge Funds Are Crazy About LSI Industries, Inc. (LYTS)   [Dec-12  09:08PM  at Insider Monkey]
▶ EXCO Resources Inc (XCO) Sinks In Closing Hour Of Trading   [Nov-25  04:40PM  at Insider Monkey]
▶ Do Hedge Funds Love Kopin Corporation (KOPN)?   [Nov-24  06:59AM  at Insider Monkey]
Stock chart of LYTS Financial statements of LYTS
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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