Intrinsic value of LSI Industries - LYTS

Previous Close

$6.43

  Intrinsic Value

$3.56

stock screener

  Rating & Target

sell

-45%

Previous close

$6.43

 
Intrinsic value

$3.56

 
Up/down potential

-45%

 
Rating

sell

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 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 0.2

 

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, %
  2.80
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  331
  339
  349
  359
  370
  383
  396
  411
  426
  443
  461
  480
  500
  522
  545
  569
  594
  621
  650
  680
  711
  745
  780
  817
  856
  897
  941
  986
  1,034
  1,084
  1,137
Variable operating expenses, $m
 
  325
  334
  343
  354
  366
  379
  392
  407
  423
  439
  451
  470
  491
  512
  535
  559
  584
  611
  639
  669
  700
  733
  768
  805
  844
  884
  927
  972
  1,019
  1,069
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
  328
  325
  334
  343
  354
  366
  379
  392
  407
  423
  439
  451
  470
  491
  512
  535
  559
  584
  611
  639
  669
  700
  733
  768
  805
  844
  884
  927
  972
  1,019
  1,069
Operating income, $m
  4
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
EBITDA, $m
  12
  26
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  71
  75
  78
  82
  86
Interest expense (income), $m
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
Earnings before tax, $m
  3
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
Tax expense, $m
  0
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
Net income, $m
  3
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  18
  19
  20
  21
  22
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  257
  260
  268
  275
  284
  294
  304
  315
  327
  340
  354
  368
  384
  401
  418
  436
  456
  477
  499
  522
  546
  572
  599
  627
  657
  689
  722
  757
  793
  832
  873
Adjusted assets (=assets-cash), $m
  254
  260
  268
  275
  284
  294
  304
  315
  327
  340
  354
  368
  384
  401
  418
  436
  456
  477
  499
  522
  546
  572
  599
  627
  657
  689
  722
  757
  793
  832
  873
Revenue / Adjusted assets
  1.303
  1.304
  1.302
  1.305
  1.303
  1.303
  1.303
  1.305
  1.303
  1.303
  1.302
  1.304
  1.302
  1.302
  1.304
  1.305
  1.303
  1.302
  1.303
  1.303
  1.302
  1.302
  1.302
  1.303
  1.303
  1.302
  1.303
  1.303
  1.304
  1.303
  1.302
Average production assets, $m
  70
  71
  73
  75
  78
  80
  83
  86
  90
  93
  97
  101
  105
  110
  114
  119
  125
  130
  136
  143
  149
  156
  164
  172
  180
  188
  198
  207
  217
  228
  239
Working capital, $m
  62
  60
  62
  64
  66
  68
  71
  73
  76
  79
  82
  85
  89
  93
  97
  101
  106
  111
  116
  121
  127
  133
  139
  145
  152
  160
  167
  176
  184
  193
  202
Total debt, $m
  50
  52
  55
  58
  62
  65
  69
  73
  78
  83
  88
  94
  100
  106
  113
  120
  127
  135
  143
  152
  162
  171
  182
  193
  204
  216
  229
  242
  256
  271
  286
Total liabilities, $m
  97
  99
  102
  105
  109
  112
  116
  120
  125
  130
  135
  141
  147
  153
  160
  167
  174
  182
  190
  199
  209
  218
  229
  240
  251
  263
  276
  289
  303
  318
  333
Total equity, $m
  160
  161
  165
  170
  176
  182
  188
  195
  202
  210
  219
  228
  237
  248
  258
  270
  282
  295
  308
  322
  337
  353
  370
  388
  406
  426
  446
  468
  490
  514
  539
Total liabilities and equity, $m
  257
  260
  267
  275
  285
  294
  304
  315
  327
  340
  354
  369
  384
  401
  418
  437
  456
  477
  498
  521
  546
  571
  599
  628
  657
  689
  722
  757
  793
  832
  872
Debt-to-equity ratio
  0.313
  0.330
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.460
  0.470
  0.470
  0.480
  0.490
  0.490
  0.500
  0.500
  0.510
  0.510
  0.520
  0.520
  0.530
  0.530
Adjusted equity ratio
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618
  0.618

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  18
  19
  20
  21
  22
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
Depreciation, amort., depletion, $m
  8
  11
  11
  12
  12
  12
  12
  12
  13
  13
  13
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
Funds from operations, $m
  27
  20
  21
  21
  22
  23
  23
  24
  25
  26
  27
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  43
  45
  48
  50
  52
  55
  57
  60
Change in working capital, $m
  6
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
Cash from operations, $m
  21
  19
  19
  20
  20
  20
  21
  22
  22
  23
  24
  23
  24
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  48
  51
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
New CAPEX, $m
  -7
  -2
  -2
  -2
  -2
  -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
Cash from investing activities, $m
  -99
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -16
  -16
  -16
  -18
  -18
  -19
  -21
  -21
  -23
  -23
  -25
  -26
  -28
  -28
Free cash flow, $m
  -78
  12
  12
  12
  12
  12
  12
  12
  12
  12
  13
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
Issuance/(repayment) of debt, $m
  50
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
Issuance/(repurchase) of shares, $m
  2
  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  
  52
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
Total cash flow (excl. dividends), $m
  -26
  14
  15
  15
  15
  16
  16
  16
  17
  17
  18
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
Retained Cash Flow (-), $m
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -22
  -23
  -24
  -25
Prev. year cash balance distribution, $m
 
  3
  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
 
  13
  10
  10
  10
  10
  10
  9
  9
  9
  9
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  12
  12
  12
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  13
  9
  8
  8
  7
  6
  6
  5
  5
  4
  3
  3
  2
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  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
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LSI Industries Inc. is a provider of corporate visual image solutions to the petroleum/convenience store industry. The Company designs and develops aspects of the solid-state light emitting diode (LED) lighting, from the electronic circuit board, to the software to drive and control the LEDs, to the structure of the LED product. It operates through 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 quick-service and automotive markets. The Graphics Segment manufactures and sells exterior and interior visual image elements related to signage and graphics, including integrated digital solutions. The Technology Segment designs, engineers, and manufactures electronic circuit boards, assemblies, lighting controls and large format solid state LED video displays. The Company provides a range of lighting control solutions.

FINANCIAL RATIOS  of  LSI Industries (LYTS)

Valuation Ratios
P/E Ratio 54.5
Price to Sales 0.5
Price to Book 1
Price to Tangible Book
Price to Cash Flow 7.8
Price to Free Cash Flow 11.7
Growth Rates
Sales Growth Rate 2.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -30%
Cap. Spend. - 3 Yr. Gr. Rate 7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 31.3%
Total Debt to Equity 31.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 1.8%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.7%
Return On Equity 1.9%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 25.1%
Gross Margin - 3 Yr. Avg. 25.1%
EBITDA Margin 3.6%
EBITDA Margin - 3 Yr. Avg. 4.9%
Operating Margin 0.9%
Oper. Margin - 3 Yr. Avg. 2.6%
Pre-Tax Margin 0.9%
Pre-Tax Margin - 3 Yr. Avg. 2.6%
Net Profit Margin 0.9%
Net Profit Margin - 3 Yr. Avg. 1.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 24.4%
Payout Ratio 166.7%

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 $331 million for the last fiscal year's total revenue generated by LSI Industries. The default revenue input number comes from 2017 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 2.5% 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 5.4%, 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 95.8%.

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 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 4% 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 21%.

Life of production assets of 13.1 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 17.8%. 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 - $160 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 25.535 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 $0.2 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]
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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