Intrinsic value of Mesa Laboratories - MLAB

Previous Close

$130.12

  Intrinsic Value

$97.60

stock screener

  Rating & Target

sell

-25%

  Value-price divergence*

+10%

Previous close

$130.12

 
Intrinsic value

$97.60

 
Up/down potential

-25%

 
Rating

sell

 
Value-price divergence*

+10%

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

We calculate the intrinsic value of MLAB 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, %
  19.72
  20.00
  18.50
  17.15
  15.94
  14.84
  13.86
  12.97
  12.17
  11.46
  10.81
  10.23
  9.71
  9.24
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.03
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
Revenue, $m
  85
  102
  121
  142
  164
  189
  215
  242
  272
  303
  336
  370
  406
  444
  483
  524
  566
  610
  656
  703
  753
  804
  858
  913
  971
  1,031
  1,094
  1,159
  1,227
  1,298
  1,372
Variable operating expenses, $m
 
  78
  91
  105
  121
  138
  157
  176
  197
  218
  241
  259
  284
  310
  337
  366
  395
  426
  458
  491
  526
  562
  599
  638
  678
  720
  764
  809
  857
  906
  958
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
  68
  78
  91
  105
  121
  138
  157
  176
  197
  218
  241
  259
  284
  310
  337
  366
  395
  426
  458
  491
  526
  562
  599
  638
  678
  720
  764
  809
  857
  906
  958
Operating income, $m
  16
  24
  30
  36
  43
  50
  58
  67
  75
  85
  95
  112
  123
  134
  146
  158
  171
  184
  198
  212
  227
  243
  259
  275
  293
  311
  330
  350
  370
  392
  414
EBITDA, $m
  23
  35
  41
  48
  56
  64
  73
  83
  93
  103
  114
  126
  138
  151
  164
  178
  193
  208
  223
  240
  256
  274
  292
  311
  331
  351
  372
  395
  418
  442
  467
Interest expense (income), $m
  1
  1
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
Earnings before tax, $m
  16
  23
  28
  34
  40
  46
  54
  61
  69
  78
  87
  103
  112
  123
  133
  145
  156
  168
  181
  194
  207
  221
  236
  251
  266
  283
  300
  318
  336
  356
  376
Tax expense, $m
  5
  6
  8
  9
  11
  13
  14
  17
  19
  21
  23
  28
  30
  33
  36
  39
  42
  45
  49
  52
  56
  60
  64
  68
  72
  76
  81
  86
  91
  96
  101
Net income, $m
  11
  17
  20
  25
  29
  34
  39
  45
  51
  57
  63
  75
  82
  90
  97
  105
  114
  123
  132
  141
  151
  161
  172
  183
  195
  207
  219
  232
  246
  260
  274

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6
  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
  161
  186
  221
  258
  300
  344
  392
  443
  496
  553
  613
  676
  741
  810
  881
  956
  1,033
  1,113
  1,197
  1,283
  1,374
  1,467
  1,565
  1,666
  1,772
  1,881
  1,996
  2,115
  2,239
  2,369
  2,504
Adjusted assets (=assets-cash), $m
  155
  186
  221
  258
  300
  344
  392
  443
  496
  553
  613
  676
  741
  810
  881
  956
  1,033
  1,113
  1,197
  1,283
  1,374
  1,467
  1,565
  1,666
  1,772
  1,881
  1,996
  2,115
  2,239
  2,369
  2,504
Revenue / Adjusted assets
  0.548
  0.548
  0.548
  0.550
  0.547
  0.549
  0.548
  0.546
  0.548
  0.548
  0.548
  0.547
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
Average production assets, $m
  50
  60
  71
  83
  97
  111
  126
  143
  160
  178
  198
  218
  239
  261
  284
  308
  333
  359
  386
  414
  443
  473
  504
  537
  571
  606
  643
  681
  721
  763
  807
Working capital, $m
  13
  12
  14
  17
  19
  22
  25
  29
  32
  36
  40
  44
  48
  52
  57
  62
  67
  72
  77
  83
  89
  95
  101
  108
  115
  122
  129
  137
  145
  153
  162
Total debt, $m
  45
  57
  73
  91
  110
  131
  153
  177
  203
  230
  258
  287
  318
  350
  384
  419
  455
  493
  533
  574
  616
  660
  706
  754
  803
  855
  909
  965
  1,024
  1,085
  1,148
Total liabilities, $m
  76
  88
  104
  122
  141
  162
  184
  208
  234
  261
  289
  318
  349
  381
  415
  450
  486
  524
  564
  605
  647
  691
  737
  785
  834
  886
  940
  996
  1,055
  1,116
  1,179
Total equity, $m
  85
  98
  117
  137
  158
  182
  207
  234
  263
  293
  324
  357
  392
  428
  466
  505
  546
  589
  633
  679
  727
  776
  828
  881
  937
  995
  1,056
  1,119
  1,184
  1,253
  1,324
Total liabilities and equity, $m
  161
  186
  221
  259
  299
  344
  391
  442
  497
  554
  613
  675
  741
  809
  881
  955
  1,032
  1,113
  1,197
  1,284
  1,374
  1,467
  1,565
  1,666
  1,771
  1,881
  1,996
  2,115
  2,239
  2,369
  2,503
Debt-to-equity ratio
  0.529
  0.580
  0.620
  0.660
  0.690
  0.720
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.820
  0.830
  0.830
  0.840
  0.840
  0.840
  0.850
  0.850
  0.850
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.870
  0.870
Adjusted equity ratio
  0.510
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  17
  20
  25
  29
  34
  39
  45
  51
  57
  63
  75
  82
  90
  97
  105
  114
  123
  132
  141
  151
  161
  172
  183
  195
  207
  219
  232
  246
  260
  274
Depreciation, amort., depletion, $m
  7
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  14
  16
  17
  19
  20
  22
  24
  26
  27
  29
  31
  33
  36
  38
  40
  43
  45
  48
  51
  53
Funds from operations, $m
  17
  27
  32
  37
  42
  48
  54
  61
  68
  75
  83
  89
  98
  107
  116
  126
  136
  146
  157
  169
  180
  193
  205
  219
  232
  247
  262
  277
  293
  310
  328
Change in working capital, $m
  0
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  17
  25
  29
  34
  39
  45
  51
  57
  64
  71
  79
  85
  94
  102
  112
  121
  131
  141
  152
  163
  175
  187
  199
  212
  226
  240
  254
  269
  285
  302
  319
Maintenance CAPEX, $m
  0
  -3
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -45
  -48
  -51
New CAPEX, $m
  -8
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
Cash from investing activities, $m
  -32
  -13
  -15
  -17
  -19
  -20
  -22
  -24
  -26
  -29
  -31
  -33
  -35
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -56
  -59
  -62
  -66
  -70
  -73
  -77
  -81
  -85
  -90
  -95
Free cash flow, $m
  -15
  12
  14
  17
  21
  24
  28
  33
  37
  43
  48
  52
  58
  65
  71
  78
  86
  93
  101
  110
  118
  127
  136
  146
  156
  166
  177
  188
  200
  212
  225
Issuance/(repayment) of debt, $m
  19
  15
  16
  18
  19
  21
  22
  24
  25
  27
  28
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  64
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  
  21
  15
  16
  18
  19
  21
  22
  24
  25
  27
  28
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  64
Total cash flow (excl. dividends), $m
  6
  27
  31
  35
  40
  45
  51
  57
  63
  69
  76
  82
  89
  97
  105
  113
  122
  131
  141
  150
  161
  171
  182
  194
  206
  218
  231
  245
  259
  273
  289
Retained Cash Flow (-), $m
  -12
  -16
  -18
  -20
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -66
  -69
  -72
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
  12
  15
  18
  22
  26
  30
  34
  39
  45
  48
  54
  61
  67
  74
  81
  89
  96
  105
  113
  122
  131
  140
  150
  160
  171
  182
  193
  205
  217
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  12
  11
  13
  14
  16
  17
  19
  20
  20
  21
  20
  20
  19
  18
  17
  16
  14
  13
  11
  10
  8
  7
  5
  4
  3
  3
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
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Mesa Laboratories, Inc. designs, manufactures, and markets quality control instruments and disposable products. The company’s Instruments segment offers data loggers, a precision instrument used in critical manufacturing, quality control, and validation applications; medical meters and calibration solutions used to test various parameters of the dialysis fluid, and the calibration and operation of the dialysis machine; gas flow calibration and air sampling equipment that are used for industrial hygiene assessments, calibration of gas metering equipment, and environmental air monitoring; and torque testing systems used for the packaging industry. This segment’s products are used in healthcare, pharmaceutical, food and beverage, medical device, industrial hygiene, environmental air sampling, and semiconductor industries. Its Biological Indicators segment manufactures and markets biological indicators comprising spore strips, self-contained products, and culture media, as well as process challenge devices; and testing services. This segment also distributes chemical indicators that are used to assess the effectiveness of sterilization processes, including steam, hydrogen peroxide, ethylene oxide, and radiation in the hospital, dental, medical device, and pharmaceutical industries. The company’s Continuous Monitoring segment offers systems, which are used to monitor various environmental parameters, such as temperature, humidity, and differential pressure for use in hospitals, pharmaceutical and medical device manufacturers, blood banks, pharmacies, and various other laboratory and industrial environments. Its Cold Chain segment provides parameter monitoring services for products in a cold chain; and consulting services. The company markets its products through distributors in the United States, Europe, Africa, Asia, South America, Australia, Canada, and Central America. Mesa Laboratories, Inc. was founded in 1982 and is headquartered in Lakewood, Colorado.

FINANCIAL RATIOS  of  Mesa Laboratories (MLAB)

Valuation Ratios
P/E Ratio 43.1
Price to Sales 5.6
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 27.9
Price to Free Cash Flow 52.6
Growth Rates
Sales Growth Rate 19.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 166.7%
Cap. Spend. - 3 Yr. Gr. Rate 51.6%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 49.4%
Total Debt to Equity 52.9%
Interest Coverage 17
Management Effectiveness
Return On Assets 8.4%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 9.6%
Ret/ On T. Cap. - 3 Yr. Avg. 11.3%
Return On Equity 13.9%
Return On Equity - 3 Yr. Avg. 14.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 60%
Gross Margin - 3 Yr. Avg. 60.3%
EBITDA Margin 28.2%
EBITDA Margin - 3 Yr. Avg. 30.4%
Operating Margin 20%
Oper. Margin - 3 Yr. Avg. 21.7%
Pre-Tax Margin 18.8%
Pre-Tax Margin - 3 Yr. Avg. 21.5%
Net Profit Margin 12.9%
Net Profit Margin - 3 Yr. Avg. 14.7%
Effective Tax Rate 31.3%
Eff/ Tax Rate - 3 Yr. Avg. 31.8%
Payout Ratio 18.2%

MLAB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MLAB stock intrinsic value calculation we used $85 million for the last fiscal year's total revenue generated by Mesa Laboratories. The default revenue input number comes from 2016 income statement of Mesa Laboratories. 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 MLAB stock valuation model: a) initial revenue growth rate of 20% 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 5.2%, whose default value for MLAB is calculated based on our internal credit rating of Mesa Laboratories, 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 Mesa Laboratories.
    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 MLAB stock the variable cost ratio is equal to 77.6%.

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 MLAB 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 Mesa Laboratories.

Corporate tax rate of 27% is the nominal tax rate for Mesa Laboratories. 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 MLAB 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 MLAB are equal to 58.8%.

Life of production assets of 15.1 years is the average useful life of capital assets used in Mesa Laboratories 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 MLAB is equal to 11.8%. 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 - $85 million for Mesa Laboratories - 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 3.644 million for Mesa Laboratories 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 Mesa Laboratories at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Mesa Labs posts 1Q profit   [Jul-31-17 11:02PM  Associated Press]
▶ Mesa Labs Declares Quarterly Dividend   [Jul-05-17 01:00PM  GlobeNewswire]
▶ Mesa Labs posts 4Q profit   [Jun-07-17 07:24AM  Associated Press]
▶ A Deep Analysis of 6 Five-Star Companies   [Jun-02-17 06:11PM  GuruFocus.com]
▶ Mesa Labs Declares Quarterly Dividend   [Apr-05-17 06:33PM  GlobeNewswire]
▶ Mesa Labs posts 3Q profit   [Feb-02-17 08:52AM  Associated Press]
▶ Mesa Labs Declares Quarterly Dividend   [Jan-03-17 12:00PM  GlobeNewswire]
▶ Mesa Labs Declares Quarterly Dividend   [Oct-04-16 02:00PM  GlobeNewswire]
Stock chart of MLAB Financial statements of MLAB
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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