Intrinsic value of Orbotech - ORBK

Previous Close

$44.01

  Intrinsic Value

$47.60

stock screener

  Rating & Target

hold

+8%

  Value-price divergence*

+14%

Previous close

$44.01

 
Intrinsic value

$47.60

 
Up/down potential

+8%

 
Rating

hold

 
Value-price divergence*

+14%

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

We calculate the intrinsic value of ORBK 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 2.1

 

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, %
  7.04
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
Revenue, $m
  806
  868
  933
  1,000
  1,069
  1,142
  1,217
  1,295
  1,377
  1,462
  1,550
  1,642
  1,738
  1,838
  1,943
  2,052
  2,166
  2,285
  2,409
  2,540
  2,676
  2,819
  2,968
  3,124
  3,288
  3,459
  3,639
  3,827
  4,025
  4,232
  4,448
Variable operating expenses, $m
 
  506
  542
  580
  619
  659
  702
  746
  792
  839
  889
  923
  977
  1,033
  1,092
  1,153
  1,218
  1,285
  1,355
  1,428
  1,504
  1,584
  1,668
  1,756
  1,848
  1,945
  2,046
  2,152
  2,262
  2,379
  2,501
Fixed operating expenses, $m
 
  229
  234
  240
  246
  252
  259
  265
  272
  278
  285
  293
  300
  307
  315
  323
  331
  339
  348
  356
  365
  375
  384
  394
  403
  413
  424
  434
  445
  456
  468
Total operating expenses, $m
  689
  735
  776
  820
  865
  911
  961
  1,011
  1,064
  1,117
  1,174
  1,216
  1,277
  1,340
  1,407
  1,476
  1,549
  1,624
  1,703
  1,784
  1,869
  1,959
  2,052
  2,150
  2,251
  2,358
  2,470
  2,586
  2,707
  2,835
  2,969
Operating income, $m
  117
  134
  156
  180
  204
  230
  257
  284
  313
  344
  376
  426
  461
  497
  535
  575
  617
  661
  707
  755
  806
  860
  916
  974
  1,036
  1,101
  1,169
  1,241
  1,317
  1,396
  1,480
EBITDA, $m
  162
  172
  196
  221
  247
  275
  303
  333
  364
  396
  430
  465
  502
  541
  582
  624
  669
  715
  764
  816
  870
  926
  986
  1,048
  1,114
  1,183
  1,256
  1,332
  1,412
  1,497
  1,586
Interest expense (income), $m
  0
  3
  3
  4
  5
  6
  7
  8
  10
  11
  12
  13
  15
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  49
  52
Earnings before tax, $m
  96
  131
  153
  176
  199
  224
  249
  276
  304
  333
  364
  413
  446
  481
  518
  556
  597
  639
  683
  730
  779
  830
  884
  941
  1,000
  1,063
  1,129
  1,198
  1,271
  1,347
  1,428
Tax expense, $m
  16
  35
  41
  47
  54
  60
  67
  75
  82
  90
  98
  112
  121
  130
  140
  150
  161
  173
  184
  197
  210
  224
  239
  254
  270
  287
  305
  323
  343
  364
  386
Net income, $m
  79
  96
  112
  128
  145
  163
  182
  201
  222
  243
  265
  302
  326
  351
  378
  406
  436
  466
  499
  533
  568
  606
  645
  687
  730
  776
  824
  874
  928
  984
  1,042

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  217
  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
  1,103
  954
  1,025
  1,098
  1,175
  1,255
  1,337
  1,423
  1,513
  1,606
  1,703
  1,804
  1,910
  2,020
  2,135
  2,255
  2,380
  2,511
  2,648
  2,791
  2,941
  3,097
  3,261
  3,433
  3,613
  3,801
  3,999
  4,206
  4,423
  4,650
  4,888
Adjusted assets (=assets-cash), $m
  886
  954
  1,025
  1,098
  1,175
  1,255
  1,337
  1,423
  1,513
  1,606
  1,703
  1,804
  1,910
  2,020
  2,135
  2,255
  2,380
  2,511
  2,648
  2,791
  2,941
  3,097
  3,261
  3,433
  3,613
  3,801
  3,999
  4,206
  4,423
  4,650
  4,888
Revenue / Adjusted assets
  0.910
  0.910
  0.910
  0.911
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
Average production assets, $m
  128
  138
  148
  159
  170
  182
  193
  206
  219
  232
  246
  261
  276
  292
  309
  326
  344
  363
  383
  404
  425
  448
  472
  497
  523
  550
  579
  609
  640
  673
  707
Working capital, $m
  504
  326
  351
  376
  402
  429
  458
  487
  518
  550
  583
  617
  653
  691
  730
  771
  814
  859
  906
  955
  1,006
  1,060
  1,116
  1,175
  1,236
  1,301
  1,368
  1,439
  1,513
  1,591
  1,673
Total debt, $m
  88
  98
  124
  152
  181
  211
  242
  274
  308
  343
  379
  417
  457
  499
  542
  587
  634
  683
  735
  788
  845
  904
  965
  1,030
  1,097
  1,168
  1,243
  1,320
  1,402
  1,487
  1,577
Total liabilities, $m
  349
  359
  385
  413
  442
  472
  503
  535
  569
  604
  640
  678
  718
  760
  803
  848
  895
  944
  996
  1,049
  1,106
  1,165
  1,226
  1,291
  1,358
  1,429
  1,504
  1,581
  1,663
  1,748
  1,838
Total equity, $m
  754
  595
  639
  685
  733
  783
  834
  888
  944
  1,002
  1,063
  1,126
  1,192
  1,260
  1,332
  1,407
  1,485
  1,567
  1,652
  1,742
  1,835
  1,933
  2,035
  2,142
  2,254
  2,372
  2,495
  2,624
  2,760
  2,902
  3,050
Total liabilities and equity, $m
  1,103
  954
  1,024
  1,098
  1,175
  1,255
  1,337
  1,423
  1,513
  1,606
  1,703
  1,804
  1,910
  2,020
  2,135
  2,255
  2,380
  2,511
  2,648
  2,791
  2,941
  3,098
  3,261
  3,433
  3,612
  3,801
  3,999
  4,205
  4,423
  4,650
  4,888
Debt-to-equity ratio
  0.117
  0.160
  0.190
  0.220
  0.250
  0.270
  0.290
  0.310
  0.330
  0.340
  0.360
  0.370
  0.380
  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
Adjusted equity ratio
  0.606
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  79
  96
  112
  128
  145
  163
  182
  201
  222
  243
  265
  302
  326
  351
  378
  406
  436
  466
  499
  533
  568
  606
  645
  687
  730
  776
  824
  874
  928
  984
  1,042
Depreciation, amort., depletion, $m
  45
  38
  40
  41
  43
  45
  46
  48
  50
  52
  54
  39
  41
  44
  46
  49
  51
  54
  57
  60
  64
  67
  70
  74
  78
  82
  86
  91
  96
  100
  106
Funds from operations, $m
  78
  134
  151
  169
  188
  208
  228
  250
  272
  295
  320
  340
  367
  395
  424
  455
  487
  521
  556
  593
  632
  673
  716
  761
  808
  858
  910
  965
  1,023
  1,084
  1,148
Change in working capital, $m
  -30
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  64
  68
  71
  74
  78
  82
Cash from operations, $m
  108
  111
  127
  144
  162
  181
  200
  220
  241
  264
  287
  306
  331
  357
  385
  414
  444
  476
  509
  544
  581
  619
  660
  702
  747
  793
  843
  894
  949
  1,006
  1,066
Maintenance CAPEX, $m
  0
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -91
  -96
  -100
New CAPEX, $m
  -24
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
Cash from investing activities, $m
  -11
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -52
  -54
  -57
  -61
  -63
  -67
  -70
  -74
  -78
  -82
  -87
  -91
  -95
  -100
  -105
  -111
  -116
  -122
  -129
  -134
Free cash flow, $m
  97
  82
  96
  111
  127
  144
  161
  179
  198
  217
  238
  254
  277
  300
  325
  350
  377
  406
  435
  466
  499
  533
  569
  607
  646
  688
  732
  778
  827
  878
  931
Issuance/(repayment) of debt, $m
  -152
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  85
  90
Issuance/(repurchase) of shares, $m
  107
  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  
  -44
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  85
  90
Total cash flow (excl. dividends), $m
  53
  107
  123
  139
  156
  174
  192
  211
  231
  252
  274
  292
  316
  342
  368
  395
  424
  455
  487
  520
  555
  592
  631
  671
  714
  759
  806
  856
  908
  963
  1,021
Retained Cash Flow (-), $m
  -185
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -118
  -123
  -129
  -135
  -142
  -149
Prev. year cash balance distribution, $m
 
  201
  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
 
  266
  79
  93
  108
  124
  141
  158
  176
  194
  214
  229
  251
  273
  296
  321
  346
  373
  401
  431
  462
  494
  528
  564
  602
  641
  683
  727
  773
  821
  872
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
 
  255
  72
  81
  89
  96
  102
  107
  110
  112
  112
  109
  107
  104
  99
  94
  88
  81
  74
  66
  59
  51
  44
  37
  31
  25
  20
  16
  12
  9
  7
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

Orbotech Ltd. is a supplier of yield-enhancing and process-enabling solutions for the manufacture of electronics products. The Company provides cutting-edge solutions for use in the manufacture of printed circuit boards (PCBs), flat panel displays (FPDs) and semiconductor devices (SDs). The Company's segments include Production Solutions for the Electronics Industry, Solar Energy and Recognition Software. The Production Solutions for the Electronics Industry segment is engaged in the design, development, manufacture, marketing and service of yield-enhancing and process-enabling solutions for the manufacture of electronics products. The Solar Energy segment is engaged in the design, development, manufacture and marketing of solar photovoltaic energy systems that produce electricity directly from sunlight. The Recognition Software segment is engaged in the development and marketing of check processing and healthcare payment automation solutions.

FINANCIAL RATIOS  of  Orbotech (ORBK)

Valuation Ratios
P/E Ratio 26.6
Price to Sales 2.6
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 19.5
Price to Free Cash Flow 25
Growth Rates
Sales Growth Rate 7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.3%
Cap. Spend. - 3 Yr. Gr. Rate 13%
Financial Strength
Quick Ratio 14
Current Ratio 0.1
LT Debt to Equity 9.5%
Total Debt to Equity 11.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 7.4%
Ret/ On Assets - 3 Yr. Avg. 6.3%
Return On Total Capital 9.6%
Ret/ On T. Cap. - 3 Yr. Avg. 7.4%
Return On Equity 11.9%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 46.2%
Gross Margin - 3 Yr. Avg. 44.9%
EBITDA Margin 17.5%
EBITDA Margin - 3 Yr. Avg. 15.9%
Operating Margin 14.5%
Oper. Margin - 3 Yr. Avg. 11.8%
Pre-Tax Margin 11.9%
Pre-Tax Margin - 3 Yr. Avg. 9.3%
Net Profit Margin 9.8%
Net Profit Margin - 3 Yr. Avg. 7.8%
Effective Tax Rate 16.7%
Eff/ Tax Rate - 3 Yr. Avg. 14.7%
Payout Ratio 0%

ORBK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ORBK stock intrinsic value calculation we used $806 million for the last fiscal year's total revenue generated by Orbotech. The default revenue input number comes from 2016 income statement of Orbotech. 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 ORBK stock valuation model: a) initial revenue growth rate of 7.7% 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 ORBK is calculated based on our internal credit rating of Orbotech, 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 Orbotech.
    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 ORBK stock the variable cost ratio is equal to 58.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $223 million in the base year in the intrinsic value calculation for ORBK 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 Orbotech.

Corporate tax rate of 27% is the nominal tax rate for Orbotech. 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 ORBK 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 ORBK are equal to 15.9%.

Life of production assets of 6.7 years is the average useful life of capital assets used in Orbotech 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 ORBK is equal to 37.6%. 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 - $754 million for Orbotech - 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 47.923 million for Orbotech 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 Orbotech at the current share price and the inputted number of shares is $2.1 billion.

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COMPANY NEWS

▶ Have Investors Already Priced In Orbotech Ltds (ORBK) Growth?   [Sep-19-17 11:03AM  Simply Wall St.]
▶ Orbotech tops Street 2Q forecasts   [Aug-02-17 09:54PM  Associated Press]
▶ ETFs with exposure to Orbotech Ltd. : July 24, 2017   [Jul-24-17 05:49PM  Capital Cube]
▶ ETFs with exposure to Orbotech Ltd. : July 14, 2017   [Jul-14-17 04:03PM  Capital Cube]
▶ Chip Stocks And Semiconductor Industry News   [May-18-17 12:52PM  Investor's Business Daily]
▶ What Makes Orbotech (ORBK) a Strong Sell?   [Feb-28-17 08:47AM  Zacks]
▶ Why Shares of Orbotech Ltd. Are Down Today   [11:48AM  at Motley Fool]
Financial statements of ORBK
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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