Intrinsic value of Photronics - PLAB

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$11.10

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$11.10

 
Intrinsic value

$7.84

 
Up/down potential

-29%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of PLAB 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 0.8

 

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, %
  -7.82
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  483
  493
  504
  517
  531
  548
  565
  585
  605
  628
  652
  678
  705
  734
  766
  799
  834
  871
  910
  951
  995
  1,041
  1,090
  1,141
  1,195
  1,252
  1,312
  1,375
  1,441
  1,511
  1,584
Variable operating expenses, $m
 
  252
  258
  264
  272
  280
  289
  299
  309
  321
  333
  346
  360
  375
  391
  408
  426
  445
  465
  486
  508
  532
  557
  583
  611
  640
  670
  703
  736
  772
  810
Fixed operating expenses, $m
 
  194
  199
  204
  209
  214
  219
  225
  230
  236
  242
  248
  254
  261
  267
  274
  281
  288
  295
  302
  310
  317
  325
  334
  342
  350
  359
  368
  377
  387
  396
Total operating expenses, $m
  431
  446
  457
  468
  481
  494
  508
  524
  539
  557
  575
  594
  614
  636
  658
  682
  707
  733
  760
  788
  818
  849
  882
  917
  953
  990
  1,029
  1,071
  1,113
  1,159
  1,206
Operating income, $m
  52
  47
  48
  49
  51
  54
  57
  61
  66
  71
  77
  83
  91
  99
  107
  117
  127
  138
  150
  163
  177
  192
  207
  224
  243
  262
  282
  304
  327
  352
  378
EBITDA, $m
  130
  127
  130
  133
  138
  143
  149
  156
  164
  173
  183
  194
  205
  218
  232
  247
  263
  280
  298
  318
  339
  361
  385
  410
  437
  465
  496
  528
  562
  598
  636
Interest expense (income), $m
  0
  2
  2
  3
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
Earnings before tax, $m
  60
  45
  46
  47
  48
  51
  54
  57
  62
  66
  72
  78
  85
  92
  100
  109
  119
  129
  140
  152
  165
  179
  194
  210
  227
  246
  265
  286
  308
  331
  356
Tax expense, $m
  4
  12
  12
  13
  13
  14
  15
  15
  17
  18
  19
  21
  23
  25
  27
  29
  32
  35
  38
  41
  45
  48
  52
  57
  61
  66
  72
  77
  83
  89
  96
Net income, $m
  46
  33
  33
  34
  35
  37
  39
  42
  45
  48
  52
  57
  62
  67
  73
  80
  87
  94
  102
  111
  121
  131
  142
  153
  166
  179
  193
  208
  225
  242
  260

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  314
  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
  988
  687
  703
  721
  741
  764
  788
  815
  844
  876
  909
  945
  984
  1,024
  1,068
  1,114
  1,163
  1,214
  1,269
  1,327
  1,388
  1,452
  1,520
  1,591
  1,667
  1,746
  1,830
  1,917
  2,010
  2,107
  2,210
Adjusted assets (=assets-cash), $m
  674
  687
  703
  721
  741
  764
  788
  815
  844
  876
  909
  945
  984
  1,024
  1,068
  1,114
  1,163
  1,214
  1,269
  1,327
  1,388
  1,452
  1,520
  1,591
  1,667
  1,746
  1,830
  1,917
  2,010
  2,107
  2,210
Revenue / Adjusted assets
  0.717
  0.718
  0.717
  0.717
  0.717
  0.717
  0.717
  0.718
  0.717
  0.717
  0.717
  0.717
  0.716
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
  0.717
Average production assets, $m
  550
  561
  574
  588
  605
  623
  643
  665
  689
  714
  742
  771
  803
  836
  871
  909
  949
  991
  1,035
  1,083
  1,132
  1,185
  1,240
  1,298
  1,360
  1,425
  1,493
  1,565
  1,640
  1,719
  1,803
Working capital, $m
  361
  53
  54
  56
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  107
  112
  118
  123
  129
  135
  142
  148
  156
  163
  171
Total debt, $m
  67
  67
  74
  81
  89
  98
  108
  119
  131
  144
  157
  172
  187
  204
  221
  240
  260
  281
  303
  326
  351
  377
  405
  433
  464
  496
  530
  566
  603
  642
  684
Total liabilities, $m
  278
  278
  285
  292
  300
  309
  319
  330
  342
  355
  368
  383
  398
  415
  432
  451
  471
  492
  514
  537
  562
  588
  616
  644
  675
  707
  741
  777
  814
  853
  895
Total equity, $m
  710
  409
  418
  429
  441
  454
  469
  485
  502
  521
  541
  562
  585
  610
  635
  663
  692
  723
  755
  789
  826
  864
  904
  947
  992
  1,039
  1,089
  1,141
  1,196
  1,254
  1,315
Total liabilities and equity, $m
  988
  687
  703
  721
  741
  763
  788
  815
  844
  876
  909
  945
  983
  1,025
  1,067
  1,114
  1,163
  1,215
  1,269
  1,326
  1,388
  1,452
  1,520
  1,591
  1,667
  1,746
  1,830
  1,918
  2,010
  2,107
  2,210
Debt-to-equity ratio
  0.094
  0.160
  0.180
  0.190
  0.200
  0.220
  0.230
  0.250
  0.260
  0.280
  0.290
  0.310
  0.320
  0.330
  0.350
  0.360
  0.380
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.500
  0.510
  0.520
Adjusted equity ratio
  0.588
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  46
  33
  33
  34
  35
  37
  39
  42
  45
  48
  52
  57
  62
  67
  73
  80
  87
  94
  102
  111
  121
  131
  142
  153
  166
  179
  193
  208
  225
  242
  260
Depreciation, amort., depletion, $m
  78
  80
  82
  84
  86
  89
  92
  95
  98
  102
  106
  110
  115
  119
  124
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  204
  213
  224
  234
  246
  258
Funds from operations, $m
  115
  113
  115
  118
  122
  126
  131
  137
  143
  151
  158
  167
  176
  187
  198
  209
  222
  236
  250
  266
  283
  300
  319
  339
  360
  383
  407
  432
  459
  487
  517
Change in working capital, $m
  -7
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
Cash from operations, $m
  122
  89
  114
  117
  120
  124
  129
  135
  141
  148
  156
  164
  173
  183
  194
  206
  218
  232
  246
  261
  278
  295
  314
  333
  354
  377
  400
  425
  452
  480
  509
Maintenance CAPEX, $m
  0
  -79
  -80
  -82
  -84
  -86
  -89
  -92
  -95
  -98
  -102
  -106
  -110
  -115
  -119
  -124
  -130
  -136
  -142
  -148
  -155
  -162
  -169
  -177
  -185
  -194
  -204
  -213
  -224
  -234
  -246
New CAPEX, $m
  -50
  -11
  -13
  -15
  -17
  -18
  -20
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -38
  -40
  -42
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -75
  -79
  -84
Cash from investing activities, $m
  52
  -90
  -93
  -97
  -101
  -104
  -109
  -114
  -119
  -124
  -129
  -135
  -141
  -148
  -154
  -162
  -170
  -178
  -187
  -195
  -205
  -214
  -224
  -235
  -246
  -259
  -272
  -285
  -299
  -313
  -330
Free cash flow, $m
  174
  0
  21
  20
  20
  20
  20
  21
  22
  24
  26
  29
  32
  35
  39
  44
  49
  54
  60
  66
  73
  81
  89
  98
  107
  118
  129
  140
  153
  166
  180
Issuance/(repayment) of debt, $m
  -58
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  37
  39
  41
Issuance/(repurchase) of shares, $m
  -1
  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  
  -67
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  37
  39
  41
Total cash flow (excl. dividends), $m
  108
  5
  27
  27
  28
  29
  30
  32
  34
  37
  40
  44
  48
  52
  57
  62
  68
  75
  82
  90
  98
  107
  117
  127
  138
  150
  162
  176
  190
  205
  222
Retained Cash Flow (-), $m
  -63
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -17
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
Prev. year cash balance distribution, $m
 
  309
  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
 
  306
  18
  17
  16
  15
  15
  16
  17
  18
  20
  22
  25
  28
  31
  35
  39
  44
  50
  55
  62
  69
  76
  84
  93
  103
  113
  123
  135
  148
  161
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
 
  294
  16
  14
  13
  12
  11
  11
  11
  10
  10
  11
  11
  11
  10
  10
  10
  10
  9
  9
  8
  7
  6
  6
  5
  4
  3
  3
  2
  2
  1
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

Photronics, Inc., together with its subsidiaries, manufactures and sells photomasks in Taiwan, Korea, the United States, Europe, and internationally. It offers photomasks, which are high precision photographic quartz plates containing microscopic images of electronic circuits for use in the manufacture of semiconductors and flat panel displays (FPDs), as well as that are used as masters to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, FPDs, and other types of electrical and optical components. The company sells its products to semiconductor or FPD designers, manufacturers, and foundries, as well as to other high performance electronics manufacturers through its sales personnel and customer service representatives. Photronics, Inc. was founded in 1969 and is based in Brookfield, Connecticut.

FINANCIAL RATIOS  of  Photronics (PLAB)

Valuation Ratios
P/E Ratio 16.4
Price to Sales 1.6
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 10.5
Growth Rates
Sales Growth Rate -7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -52.4%
Cap. Spend. - 3 Yr. Gr. Rate -5.4%
Financial Strength
Quick Ratio 63
Current Ratio 0.2
LT Debt to Equity 8.7%
Total Debt to Equity 9.4%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital 5.9%
Ret/ On T. Cap. - 3 Yr. Avg. 5%
Return On Equity 6.8%
Return On Equity - 3 Yr. Avg. 6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 24.6%
Gross Margin - 3 Yr. Avg. 24.6%
EBITDA Margin 28.6%
EBITDA Margin - 3 Yr. Avg. 27.1%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 11.5%
Pre-Tax Margin 12.4%
Pre-Tax Margin - 3 Yr. Avg. 11.6%
Net Profit Margin 9.5%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 6.7%
Eff/ Tax Rate - 3 Yr. Avg. 15.7%
Payout Ratio 0%

PLAB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PLAB stock intrinsic value calculation we used $483 million for the last fiscal year's total revenue generated by Photronics. The default revenue input number comes from 2016 income statement of Photronics. 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 PLAB stock valuation model: a) initial revenue growth rate of 2% 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 PLAB is calculated based on our internal credit rating of Photronics, 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 Photronics.
    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 PLAB stock the variable cost ratio is equal to 51.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $189 million in the base year in the intrinsic value calculation for PLAB 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 Photronics.

Corporate tax rate of 27% is the nominal tax rate for Photronics. 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 PLAB 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 PLAB are equal to 113.8%.

Life of production assets of 7 years is the average useful life of capital assets used in Photronics 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 PLAB is equal to 10.8%. 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 - $710 million for Photronics - 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 69.051 million for Photronics 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 Photronics at the current share price and the inputted number of shares is $0.8 billion.


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COMPANY NEWS

▶ Photronics misses 1Q profit forecasts   [06:06AM  Associated Press]
▶ ETFs with exposure to Photronics, Inc. : January 12, 2017   [Jan-12-17 02:22PM  Capital Cube]
▶ Hedge Funds Arent Crazy About Photronics, Inc. (PLAB) Anymore   [Dec-05-16 02:04AM  at Insider Monkey]
▶ Photronics Receives Best Partner Award from UMC   [Nov-28-16 04:30PM  Marketwired]
▶ Why Photronics, Inc. Stock Plunged Today   [Nov-11-16 08:27PM  at Motley Fool]
▶ Why Photronics, Inc. Plunged Thursday Morning   [Feb-11-16 01:02PM  at Motley Fool]
▶ Semiconductor Equipment Stocks Rise Amid Acquisitions   [Feb-01-16 05:56PM  at Investor's Business Daily]
▶ Insiders Were Offloading Shares of These 3 Companies This Week   [Jan-22-16 11:59AM  at Insider Monkey]
Stock chart of PLAB Financial statements of PLAB
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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