Intrinsic value of Power Integrations - POWI

Previous Close

$65.50

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$65.50

 
Intrinsic value

$34.27

 
Up/down potential

-48%

 
Rating

sell

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

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

We calculate the intrinsic value of POWI 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 2.0

 

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, %
  12.50
  16.10
  14.99
  13.99
  13.09
  12.28
  11.55
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
Revenue, $m
  387
  449
  517
  589
  666
  748
  834
  925
  1,021
  1,120
  1,225
  1,333
  1,446
  1,564
  1,686
  1,813
  1,946
  2,083
  2,225
  2,374
  2,528
  2,689
  2,856
  3,030
  3,211
  3,400
  3,597
  3,803
  4,017
  4,242
  4,476
Variable operating expenses, $m
 
  364
  417
  475
  536
  600
  668
  740
  816
  895
  977
  1,054
  1,143
  1,236
  1,333
  1,433
  1,537
  1,646
  1,759
  1,876
  1,998
  2,125
  2,257
  2,394
  2,537
  2,687
  2,843
  3,005
  3,175
  3,352
  3,537
Fixed operating expenses, $m
 
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  55
Total operating expenses, $m
  340
  391
  444
  503
  565
  629
  698
  771
  848
  927
  1,010
  1,088
  1,178
  1,272
  1,370
  1,471
  1,576
  1,686
  1,800
  1,918
  2,041
  2,169
  2,302
  2,440
  2,584
  2,735
  2,892
  3,056
  3,227
  3,405
  3,592
Operating income, $m
  48
  58
  72
  86
  102
  118
  136
  154
  173
  193
  214
  246
  268
  292
  317
  343
  370
  397
  426
  456
  488
  520
  554
  590
  627
  665
  705
  747
  791
  837
  884
EBITDA, $m
  72
  84
  100
  117
  135
  155
  175
  197
  220
  244
  268
  294
  321
  350
  379
  409
  441
  474
  508
  543
  580
  619
  659
  701
  744
  790
  837
  887
  938
  992
  1,049
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
Earnings before tax, $m
  49
  58
  71
  86
  101
  117
  133
  151
  170
  190
  210
  240
  263
  286
  310
  335
  361
  388
  416
  445
  476
  507
  540
  575
  611
  648
  687
  728
  770
  815
  861
Tax expense, $m
  1
  16
  19
  23
  27
  31
  36
  41
  46
  51
  57
  65
  71
  77
  84
  90
  97
  105
  112
  120
  128
  137
  146
  155
  165
  175
  185
  196
  208
  220
  232
Net income, $m
  48
  43
  52
  62
  73
  85
  97
  110
  124
  138
  153
  176
  192
  209
  226
  244
  263
  283
  304
  325
  347
  370
  394
  420
  446
  473
  501
  531
  562
  595
  629

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  250
  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
  555
  354
  407
  464
  525
  589
  657
  729
  804
  883
  965
  1,051
  1,140
  1,232
  1,329
  1,429
  1,533
  1,641
  1,754
  1,871
  1,992
  2,119
  2,250
  2,388
  2,530
  2,679
  2,835
  2,997
  3,166
  3,343
  3,527
Adjusted assets (=assets-cash), $m
  305
  354
  407
  464
  525
  589
  657
  729
  804
  883
  965
  1,051
  1,140
  1,232
  1,329
  1,429
  1,533
  1,641
  1,754
  1,871
  1,992
  2,119
  2,250
  2,388
  2,530
  2,679
  2,835
  2,997
  3,166
  3,343
  3,527
Revenue / Adjusted assets
  1.269
  1.268
  1.270
  1.269
  1.269
  1.270
  1.269
  1.269
  1.270
  1.268
  1.269
  1.268
  1.268
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
  1.269
Average production assets, $m
  132
  153
  176
  201
  227
  255
  284
  315
  348
  382
  418
  455
  493
  533
  575
  618
  663
  710
  759
  809
  862
  917
  974
  1,033
  1,095
  1,159
  1,227
  1,297
  1,370
  1,446
  1,526
Working capital, $m
  259
  10
  12
  14
  15
  17
  19
  21
  23
  26
  28
  31
  33
  36
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  78
  83
  87
  92
  98
  103
Total debt, $m
  0
  11
  23
  35
  48
  63
  78
  93
  110
  127
  145
  164
  184
  204
  225
  247
  270
  294
  319
  345
  371
  399
  428
  458
  490
  522
  557
  592
  629
  668
  709
Total liabilities, $m
  67
  78
  90
  102
  115
  130
  145
  160
  177
  194
  212
  231
  251
  271
  292
  314
  337
  361
  386
  412
  438
  466
  495
  525
  557
  589
  624
  659
  696
  735
  776
Total equity, $m
  488
  276
  318
  362
  409
  460
  513
  569
  627
  689
  753
  819
  889
  961
  1,036
  1,115
  1,196
  1,280
  1,368
  1,459
  1,554
  1,653
  1,755
  1,862
  1,974
  2,090
  2,211
  2,337
  2,469
  2,607
  2,751
Total liabilities and equity, $m
  555
  354
  408
  464
  524
  590
  658
  729
  804
  883
  965
  1,050
  1,140
  1,232
  1,328
  1,429
  1,533
  1,641
  1,754
  1,871
  1,992
  2,119
  2,250
  2,387
  2,531
  2,679
  2,835
  2,996
  3,165
  3,342
  3,527
Debt-to-equity ratio
  0.000
  0.040
  0.070
  0.100
  0.120
  0.140
  0.150
  0.160
  0.180
  0.180
  0.190
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.260
  0.260
Adjusted equity ratio
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  48
  43
  52
  62
  73
  85
  97
  110
  124
  138
  153
  176
  192
  209
  226
  244
  263
  283
  304
  325
  347
  370
  394
  420
  446
  473
  501
  531
  562
  595
  629
Depreciation, amort., depletion, $m
  24
  26
  28
  31
  34
  37
  40
  43
  47
  50
  54
  49
  53
  57
  62
  66
  71
  76
  82
  87
  93
  99
  105
  111
  118
  125
  132
  139
  147
  156
  164
Funds from operations, $m
  103
  68
  80
  93
  107
  122
  137
  154
  171
  189
  207
  224
  245
  266
  288
  311
  335
  360
  385
  412
  440
  469
  499
  531
  563
  598
  633
  671
  709
  750
  793
Change in working capital, $m
  5
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
Cash from operations, $m
  98
  62
  79
  92
  105
  120
  135
  151
  168
  186
  205
  222
  242
  263
  285
  308
  332
  356
  382
  409
  436
  465
  495
  527
  559
  593
  629
  666
  705
  745
  787
Maintenance CAPEX, $m
  0
  -14
  -16
  -19
  -22
  -24
  -27
  -31
  -34
  -37
  -41
  -45
  -49
  -53
  -57
  -62
  -66
  -71
  -76
  -82
  -87
  -93
  -99
  -105
  -111
  -118
  -125
  -132
  -139
  -147
  -156
New CAPEX, $m
  -12
  -21
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -80
Cash from investing activities, $m
  -117
  -35
  -39
  -44
  -48
  -52
  -56
  -62
  -67
  -71
  -77
  -82
  -88
  -93
  -99
  -105
  -111
  -118
  -125
  -133
  -140
  -148
  -156
  -164
  -173
  -182
  -192
  -202
  -212
  -223
  -236
Free cash flow, $m
  -19
  26
  39
  48
  57
  68
  78
  90
  102
  115
  128
  140
  155
  170
  186
  203
  220
  238
  257
  276
  297
  318
  340
  363
  386
  411
  437
  464
  492
  521
  552
Issuance/(repayment) of debt, $m
  0
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
Issuance/(repurchase) of shares, $m
  7
  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  
  7
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
Total cash flow (excl. dividends), $m
  -13
  37
  51
  61
  71
  82
  93
  106
  119
  132
  146
  159
  174
  191
  207
  225
  243
  262
  282
  302
  323
  346
  369
  393
  418
  444
  471
  499
  529
  560
  592
Retained Cash Flow (-), $m
  -59
  -38
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -61
  -64
  -67
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -103
  -107
  -111
  -116
  -121
  -126
  -132
  -138
  -144
Prev. year cash balance distribution, $m
 
  250
  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
 
  249
  10
  16
  23
  31
  40
  50
  60
  71
  82
  92
  105
  118
  132
  147
  162
  178
  194
  211
  229
  247
  266
  286
  306
  328
  350
  373
  397
  422
  448
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
 
  239
  9
  14
  19
  24
  29
  34
  37
  41
  43
  44
  45
  45
  44
  43
  41
  39
  36
  32
  29
  26
  22
  19
  16
  13
  10
  8
  6
  5
  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
  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

Power Integrations, Inc. designs, develops, and markets analog and mixed-signal integrated circuits, and other electronic components and circuitry used in high-voltage power conversion. The company offers a range of alternating current to direct current (DC) power conversion products that address power supply ranging from less than 1 watt of output to approximately 500 watts of output for mobile-device chargers, consumer appliances, utility meters, LCD monitors, main and standby power supplies for desktop computers and TVs, LED lamps, and other consumer and industrial applications. It also provides high-voltage diodes; and high-voltage gate-driver products under the SCALE and SCALE-2 product-family names. In addition, the company offers monolithic high-voltage DC-DC power conversion ICs designed for use in power-over-Ethernet powered devices, such as voice-over-IP phones and security cameras, as well as network hubs, line cards, servers, digital PBX phones, and DC-DC converter modules and industrial controls. Power Integrations, Inc. serves communications, computer, consumer, and industrial markets. The company sells its products to original equipment manufacturers and merchant power supply manufacturers directly, as well as through a network of independent sales representatives and distributors worldwide. Power Integrations, Inc. was founded in 1988 and is headquartered in San Jose, California.

FINANCIAL RATIOS  of  Power Integrations (POWI)

Valuation Ratios
P/E Ratio 39.9
Price to Sales 5
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 19.5
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 12.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -45.5%
Cap. Spend. - 3 Yr. Gr. Rate -3%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.2%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 10.5%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 10.5%
Return On Equity - 3 Yr. Avg. 11.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 49.4%
Gross Margin - 3 Yr. Avg. 51.4%
EBITDA Margin 18.9%
EBITDA Margin - 3 Yr. Avg. 19.8%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 13.2%
Pre-Tax Margin 12.7%
Pre-Tax Margin - 3 Yr. Avg. 13.4%
Net Profit Margin 12.4%
Net Profit Margin - 3 Yr. Avg. 13.6%
Effective Tax Rate 2%
Eff/ Tax Rate - 3 Yr. Avg. -1.1%
Payout Ratio 31.3%

POWI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the POWI stock intrinsic value calculation we used $387 million for the last fiscal year's total revenue generated by Power Integrations. The default revenue input number comes from 2016 income statement of Power Integrations. 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 POWI stock valuation model: a) initial revenue growth rate of 16.1% 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 POWI is calculated based on our internal credit rating of Power Integrations, 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 Power Integrations.
    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 POWI stock the variable cost ratio is equal to 81.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $26 million in the base year in the intrinsic value calculation for POWI 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 Power Integrations.

Corporate tax rate of 27% is the nominal tax rate for Power Integrations. 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 POWI 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 POWI are equal to 34.1%.

Life of production assets of 9.3 years is the average useful life of capital assets used in Power Integrations 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 POWI is equal to 2.3%. 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 - $488 million for Power Integrations - 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 29.81 million for Power Integrations 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 Power Integrations at the current share price and the inputted number of shares is $2.0 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
MPWR Monolithic Pow 93.37 42.23  str.sell
ON ON Semiconduct 14.19 91.62  str.buy
NXPI NXP Semiconduc 104.36 553.62  str.buy
TXN Texas Instrume 79.81 60.00  sell
STM STMicroelectro 14.64 1.74  str.sell
OIIM O2Micro Intern 2.49 0.80  str.sell

COMPANY NEWS

▶ Power Integrations posts 4Q profit   [Feb-01-17 05:50PM  Associated Press]
▶ Do Hedge Funds Love Innocoll Holdings PLC (INNL)?   [Dec-12-16 06:19PM  at Insider Monkey]
▶ 4 Likely Semiconductor Merger and Acquisition Targets   [Jun-01-16 10:55AM  at 24/7 Wall St.]
Stock chart of POWI Financial statements of POWI
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.