Intrinsic value of Power Integrations - POWI

Previous Close

$74.40

  Intrinsic Value

$29.23

stock screener

  Rating & Target

str. sell

-61%

Previous close

$74.40

 
Intrinsic value

$29.23

 
Up/down potential

-61%

 
Rating

str. sell

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 2.2

 

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
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
Revenue, $m
  387
  426
  468
  511
  556
  603
  651
  702
  754
  809
  866
  925
  986
  1,050
  1,116
  1,185
  1,257
  1,332
  1,410
  1,492
  1,577
  1,665
  1,758
  1,855
  1,956
  2,062
  2,173
  2,289
  2,410
  2,538
  2,671
Variable operating expenses, $m
 
  346
  379
  413
  448
  485
  524
  564
  605
  648
  693
  731
  779
  829
  882
  936
  993
  1,053
  1,114
  1,179
  1,246
  1,316
  1,389
  1,466
  1,546
  1,630
  1,717
  1,809
  1,905
  2,005
  2,110
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
  373
  406
  441
  477
  514
  554
  595
  637
  680
  726
  765
  814
  865
  919
  974
  1,032
  1,093
  1,155
  1,221
  1,289
  1,360
  1,434
  1,512
  1,593
  1,678
  1,766
  1,860
  1,957
  2,058
  2,165
Operating income, $m
  48
  54
  62
  70
  79
  88
  97
  107
  117
  128
  139
  160
  172
  184
  197
  211
  225
  240
  255
  271
  288
  306
  324
  343
  363
  384
  406
  430
  454
  479
  506
EBITDA, $m
  72
  75
  85
  94
  104
  115
  126
  137
  149
  161
  174
  187
  201
  215
  230
  246
  262
  279
  297
  315
  335
  355
  376
  398
  421
  445
  470
  497
  525
  554
  584
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
Earnings before tax, $m
  49
  54
  61
  70
  78
  87
  96
  106
  116
  126
  137
  158
  169
  182
  194
  208
  221
  236
  251
  267
  283
  300
  318
  337
  357
  377
  399
  421
  445
  470
  496
Tax expense, $m
  1
  14
  17
  19
  21
  23
  26
  29
  31
  34
  37
  43
  46
  49
  52
  56
  60
  64
  68
  72
  76
  81
  86
  91
  96
  102
  108
  114
  120
  127
  134
Net income, $m
  48
  39
  45
  51
  57
  64
  70
  77
  85
  92
  100
  115
  124
  133
  142
  152
  162
  172
  183
  195
  207
  219
  232
  246
  260
  275
  291
  308
  325
  343
  362

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
  554
  335
  367
  401
  437
  473
  511
  551
  592
  635
  680
  726
  774
  825
  877
  931
  987
  1,046
  1,108
  1,172
  1,239
  1,308
  1,381
  1,457
  1,537
  1,620
  1,707
  1,798
  1,894
  1,993
  2,098
Adjusted assets (=assets-cash), $m
  304
  335
  367
  401
  437
  473
  511
  551
  592
  635
  680
  726
  774
  825
  877
  931
  987
  1,046
  1,108
  1,172
  1,239
  1,308
  1,381
  1,457
  1,537
  1,620
  1,707
  1,798
  1,894
  1,993
  2,098
Revenue / Adjusted assets
  1.273
  1.272
  1.275
  1.274
  1.272
  1.275
  1.274
  1.274
  1.274
  1.274
  1.274
  1.274
  1.274
  1.273
  1.273
  1.273
  1.274
  1.273
  1.273
  1.273
  1.273
  1.273
  1.273
  1.273
  1.273
  1.273
  1.273
  1.273
  1.272
  1.273
  1.273
Average production assets, $m
  85
  93
  102
  111
  121
  131
  142
  153
  164
  176
  189
  202
  215
  229
  243
  258
  274
  290
  307
  325
  344
  363
  383
  404
  426
  450
  474
  499
  525
  553
  582
Working capital, $m
  274
  26
  29
  32
  34
  37
  40
  44
  47
  50
  54
  57
  61
  65
  69
  73
  78
  83
  87
  92
  98
  103
  109
  115
  121
  128
  135
  142
  149
  157
  166
Total debt, $m
  0
  5
  11
  16
  22
  29
  35
  42
  49
  56
  63
  71
  79
  88
  96
  105
  115
  125
  135
  146
  157
  169
  181
  194
  207
  221
  236
  251
  267
  284
  301
Total liabilities, $m
  51
  56
  62
  67
  73
  80
  86
  93
  100
  107
  114
  122
  130
  139
  147
  156
  166
  176
  186
  197
  208
  220
  232
  245
  258
  272
  287
  302
  318
  335
  352
Total equity, $m
  503
  279
  306
  334
  363
  394
  426
  459
  493
  529
  566
  604
  644
  686
  729
  774
  822
  871
  922
  975
  1,030
  1,088
  1,149
  1,212
  1,279
  1,348
  1,420
  1,496
  1,575
  1,658
  1,745
Total liabilities and equity, $m
  554
  335
  368
  401
  436
  474
  512
  552
  593
  636
  680
  726
  774
  825
  876
  930
  988
  1,047
  1,108
  1,172
  1,238
  1,308
  1,381
  1,457
  1,537
  1,620
  1,707
  1,798
  1,893
  1,993
  2,097
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.160
  0.160
  0.170
  0.170
  0.170
  0.170
  0.170
Adjusted equity ratio
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  48
  39
  45
  51
  57
  64
  70
  77
  85
  92
  100
  115
  124
  133
  142
  152
  162
  172
  183
  195
  207
  219
  232
  246
  260
  275
  291
  308
  325
  343
  362
Depreciation, amort., depletion, $m
  24
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  27
  29
  31
  33
  35
  37
  39
  42
  44
  46
  49
  52
  55
  58
  61
  64
  67
  71
  75
  79
Funds from operations, $m
  103
  61
  68
  75
  83
  90
  99
  107
  116
  125
  135
  142
  153
  163
  175
  186
  199
  211
  225
  239
  253
  268
  284
  301
  318
  336
  355
  375
  396
  418
  441
Change in working capital, $m
  5
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
Cash from operations, $m
  98
  58
  65
  72
  80
  88
  96
  104
  113
  122
  131
  139
  149
  160
  171
  182
  194
  207
  220
  234
  248
  263
  278
  295
  312
  330
  348
  368
  388
  410
  432
Maintenance CAPEX, $m
  0
  -11
  -13
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
New CAPEX, $m
  -12
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
Cash from investing activities, $m
  -117
  -19
  -22
  -23
  -25
  -26
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -53
  -56
  -60
  -63
  -65
  -69
  -73
  -77
  -81
  -85
  -89
  -93
  -99
  -104
Free cash flow, $m
  -19
  39
  44
  49
  55
  61
  67
  74
  81
  88
  95
  100
  108
  117
  125
  134
  144
  153
  164
  174
  185
  197
  209
  222
  235
  249
  263
  278
  294
  311
  329
Issuance/(repayment) of debt, $m
  0
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
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
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
Total cash flow (excl. dividends), $m
  -13
  44
  49
  55
  61
  67
  74
  80
  88
  95
  103
  108
  116
  125
  134
  143
  153
  163
  174
  185
  197
  209
  221
  234
  248
  263
  278
  294
  310
  328
  346
Retained Cash Flow (-), $m
  -74
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
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
 
  268
  22
  27
  32
  37
  42
  47
  53
  59
  66
  70
  76
  83
  91
  98
  106
  114
  123
  132
  141
  151
  161
  171
  182
  194
  205
  218
  231
  245
  259
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
 
  257
  20
  23
  26
  28
  30
  32
  33
  34
  34
  33
  33
  32
  30
  29
  27
  25
  23
  20
  18
  16
  13
  11
  9
  8
  6
  5
  4
  3
  2
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
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  100.0
  100.0
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  100.0

Power Integrations, Inc. designs, develops and markets analog and mixed-signal integrated circuits (ICs), and other electronic components and circuitry used in high-voltage power conversion. The Company's products are used in power converters that convert electricity from a high-voltage source to the type of power required for downstream use. The Company's ICs used in alternating current (AC)-direct current (DC) power supply convert high-voltage AC from a wall outlet to the low-voltage DC required by electronic devices. The Company offers a range of products, such as TOPSwitch, TinySwitch, LinkSwitch and Hiper families. The Company also offers CapZero and SenZero families. The Company offers a range of high-voltage gate-driver products sold under the SCALE and SCALE-II product-family names. The DPA-Switch family of products is a monolithic high-voltage DC-DC power conversion IC designed specifically for use in distributed power architectures.

FINANCIAL RATIOS  of  Power Integrations (POWI)

Valuation Ratios
P/E Ratio 45.3
Price to Sales 5.6
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 22.2
Price to Free Cash Flow 25.3
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 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 10.3%
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 10.2% 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 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 21.8%.

Life of production assets of 7.4 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 6.2%. 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 - $503 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 29.695 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 $2.2 billion.

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COMPANY NEWS

▶ Power Integrations Shows Rising Relative Strength; Still Shy Of Key Benchmark   [Dec-01-17 03:00AM  Investor's Business Daily]
▶ Power Integrations posts 3Q profit   [Oct-26-17 06:01PM  Associated Press]
▶ Did Semiconductor Growth Plateau Last Quarter?   [Aug-17-17 02:44PM  Barrons.com]
▶ New Strong Sell Stocks for August 9th   [Aug-09-17 09:18AM  Zacks]
▶ Chip Giant Intel Beats Second-Quarter Sales, Earnings Targets   [Jul-27-17 06:44PM  Investor's Business Daily]
▶ Power Integrations posts 2Q profit   [06:35PM  Associated Press]
▶ Alphabet, GE Price Targets Cut; Under Armour, Lululemon Downgraded   [Jul-25-17 04:11PM  Investor's Business Daily]
▶ Micron Technology Gets Slew Of Price-Target Hikes, But Shares Fall   [Jun-30-17 04:10PM  Investor's Business Daily]
▶ Which Companies Are Now Outperforming 95% Of All Stocks?   [Jun-29-17 11:19AM  Investor's Business Daily]
▶ Can This Chip Stock Continue To Power High-Voltage Breakout?   [10:54AM  Investor's Business Daily]
▶ Chip Stock Breaks Out On Likely Apple iPhone 8 Contract Win   [Jun-27-17 04:19PM  Investor's Business Daily]
▶ Power Integrations Management to Speak at Stifel Conference   [Jun-05-17 06:45AM  Business Wire]
▶ Power Integrations posts 1Q profit   [Apr-27-17 05:10PM  Associated Press]
▶ 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]
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.

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