Intrinsic value of Silicom - SILC

Previous Close

$59.82

  Intrinsic Value

$34.16

stock screener

  Rating & Target

sell

-43%

  Value-price divergence*

-30%

Previous close

$59.82

 
Intrinsic value

$34.16

 
Up/down potential

-43%

 
Rating

sell

 
Value-price divergence*

-30%

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

We calculate the intrinsic value of SILC 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 0.4

 

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, %
  20.48
  20.50
  18.95
  17.56
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.58
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
Revenue, $m
  100
  121
  143
  168
  196
  226
  258
  292
  328
  366
  407
  449
  493
  539
  588
  638
  690
  744
  801
  859
  920
  984
  1,050
  1,118
  1,189
  1,264
  1,341
  1,421
  1,505
  1,593
  1,684
Variable operating expenses, $m
 
  93
  111
  130
  150
  173
  197
  223
  250
  279
  309
  338
  372
  407
  443
  481
  520
  561
  604
  648
  694
  742
  791
  843
  897
  953
  1,011
  1,072
  1,135
  1,201
  1,270
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
  85
  93
  111
  130
  150
  173
  197
  223
  250
  279
  309
  338
  372
  407
  443
  481
  520
  561
  604
  648
  694
  742
  791
  843
  897
  953
  1,011
  1,072
  1,135
  1,201
  1,270
Operating income, $m
  16
  27
  33
  39
  46
  53
  61
  69
  78
  87
  97
  110
  121
  133
  145
  157
  170
  183
  197
  211
  226
  242
  258
  275
  293
  311
  330
  350
  370
  392
  414
EBITDA, $m
  19
  30
  36
  42
  49
  57
  65
  73
  83
  92
  102
  113
  124
  136
  148
  160
  174
  187
  201
  216
  232
  248
  264
  281
  299
  318
  337
  358
  379
  401
  424
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
Earnings before tax, $m
  16
  27
  32
  38
  45
  52
  60
  68
  76
  85
  95
  108
  118
  129
  141
  153
  165
  178
  191
  205
  220
  235
  250
  267
  284
  301
  320
  339
  359
  379
  401
Tax expense, $m
  3
  7
  9
  10
  12
  14
  16
  18
  21
  23
  26
  29
  32
  35
  38
  41
  45
  48
  52
  55
  59
  63
  68
  72
  77
  81
  86
  91
  97
  102
  108
Net income, $m
  13
  20
  24
  28
  33
  38
  44
  49
  56
  62
  69
  79
  86
  94
  103
  111
  120
  130
  140
  150
  160
  171
  183
  195
  207
  220
  233
  247
  262
  277
  293

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  28
  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
  146
  142
  169
  199
  231
  266
  304
  344
  387
  432
  480
  530
  582
  637
  694
  753
  815
  879
  945
  1,015
  1,087
  1,161
  1,239
  1,320
  1,404
  1,492
  1,583
  1,678
  1,777
  1,880
  1,988
Adjusted assets (=assets-cash), $m
  118
  142
  169
  199
  231
  266
  304
  344
  387
  432
  480
  530
  582
  637
  694
  753
  815
  879
  945
  1,015
  1,087
  1,161
  1,239
  1,320
  1,404
  1,492
  1,583
  1,678
  1,777
  1,880
  1,988
Revenue / Adjusted assets
  0.847
  0.852
  0.846
  0.844
  0.848
  0.850
  0.849
  0.849
  0.848
  0.847
  0.848
  0.847
  0.847
  0.846
  0.847
  0.847
  0.847
  0.846
  0.848
  0.846
  0.846
  0.848
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
Average production assets, $m
  6
  7
  9
  10
  12
  14
  15
  18
  20
  22
  24
  27
  30
  32
  35
  38
  41
  45
  48
  52
  55
  59
  63
  67
  71
  76
  80
  85
  90
  96
  101
Working capital, $m
  85
  60
  72
  84
  98
  113
  129
  146
  164
  183
  203
  224
  247
  270
  294
  319
  345
  372
  400
  430
  460
  492
  525
  559
  595
  632
  670
  711
  753
  796
  842
Total debt, $m
  0
  5
  11
  17
  24
  31
  39
  48
  57
  67
  77
  87
  98
  110
  122
  135
  148
  161
  175
  190
  205
  221
  238
  255
  273
  291
  311
  331
  352
  374
  396
Total liabilities, $m
  25
  30
  36
  42
  49
  56
  64
  73
  82
  92
  102
  112
  123
  135
  147
  160
  173
  186
  200
  215
  230
  246
  263
  280
  298
  316
  336
  356
  377
  399
  421
Total equity, $m
  121
  112
  133
  157
  182
  210
  240
  271
  305
  341
  378
  418
  459
  502
  547
  593
  642
  692
  745
  800
  856
  915
  977
  1,040
  1,107
  1,176
  1,247
  1,322
  1,400
  1,482
  1,567
Total liabilities and equity, $m
  146
  142
  169
  199
  231
  266
  304
  344
  387
  433
  480
  530
  582
  637
  694
  753
  815
  878
  945
  1,015
  1,086
  1,161
  1,240
  1,320
  1,405
  1,492
  1,583
  1,678
  1,777
  1,881
  1,988
Debt-to-equity ratio
  0.000
  0.050
  0.080
  0.110
  0.130
  0.150
  0.160
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
Adjusted equity ratio
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  20
  24
  28
  33
  38
  44
  49
  56
  62
  69
  79
  86
  94
  103
  111
  120
  130
  140
  150
  160
  171
  183
  195
  207
  220
  233
  247
  262
  277
  293
Depreciation, amort., depletion, $m
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
Funds from operations, $m
  5
  23
  27
  32
  37
  42
  48
  54
  60
  67
  74
  81
  89
  97
  106
  115
  124
  134
  144
  155
  166
  177
  189
  201
  214
  227
  241
  255
  270
  286
  302
Change in working capital, $m
  -8
  10
  11
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
Cash from operations, $m
  13
  13
  16
  19
  23
  27
  32
  37
  42
  48
  54
  60
  67
  74
  82
  90
  98
  107
  116
  125
  135
  145
  156
  167
  178
  190
  202
  215
  228
  242
  257
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
New CAPEX, $m
  -3
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
Cash from investing activities, $m
  -7
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -13
  -13
  -13
  -14
Free cash flow, $m
  6
  11
  14
  17
  20
  24
  28
  33
  38
  44
  50
  55
  62
  69
  76
  84
  92
  100
  108
  117
  127
  136
  146
  157
  168
  179
  191
  203
  215
  229
  242
Issuance/(repayment) of debt, $m
  0
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
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  
  1
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
Total cash flow (excl. dividends), $m
  7
  16
  19
  23
  27
  32
  36
  42
  47
  53
  60
  66
  73
  80
  88
  96
  105
  113
  123
  132
  142
  152
  163
  174
  185
  197
  210
  223
  236
  250
  265
Retained Cash Flow (-), $m
  -8
  -19
  -21
  -23
  -26
  -28
  -30
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
Prev. year cash balance distribution, $m
 
  28
  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
 
  25
  -2
  0
  2
  4
  7
  10
  14
  18
  22
  26
  32
  37
  43
  49
  56
  63
  70
  77
  85
  93
  102
  110
  119
  128
  138
  148
  158
  169
  180
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
 
  24
  -2
  0
  1
  3
  5
  7
  9
  10
  12
  13
  14
  14
  14
  15
  14
  14
  13
  12
  11
  10
  8
  7
  6
  5
  4
  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

Silicom Ltd. (Silicom) is engaged in the design, manufacture, marketing and support of networking and data infrastructure solutions for a range of servers, server-based systems and communications devices. The Company's products include server network interface cards with and without bypass (Server Adapters); Intelligent and programmable cards, with features, such as encryption, acceleration, data compression, redirection, time stamping, network capture solutions, field programmable gate array (FPGA) based ultra-low latency solutions, and/or other offload features and/or compute blades (Smart Cards), and standalone Products. The Company's market segments for its products include network appliances; servers; data storage, including Big Data; The Cloud, virtualized data centers, with and without software-defined networking (SDN), and Internet of Things (IOT).

FINANCIAL RATIOS  of  Silicom (SILC)

Valuation Ratios
P/E Ratio 33.8
Price to Sales 4.4
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 33.8
Price to Free Cash Flow 44
Growth Rates
Sales Growth Rate 20.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 24.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 11.8%
Return On Total Capital 11.1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.2%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 14.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 39%
Gross Margin - 3 Yr. Avg. 40.3%
EBITDA Margin 19%
EBITDA Margin - 3 Yr. Avg. 21.9%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 19.7%
Pre-Tax Margin 16%
Pre-Tax Margin - 3 Yr. Avg. 20%
Net Profit Margin 13%
Net Profit Margin - 3 Yr. Avg. 17.7%
Effective Tax Rate 18.8%
Eff/ Tax Rate - 3 Yr. Avg. 12%
Payout Ratio 53.8%

SILC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SILC stock intrinsic value calculation we used $100 million for the last fiscal year's total revenue generated by Silicom. The default revenue input number comes from 2016 income statement of Silicom. 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 SILC stock valuation model: a) initial revenue growth rate of 20.5% 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 SILC is calculated based on our internal credit rating of Silicom, 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 Silicom.
    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 SILC stock the variable cost ratio is equal to 78%.

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 SILC 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 Silicom.

Corporate tax rate of 27% is the nominal tax rate for Silicom. 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 SILC 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 SILC are equal to 6%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Silicom 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 SILC is equal to 50%. 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 - $121 million for Silicom - 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 7.411 million for Silicom 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 Silicom at the current share price and the inputted number of shares is $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
INTC Intel 40.25 40.54  hold
CAVM Cavium 69.91 45.92  sell
MLNX Mellanox Techn 43.10 30.98  sell
LTRX Lantronix 2.08 0.96  str.sell
ANET Arista Network 189.94 313.70  str.buy
RDWR Radware 17.29 10.09  sell
CSPI CSP 11.04 80.53  str.buy
CSCO Cisco Systems 33.55 47.16  str.buy
ALLT Allot Communic 5.32 5.30  hold
FTNT Fortinet 40.29 16.15  str.sell

COMPANY NEWS

▶ Silicom Secures Additional Strategic Cloud Design win   [Sep-05-17 08:15AM  PR Newswire]
▶ Silicom posts 2Q profit   [Jul-24-17 11:26PM  Associated Press]
▶ ETFs with exposure to Silicom Ltd. : June 12, 2017   [Jun-12-17 02:27PM  Capital Cube]
▶ ETFs with exposure to Silicom Ltd. : May 18, 2017   [May-18-17 02:01PM  Capital Cube]
▶ Stocks With Rising Composite Ratings: Silicom   [Apr-28-17 11:29AM  Investor's Business Daily]
▶ Here's Why Silicom Ltd Stock Got a Bump Today   [Apr-27-17 07:04PM  Motley Fool]
▶ Silicom posts 1Q profit   [08:42AM  Associated Press]
▶ Silicom Reports Q1 2017 Financial Results   [08:15AM  PR Newswire]
▶ Silicom posts 4Q profit   [Jan-30-17 08:28AM  Associated Press]
▶ Hedge Funds Are Betting On Luxfer Holdings PLC (ADR) (LXFR)   [Dec-14-16 11:13AM  at Insider Monkey]
▶ Heres Why These Five Stocks Are on the Move   [Jul-25-16 01:20PM  at Insider Monkey]
▶ SILICOM LTD. Financials   [01:04PM  EDGAR Online Financials]
▶ Silicom Updates Fourth Quarter 2015 Financial Guidance   [Jan-04-16 08:15AM  Business Wire]
▶ Silicom to Acquire ADI Engineering   [Sep-30  11:35AM  Business Wire]
Financial statements of SILC
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.