Intrinsic value of Silicom - SILC

Previous Close

$51.50

  Intrinsic Value

$7.24

stock screener

  Rating & Target

str. sell

-86%

  Value-price divergence*

0%

Previous close

$51.50

 
Intrinsic value

$7.24

 
Up/down potential

-86%

 
Rating

str. sell

 
Value-price divergence*

0%

*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 2011), $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 1.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2011(a)
   2012
   2013
   2014
   2015
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  33.33
  20.00
  18.50
  17.15
  15.94
  14.84
  13.86
  12.97
  12.17
  11.46
  10.81
  10.23
  9.71
  9.24
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.03
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
Revenue, $m
  40
  48
  57
  67
  77
  89
  101
  114
  128
  143
  158
  174
  191
  209
  227
  246
  266
  287
  309
  331
  354
  378
  404
  430
  457
  485
  515
  545
  577
  611
  646
Variable operating expenses, $m
 
  29
  34
  40
  46
  53
  61
  68
  77
  86
  95
  105
  115
  125
  136
  148
  160
  172
  185
  199
  213
  227
  242
  258
  274
  291
  309
  327
  346
  366
  387
Fixed operating expenses, $m
 
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
Total operating expenses, $m
  31
  36
  41
  48
  54
  61
  69
  76
  86
  95
  104
  114
  124
  135
  146
  158
  170
  183
  196
  210
  224
  239
  254
  270
  287
  304
  322
  341
  360
  380
  402
Operating income, $m
  8
  12
  15
  19
  23
  28
  32
  37
  43
  48
  54
  61
  67
  74
  81
  88
  96
  104
  113
  121
  130
  140
  149
  160
  170
  181
  193
  205
  217
  230
  244
EBITDA, $m
  8
  12
  16
  19
  23
  28
  33
  38
  43
  49
  55
  61
  68
  74
  82
  89
  97
  105
  113
  122
  131
  141
  150
  161
  171
  182
  194
  206
  218
  232
  245
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
Earnings before tax, $m
  9
  12
  15
  19
  23
  27
  32
  37
  42
  48
  53
  60
  66
  73
  80
  87
  95
  102
  111
  119
  128
  137
  147
  157
  167
  178
  189
  201
  213
  226
  239
Tax expense, $m
  1
  3
  4
  5
  6
  7
  9
  10
  11
  13
  14
  16
  18
  20
  22
  23
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  58
  61
  65
Net income, $m
  8
  9
  11
  14
  17
  20
  23
  27
  31
  35
  39
  44
  48
  53
  58
  63
  69
  75
  81
  87
  93
  100
  107
  114
  122
  130
  138
  147
  156
  165
  175

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  26
  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
  73
  56
  67
  78
  91
  104
  119
  134
  150
  168
  186
  205
  225
  245
  267
  290
  313
  337
  363
  389
  416
  445
  474
  505
  537
  570
  605
  641
  679
  718
  759
Adjusted assets (=assets-cash), $m
  47
  56
  67
  78
  91
  104
  119
  134
  150
  168
  186
  205
  225
  245
  267
  290
  313
  337
  363
  389
  416
  445
  474
  505
  537
  570
  605
  641
  679
  718
  759
Revenue / Adjusted assets
  0.851
  0.857
  0.851
  0.859
  0.846
  0.856
  0.849
  0.851
  0.853
  0.851
  0.849
  0.849
  0.849
  0.853
  0.850
  0.848
  0.850
  0.852
  0.851
  0.851
  0.851
  0.849
  0.852
  0.851
  0.851
  0.851
  0.851
  0.850
  0.850
  0.851
  0.851
Average production assets, $m
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
Working capital, $m
  41
  18
  21
  25
  29
  33
  38
  43
  48
  54
  59
  65
  72
  78
  85
  92
  100
  108
  116
  124
  133
  142
  151
  161
  171
  182
  193
  205
  217
  229
  242
Total debt, $m
  0
  2
  4
  6
  8
  11
  14
  17
  20
  23
  26
  30
  34
  38
  42
  46
  51
  55
  60
  65
  71
  76
  82
  87
  94
  100
  107
  113
  121
  128
  136
Total liabilities, $m
  9
  11
  13
  15
  17
  20
  23
  26
  29
  32
  35
  39
  43
  47
  51
  55
  60
  64
  69
  74
  80
  85
  91
  96
  103
  109
  116
  122
  130
  137
  145
Total equity, $m
  64
  46
  54
  63
  73
  84
  96
  108
  122
  136
  150
  166
  182
  199
  216
  234
  253
  273
  293
  315
  337
  360
  384
  408
  434
  461
  489
  518
  549
  581
  614
Total liabilities and equity, $m
  73
  57
  67
  78
  90
  104
  119
  134
  151
  168
  185
  205
  225
  246
  267
  289
  313
  337
  362
  389
  417
  445
  475
  504
  537
  570
  605
  640
  679
  718
  759
Debt-to-equity ratio
  0.000
  0.040
  0.070
  0.090
  0.110
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.190
  0.190
  0.200
  0.200
  0.200
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.220
  0.220
  0.220
  0.220
  0.220
  0.220
  0.220
Adjusted equity ratio
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  9
  11
  14
  17
  20
  23
  27
  31
  35
  39
  44
  48
  53
  58
  63
  69
  75
  81
  87
  93
  100
  107
  114
  122
  130
  138
  147
  156
  165
  175
Depreciation, amort., depletion, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
Funds from operations, $m
  -1
  9
  11
  14
  17
  20
  24
  27
  31
  35
  39
  44
  49
  54
  59
  64
  70
  75
  81
  88
  94
  101
  108
  115
  123
  131
  139
  148
  157
  166
  176
Change in working capital, $m
  -6
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
Cash from operations, $m
  5
  6
  8
  10
  13
  16
  19
  22
  26
  30
  34
  38
  42
  47
  52
  57
  62
  68
  73
  79
  86
  92
  99
  106
  113
  120
  128
  136
  145
  154
  163
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
Free cash flow, $m
  5
  6
  8
  10
  13
  15
  18
  22
  25
  29
  33
  37
  41
  46
  51
  56
  61
  67
  72
  78
  84
  91
  97
  104
  111
  119
  126
  134
  143
  152
  161
Issuance/(repayment) of debt, $m
  0
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  0
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
Total cash flow (excl. dividends), $m
  5
  7
  10
  12
  15
  18
  21
  25
  28
  32
  36
  41
  45
  50
  55
  60
  66
  71
  77
  83
  89
  96
  103
  110
  117
  125
  133
  141
  150
  159
  169
Retained Cash Flow (-), $m
  -9
  -8
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
Prev. year cash balance distribution, $m
 
  26
  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
 
  26
  1
  3
  5
  7
  9
  12
  15
  18
  22
  25
  29
  33
  37
  42
  47
  51
  57
  62
  67
  73
  79
  85
  91
  98
  105
  112
  120
  127
  135
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
 
  25
  1
  3
  4
  5
  7
  8
  9
  11
  11
  12
  12
  13
  13
  12
  12
  11
  10
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  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., together with its subsidiaries, designs, manufactures, markets, and supports networking and data infrastructure solutions for a range of servers, server based systems, and communications devices in North America, Europe, and the Asia Pacific. It offers high-end server networking interface cards with and without bypass for the server networking industry. The company also provides intelligent and programmable cards, including redirector cards; encryption and data compression hardware acceleration cards; time stamping and full field programmable gate array (FPGA) based network capture and mobile OSS distribution solutions; network processor acceleration cards; VHIO, a product off-loading virtualization switching from the CPU; FPGA based ultra-low latency solutions; and compute blades, which offer general compute capability in networking intensive environment. In addition, it offers bypass switches and intelligent bypass switches; server to appliance converter products that enable standard servers to be configured as network appliances with front networking ports; and CPE/edge/low end appliance units. The company sells its products to original equipment manufacturers. Silicom Ltd. was founded in 1987 and is headquartered in Kfar Sava, Israel.

FINANCIAL RATIOS  of  Silicom (SILC)

Valuation Ratios
P/E Ratio 44.6
Price to Sales 8.9
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 71.4
Price to Free Cash Flow 71.4
Growth Rates
Sales Growth Rate 33.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
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 11.8%
Ret/ On Assets - 3 Yr. Avg. 9.1%
Return On Total Capital 13.4%
Ret/ On T. Cap. - 3 Yr. Avg. 10.5%
Return On Equity 13.4%
Return On Equity - 3 Yr. Avg. 10.5%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 42.5%
Gross Margin - 3 Yr. Avg. 41.3%
EBITDA Margin 22.5%
EBITDA Margin - 3 Yr. Avg. 20%
Operating Margin 22.5%
Oper. Margin - 3 Yr. Avg. 17.8%
Pre-Tax Margin 22.5%
Pre-Tax Margin - 3 Yr. Avg. 20%
Net Profit Margin 20%
Net Profit Margin - 3 Yr. Avg. 18.1%
Effective Tax Rate 11.1%
Eff/ Tax Rate - 3 Yr. Avg. 8.5%
Payout Ratio 0%

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 $40 million for the last fiscal year's total revenue generated by Silicom. The default revenue input number comes from 2011 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% 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 60%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7 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 2.5%.

Life of production assets of 10 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 37.5%. 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 - $64 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 32.834 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 $1.7 billion.

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COMPANY NEWS

▶ 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]
Stock chart of SILC 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.

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