Intrinsic value of Sun Hydraulics - SNHY

Previous Close

$55.48

  Intrinsic Value

$21.40

stock screener

  Rating & Target

str. sell

-61%

Previous close

$55.48

 
Intrinsic value

$21.40

 
Up/down potential

-61%

 
Rating

str. sell

We calculate the intrinsic value of SNHY 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  -1.99
  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
  197
  201
  206
  211
  217
  223
  231
  238
  247
  256
  266
  276
  288
  300
  312
  326
  340
  355
  371
  388
  406
  425
  444
  465
  487
  511
  535
  561
  588
  616
  646
Variable operating expenses, $m
 
  154
  157
  161
  165
  170
  175
  180
  186
  193
  200
  197
  205
  214
  223
  232
  242
  253
  265
  277
  289
  303
  317
  332
  348
  364
  382
  400
  419
  440
  461
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
  162
  154
  157
  161
  165
  170
  175
  180
  186
  193
  200
  197
  205
  214
  223
  232
  242
  253
  265
  277
  289
  303
  317
  332
  348
  364
  382
  400
  419
  440
  461
Operating income, $m
  34
  47
  49
  50
  52
  54
  56
  58
  60
  63
  66
  79
  82
  86
  90
  93
  98
  102
  106
  111
  116
  122
  127
  133
  140
  146
  153
  161
  169
  177
  185
EBITDA, $m
  46
  66
  68
  70
  72
  74
  76
  79
  82
  85
  88
  91
  95
  99
  103
  108
  112
  117
  123
  128
  134
  140
  147
  154
  161
  169
  177
  185
  194
  204
  213
Interest expense (income), $m
  0
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
Earnings before tax, $m
  35
  42
  44
  45
  46
  48
  50
  52
  54
  56
  59
  72
  75
  78
  81
  84
  88
  92
  96
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
Tax expense, $m
  12
  11
  12
  12
  13
  13
  13
  14
  15
  15
  16
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  42
  45
Net income, $m
  23
  31
  32
  33
  34
  35
  36
  38
  39
  41
  43
  52
  54
  57
  59
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  120

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  81
  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
  445
  371
  380
  390
  401
  413
  426
  441
  456
  473
  491
  511
  532
  554
  577
  602
  628
  656
  686
  717
  750
  785
  822
  860
  901
  944
  989
  1,036
  1,087
  1,139
  1,194
Adjusted assets (=assets-cash), $m
  364
  371
  380
  390
  401
  413
  426
  441
  456
  473
  491
  511
  532
  554
  577
  602
  628
  656
  686
  717
  750
  785
  822
  860
  901
  944
  989
  1,036
  1,087
  1,139
  1,194
Revenue / Adjusted assets
  0.541
  0.542
  0.542
  0.541
  0.541
  0.540
  0.542
  0.540
  0.542
  0.541
  0.542
  0.540
  0.541
  0.542
  0.541
  0.542
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.540
  0.541
  0.541
  0.541
  0.541
  0.542
  0.541
  0.541
  0.541
Average production assets, $m
  137
  139
  142
  146
  150
  155
  160
  165
  171
  177
  184
  192
  199
  208
  216
  226
  236
  246
  257
  269
  281
  294
  308
  322
  338
  354
  371
  389
  407
  427
  448
Working capital, $m
  110
  30
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  72
  75
  79
  82
  86
  91
  95
Total debt, $m
  140
  144
  149
  155
  161
  168
  176
  184
  193
  203
  213
  224
  236
  249
  262
  277
  292
  308
  325
  343
  362
  382
  403
  425
  448
  473
  499
  526
  555
  585
  617
Total liabilities, $m
  208
  213
  218
  224
  230
  237
  245
  253
  262
  272
  282
  293
  305
  318
  331
  346
  361
  377
  394
  412
  431
  451
  472
  494
  517
  542
  568
  595
  624
  654
  686
Total equity, $m
  236
  158
  162
  166
  171
  176
  182
  188
  194
  202
  209
  218
  226
  236
  246
  256
  268
  280
  292
  306
  320
  334
  350
  366
  384
  402
  421
  442
  463
  485
  509
Total liabilities and equity, $m
  444
  371
  380
  390
  401
  413
  427
  441
  456
  474
  491
  511
  531
  554
  577
  602
  629
  657
  686
  718
  751
  785
  822
  860
  901
  944
  989
  1,037
  1,087
  1,139
  1,195
Debt-to-equity ratio
  0.593
  0.910
  0.920
  0.930
  0.940
  0.960
  0.970
  0.980
  0.990
  1.010
  1.020
  1.030
  1.040
  1.050
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
  1.180
  1.190
  1.200
  1.210
  1.210
Adjusted equity ratio
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  31
  32
  33
  34
  35
  36
  38
  39
  41
  43
  52
  54
  57
  59
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  120
Depreciation, amort., depletion, $m
  12
  19
  19
  20
  20
  20
  20
  21
  21
  22
  22
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  28
Funds from operations, $m
  36
  50
  51
  52
  54
  55
  57
  59
  61
  63
  65
  64
  67
  70
  73
  76
  79
  82
  86
  90
  94
  98
  103
  107
  112
  118
  123
  129
  135
  142
  149
Change in working capital, $m
  -3
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Cash from operations, $m
  39
  49
  50
  52
  53
  54
  56
  57
  59
  61
  63
  63
  65
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  120
  125
  131
  138
  144
Maintenance CAPEX, $m
  0
  -9
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
New CAPEX, $m
  -6
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -170
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
Free cash flow, $m
  -131
  38
  38
  39
  40
  40
  41
  42
  43
  44
  45
  44
  46
  47
  49
  51
  53
  55
  57
  59
  62
  65
  68
  70
  74
  77
  80
  84
  88
  92
  97
Issuance/(repayment) of debt, $m
  140
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
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  
  139
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
Total cash flow (excl. dividends), $m
  3
  42
  43
  45
  46
  47
  49
  50
  52
  54
  56
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
Retained Cash Flow (-), $m
  -14
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
Prev. year cash balance distribution, $m
 
  81
  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
 
  120
  40
  40
  41
  42
  43
  44
  45
  47
  48
  47
  49
  50
  52
  54
  57
  59
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
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
 
  115
  36
  35
  34
  33
  31
  30
  28
  27
  25
  22
  21
  19
  18
  16
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  3
  2
  1
  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

Sun Hydraulics Corporation (Sun) develops and manufactures solutions for the hydraulics and electronics markets. It is engaged in power controls and vehicle technologies lines of business. The Company operates through two segments including hydraulics and electronics. Hydraulics market segment is engaged in manufacturing of screw-in hydraulic cartridge valves, electro-hydraulics, manifolds, and integrated package solutions for the worldwide industrial and mobile hydraulics markets operating under the brand Sun Hydraulics. Electronics market segment provides electronic control, display and instrumentation solutions for both recreational and off-highway vehicles, as well as stationary and power generation equipment and that offered under the brands of Enovation Controls, Murphy and Zero Off.

FINANCIAL RATIOS  of  Sun Hydraulics (SNHY)

Valuation Ratios
P/E Ratio 65
Price to Sales 7.6
Price to Book 6.3
Price to Tangible Book
Price to Cash Flow 38.3
Price to Free Cash Flow 45.3
Growth Rates
Sales Growth Rate -2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -19.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 59.3%
Total Debt to Equity 59.3%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.7%
Ret/ On Assets - 3 Yr. Avg. 13.7%
Return On Total Capital 7.7%
Ret/ On T. Cap. - 3 Yr. Avg. 15.3%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 16.1%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 36%
Gross Margin - 3 Yr. Avg. 38.5%
EBITDA Margin 23.9%
EBITDA Margin - 3 Yr. Avg. 28.7%
Operating Margin 17.8%
Oper. Margin - 3 Yr. Avg. 23.1%
Pre-Tax Margin 17.8%
Pre-Tax Margin - 3 Yr. Avg. 23.7%
Net Profit Margin 11.7%
Net Profit Margin - 3 Yr. Avg. 15.8%
Effective Tax Rate 34.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.4%
Payout Ratio 47.8%

SNHY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SNHY stock intrinsic value calculation we used $197 million for the last fiscal year's total revenue generated by Sun Hydraulics. The default revenue input number comes from 2016 income statement of Sun Hydraulics. 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 SNHY 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 SNHY is calculated based on our internal credit rating of Sun Hydraulics, 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 Sun Hydraulics.
    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 SNHY stock the variable cost ratio is equal to 76.6%.

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 SNHY 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 Sun Hydraulics.

Corporate tax rate of 27% is the nominal tax rate for Sun Hydraulics. 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 SNHY 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 SNHY are equal to 69.3%.

Life of production assets of 15.9 years is the average useful life of capital assets used in Sun Hydraulics 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 SNHY is equal to 14.7%. 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 - $236 million for Sun Hydraulics - 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 27.207 million for Sun Hydraulics 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 Sun Hydraulics at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ Sun Hydraulics Announces Acquisition of Faster Group   [Feb-19-18 04:00PM  Business Wire]
▶ Why Sun Hydraulics Corporation (NASDAQ:SNHY) Could Be A Buy   [Feb-08-18 08:22PM  Simply Wall St.]
▶ See which Tampa Bay stocks were hit hardest in a market downturn   [07:20AM  American City Business Journals]
▶ How Sun Hydraulics might use a quarter of a billion dollars in new equity   [Jan-30-18 06:53AM  American City Business Journals]
▶ Sun Hydraulics Announces Public Offering of Common Stock   [Jan-29-18 04:13PM  Business Wire]
▶ Manufacturers lead the way in Tampa Bay's best and worst performing 2017 stocks   [Dec-27-17 02:45PM  American City Business Journals]
▶ Sun Hydraulics Is Stepping Up Its Game   [Nov-14-17 03:35PM  Motley Fool]
▶ Sun Hydraulics posts 3Q profit   [Nov-06-17 06:18PM  Associated Press]
▶ Banks, manufacturers lead Tampa Bay stocks in 3Q 2017   [Oct-02-17 05:13PM  American City Business Journals]
▶ Rexnord Trying To Close In On Key Technical Benchmark   [03:00AM  Investor's Business Daily]
▶ Sun Hydraulics Is Investing More in Growth in 2017   [Aug-08-17 06:03PM  Motley Fool]
▶ Sun Hydraulics posts 2Q profit   [Aug-07-17 10:44PM  Associated Press]
▶ ETFs with exposure to Sun Hydraulics Corp. : July 4, 2017   [Jul-04-17 03:29PM  Capital Cube]
▶ Sun Hydraulics posts 1Q profit   [May-08-17 05:50PM  Associated Press]
Financial statements of SNHY
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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