Intrinsic value of Sparton - SPA

Previous Close

$23.09

  Intrinsic Value

$10.63

stock screener

  Rating & Target

str. sell

-54%

  Value-price divergence*

-73%

Previous close

$23.09

 
Intrinsic value

$10.63

 
Up/down potential

-54%

 
Rating

str. sell

 
Value-price divergence*

-73%

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

We calculate the intrinsic value of SPA 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 0.2

 

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, %
  9.69
  9.70
  9.23
  8.81
  8.43
  8.08
  7.78
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.08
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
Revenue, $m
  419
  460
  502
  546
  592
  640
  690
  742
  795
  851
  909
  970
  1,033
  1,098
  1,166
  1,237
  1,311
  1,387
  1,468
  1,551
  1,639
  1,730
  1,826
  1,925
  2,030
  2,139
  2,253
  2,372
  2,497
  2,628
  2,766
Variable operating expenses, $m
 
  439
  479
  521
  565
  611
  658
  707
  759
  812
  867
  923
  983
  1,045
  1,110
  1,177
  1,248
  1,321
  1,397
  1,477
  1,560
  1,647
  1,738
  1,833
  1,932
  2,036
  2,145
  2,258
  2,377
  2,502
  2,633
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
  471
  439
  479
  521
  565
  611
  658
  707
  759
  812
  867
  923
  983
  1,045
  1,110
  1,177
  1,248
  1,321
  1,397
  1,477
  1,560
  1,647
  1,738
  1,833
  1,932
  2,036
  2,145
  2,258
  2,377
  2,502
  2,633
Operating income, $m
  -52
  21
  23
  25
  27
  29
  32
  34
  37
  40
  42
  47
  50
  53
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
EBITDA, $m
  -36
  30
  33
  36
  39
  42
  45
  49
  52
  56
  60
  64
  68
  72
  77
  82
  86
  91
  97
  102
  108
  114
  120
  127
  134
  141
  148
  156
  165
  173
  182
Interest expense (income), $m
  4
  3
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
  32
  34
Earnings before tax, $m
  -56
  17
  19
  20
  22
  24
  25
  27
  29
  31
  33
  36
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  94
  99
Tax expense, $m
  -18
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
Net income, $m
  -38
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  27
  28
  30
  32
  33
  35
  37
  39
  41
  44
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  246
  270
  295
  321
  348
  376
  405
  436
  467
  500
  534
  569
  606
  645
  685
  726
  770
  815
  862
  911
  962
  1,016
  1,072
  1,131
  1,192
  1,256
  1,323
  1,393
  1,467
  1,543
  1,624
Adjusted assets (=assets-cash), $m
  246
  270
  295
  321
  348
  376
  405
  436
  467
  500
  534
  569
  606
  645
  685
  726
  770
  815
  862
  911
  962
  1,016
  1,072
  1,131
  1,192
  1,256
  1,323
  1,393
  1,467
  1,543
  1,624
Revenue / Adjusted assets
  1.703
  1.704
  1.702
  1.701
  1.701
  1.702
  1.704
  1.702
  1.702
  1.702
  1.702
  1.705
  1.705
  1.702
  1.702
  1.704
  1.703
  1.702
  1.703
  1.703
  1.704
  1.703
  1.703
  1.702
  1.703
  1.703
  1.703
  1.703
  1.702
  1.703
  1.703
Average production assets, $m
  75
  82
  89
  97
  105
  114
  123
  132
  142
  152
  162
  173
  184
  195
  208
  220
  233
  247
  261
  276
  292
  308
  325
  343
  361
  381
  401
  422
  445
  468
  492
Working capital, $m
  69
  76
  83
  90
  98
  106
  114
  122
  131
  140
  150
  160
  170
  181
  192
  204
  216
  229
  242
  256
  270
  285
  301
  318
  335
  353
  372
  391
  412
  434
  456
Total debt, $m
  98
  114
  131
  149
  167
  186
  206
  227
  248
  270
  294
  318
  343
  369
  396
  424
  454
  484
  516
  550
  584
  621
  659
  699
  740
  784
  829
  877
  927
  979
  1,034
Total liabilities, $m
  167
  183
  200
  218
  236
  255
  275
  296
  317
  339
  363
  387
  412
  438
  465
  493
  523
  553
  585
  619
  653
  690
  728
  768
  809
  853
  898
  946
  996
  1,048
  1,103
Total equity, $m
  79
  87
  95
  103
  112
  121
  130
  140
  150
  160
  171
  183
  195
  207
  220
  233
  247
  262
  277
  292
  309
  326
  344
  363
  383
  403
  425
  447
  471
  495
  521
Total liabilities and equity, $m
  246
  270
  295
  321
  348
  376
  405
  436
  467
  499
  534
  570
  607
  645
  685
  726
  770
  815
  862
  911
  962
  1,016
  1,072
  1,131
  1,192
  1,256
  1,323
  1,393
  1,467
  1,543
  1,624
Debt-to-equity ratio
  1.241
  1.320
  1.390
  1.450
  1.500
  1.540
  1.580
  1.620
  1.660
  1.690
  1.710
  1.740
  1.760
  1.780
  1.800
  1.820
  1.840
  1.850
  1.870
  1.880
  1.890
  1.900
  1.910
  1.930
  1.930
  1.940
  1.950
  1.960
  1.970
  1.980
  1.980
Adjusted equity ratio
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321
  0.321

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -38
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  27
  28
  30
  32
  33
  35
  37
  39
  41
  44
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72
Depreciation, amort., depletion, $m
  16
  9
  10
  11
  12
  13
  14
  15
  15
  16
  17
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
Funds from operations, $m
  74
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  44
  47
  49
  52
  55
  59
  62
  65
  69
  73
  77
  81
  85
  90
  94
  99
  104
  110
  115
  121
Change in working capital, $m
  26
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
Cash from operations, $m
  48
  15
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  85
  89
  94
  99
Maintenance CAPEX, $m
  0
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
New CAPEX, $m
  -6
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
Cash from investing activities, $m
  -5
  -14
  -16
  -17
  -18
  -20
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -44
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -71
Free cash flow, $m
  43
  1
  1
  2
  2
  3
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  27
Issuance/(repayment) of debt, $m
  -57
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  43
  46
  48
  50
  52
  55
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  
  -58
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  43
  46
  48
  50
  52
  55
Total cash flow (excl. dividends), $m
  -15
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  53
  55
  58
  61
  64
  67
  71
  74
  78
  82
Retained Cash Flow (-), $m
  38
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
Prev. year cash balance distribution, $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 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
 
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  44
  46
  48
  51
  54
  56
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  9
  9
  9
  8
  8
  8
  7
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
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Current shareholders' claim on cash, %
  100
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  100.0
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  100.0

Sparton Corporation, together with its subsidiaries, provides design, development, and manufacturing services for electromechanical devices; and engineered products in electromechanical value stream. The company operates through two segments, Manufacturing & Design Services (MDS), and Engineered Components & Products (ECP). The MDS segment is involved in contract design, manufacturing, and aftermarket repair and refurbishment of printed circuit card assemblies, sub-assemblies, full product assemblies, and cable/wire harnesses, as well as develops embedded software and software quality assurance services in connection with medical devices and diagnostic equipment. This segment serves original equipment manufacturers and emerging technology customers serving the medical and biotechnology, military and aerospace, and industrial and commercial markets. The ECP segment designs, develops, and produces proprietary products for domestic and foreign defense, and commercial applications. It offers anti-submarine warfare devices for the U.S. Navy and foreign governments; ruggedized flat panel display systems for military panel PC workstations, air traffic control and industrial, and commercial marine applications; and high performance industrial grade computer systems and peripherals, as well as develops and markets commercial products for underwater acoustics and microelectromechanical based inertial measurement. This segment also performs an engineering development function for the United States military and prime defense contractors. The company was founded in 1900 and is headquartered in Schaumburg, Illinois.

FINANCIAL RATIOS  of  Sparton (SPA)

Valuation Ratios
P/E Ratio -6
Price to Sales 0.5
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 5.4
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 124.1%
Total Debt to Equity 124.1%
Interest Coverage -13
Management Effectiveness
Return On Assets -12.1%
Ret/ On Assets - 3 Yr. Avg. 0%
Return On Total Capital -16.9%
Ret/ On T. Cap. - 3 Yr. Avg. -0.6%
Return On Equity -38.8%
Return On Equity - 3 Yr. Avg. -5.5%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 19.1%
Gross Margin - 3 Yr. Avg. 19.3%
EBITDA Margin -8.6%
EBITDA Margin - 3 Yr. Avg. 2.5%
Operating Margin -12.4%
Oper. Margin - 3 Yr. Avg. -0.6%
Pre-Tax Margin -13.4%
Pre-Tax Margin - 3 Yr. Avg. -1.2%
Net Profit Margin -9.1%
Net Profit Margin - 3 Yr. Avg. -0.8%
Effective Tax Rate 32.1%
Eff/ Tax Rate - 3 Yr. Avg. 31.3%
Payout Ratio 0%

SPA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPA stock intrinsic value calculation we used $419 million for the last fiscal year's total revenue generated by Sparton. The default revenue input number comes from 2016 income statement of Sparton. 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 SPA stock valuation model: a) initial revenue growth rate of 9.7% 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 8.2%, whose default value for SPA is calculated based on our internal credit rating of Sparton, 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 Sparton.
    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 SPA stock the variable cost ratio is equal to 95.5%.

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 SPA 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 Sparton.

Corporate tax rate of 27% is the nominal tax rate for Sparton. 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 SPA 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 SPA are equal to 17.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Sparton 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 SPA is equal to 16.5%. 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 - $79 million for Sparton - 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 9.756 million for Sparton 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 Sparton at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Company News for July 10, 2017   [10:13AM  Zacks]
▶ [$$] Ultra Electronics in talks to buy Sparton   [Jun-24-17 08:22AM  Financial Times]
▶ Sparton posts 3Q profit   [May-09-17 06:32PM  Associated Press]
▶ ETFs with exposure to Sparton Corp. : April 26, 2017   [Apr-26-17 03:37PM  Capital Cube]
▶ ETFs with exposure to Sparton Corp. : April 5, 2017   [Apr-05-17 05:29PM  Capital Cube]
▶ Sparton reports 2Q loss   [Feb-07-17 05:38PM  Associated Press]
▶ ETFs with exposure to Sparton Corp. : January 3, 2017   [Jan-03-17 02:57PM  Capital Cube]
▶ Do Hedge Funds Love Sparton Corporation (SPA)?   [Dec-06-16 02:22AM  at Insider Monkey]
▶ [$$] A Turnaround Is in the Works at PICO Holdings   [Sep-17-16 03:19AM  at Barrons.com]
▶ Sparton Showcases Future Naval Capability   [Sep-13-16 08:30AM  Business Wire]
▶ Sparton reports 4Q loss   [04:34PM  AP]
▶ Sparton Awarded Navy SeaPort-e Contract   [08:30AM  Business Wire]
Stock chart of SPA Financial statements of SPA
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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