Intrinsic value of Varex Imaging - VREX

Previous Close

$40.50

  Intrinsic Value

$48.57

stock screener

  Rating & Target

hold

+20%

Previous close

$40.50

 
Intrinsic value

$48.57

 
Up/down potential

+20%

 
Rating

hold

We calculate the intrinsic value of VREX 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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.58
  25.60
  23.54
  21.69
  20.02
  18.52
  17.16
  15.95
  14.85
  13.87
  12.98
  12.18
  11.46
  10.82
  10.24
  9.71
  9.24
  8.82
  8.44
  8.09
  7.78
  7.50
  7.25
  7.03
  6.83
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
Revenue, $m
  698
  877
  1,083
  1,318
  1,582
  1,875
  2,196
  2,547
  2,925
  3,331
  3,763
  4,221
  4,705
  5,214
  5,748
  6,306
  6,889
  7,496
  8,129
  8,787
  9,470
  10,181
  10,920
  11,687
  12,485
  13,314
  14,177
  15,074
  16,009
  16,982
  17,996
Variable operating expenses, $m
 
  716
  879
  1,064
  1,273
  1,504
  1,758
  2,034
  2,333
  2,653
  2,994
  3,332
  3,714
  4,116
  4,537
  4,978
  5,438
  5,917
  6,416
  6,936
  7,475
  8,036
  8,619
  9,225
  9,855
  10,509
  11,190
  11,899
  12,636
  13,404
  14,205
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
  614
  716
  879
  1,064
  1,273
  1,504
  1,758
  2,034
  2,333
  2,653
  2,994
  3,332
  3,714
  4,116
  4,537
  4,978
  5,438
  5,917
  6,416
  6,936
  7,475
  8,036
  8,619
  9,225
  9,855
  10,509
  11,190
  11,899
  12,636
  13,404
  14,205
Operating income, $m
  84
  160
  204
  253
  309
  371
  439
  512
  592
  677
  769
  889
  991
  1,098
  1,211
  1,329
  1,451
  1,579
  1,713
  1,851
  1,995
  2,145
  2,300
  2,462
  2,630
  2,805
  2,987
  3,176
  3,373
  3,578
  3,791
EBITDA, $m
  112
  207
  256
  311
  373
  442
  518
  601
  690
  786
  888
  996
  1,111
  1,231
  1,357
  1,488
  1,626
  1,769
  1,919
  2,074
  2,235
  2,403
  2,577
  2,758
  2,947
  3,143
  3,346
  3,558
  3,778
  4,008
  4,247
Interest expense (income), $m
  10
  19
  26
  34
  42
  52
  63
  76
  89
  103
  118
  135
  152
  170
  189
  209
  230
  252
  275
  299
  324
  350
  376
  404
  433
  463
  494
  527
  561
  596
  633
Earnings before tax, $m
  75
  141
  178
  220
  267
  318
  375
  437
  503
  574
  650
  755
  839
  928
  1,022
  1,119
  1,221
  1,327
  1,437
  1,552
  1,671
  1,795
  1,924
  2,058
  2,197
  2,342
  2,492
  2,649
  2,812
  2,982
  3,159
Tax expense, $m
  23
  38
  48
  59
  72
  86
  101
  118
  136
  155
  176
  204
  227
  251
  276
  302
  330
  358
  388
  419
  451
  485
  519
  556
  593
  632
  673
  715
  759
  805
  853
Net income, $m
  52
  103
  130
  161
  195
  232
  274
  319
  367
  419
  475
  551
  613
  678
  746
  817
  891
  969
  1,049
  1,133
  1,220
  1,311
  1,405
  1,502
  1,604
  1,709
  1,819
  1,934
  2,053
  2,177
  2,306

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  83
  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
  1,040
  1,203
  1,486
  1,808
  2,170
  2,571
  3,013
  3,493
  4,012
  4,569
  5,162
  5,790
  6,454
  7,153
  7,885
  8,651
  9,450
  10,283
  11,151
  12,053
  12,991
  13,966
  14,979
  16,032
  17,126
  18,264
  19,447
  20,678
  21,960
  23,295
  24,685
Adjusted assets (=assets-cash), $m
  957
  1,203
  1,486
  1,808
  2,170
  2,571
  3,013
  3,493
  4,012
  4,569
  5,162
  5,790
  6,454
  7,153
  7,885
  8,651
  9,450
  10,283
  11,151
  12,053
  12,991
  13,966
  14,979
  16,032
  17,126
  18,264
  19,447
  20,678
  21,960
  23,295
  24,685
Revenue / Adjusted assets
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
  0.729
Average production assets, $m
  275
  345
  426
  518
  622
  737
  863
  1,001
  1,149
  1,309
  1,479
  1,659
  1,849
  2,049
  2,259
  2,478
  2,707
  2,946
  3,195
  3,453
  3,722
  4,001
  4,291
  4,593
  4,907
  5,233
  5,572
  5,924
  6,291
  6,674
  7,072
Working capital, $m
  343
  352
  434
  528
  634
  752
  881
  1,021
  1,173
  1,336
  1,509
  1,693
  1,887
  2,091
  2,305
  2,529
  2,763
  3,006
  3,260
  3,523
  3,798
  4,083
  4,379
  4,687
  5,006
  5,339
  5,685
  6,045
  6,420
  6,810
  7,216
Total debt, $m
  484
  629
  818
  1,034
  1,277
  1,546
  1,842
  2,164
  2,511
  2,884
  3,281
  3,703
  4,147
  4,615
  5,106
  5,619
  6,154
  6,713
  7,294
  7,898
  8,527
  9,180
  9,859
  10,564
  11,297
  12,060
  12,853
  13,677
  14,536
  15,430
  16,362
Total liabilities, $m
  661
  806
  995
  1,211
  1,454
  1,723
  2,019
  2,341
  2,688
  3,061
  3,458
  3,880
  4,324
  4,792
  5,283
  5,796
  6,331
  6,890
  7,471
  8,075
  8,704
  9,357
  10,036
  10,741
  11,474
  12,237
  13,030
  13,854
  14,713
  15,607
  16,539
Total equity, $m
  379
  397
  490
  597
  716
  849
  994
  1,153
  1,324
  1,508
  1,703
  1,911
  2,130
  2,360
  2,602
  2,855
  3,118
  3,393
  3,680
  3,977
  4,287
  4,609
  4,943
  5,290
  5,652
  6,027
  6,418
  6,824
  7,247
  7,687
  8,146
Total liabilities and equity, $m
  1,040
  1,203
  1,485
  1,808
  2,170
  2,572
  3,013
  3,494
  4,012
  4,569
  5,161
  5,791
  6,454
  7,152
  7,885
  8,651
  9,449
  10,283
  11,151
  12,052
  12,991
  13,966
  14,979
  16,031
  17,126
  18,264
  19,448
  20,678
  21,960
  23,294
  24,685
Debt-to-equity ratio
  1.277
  1.580
  1.670
  1.730
  1.780
  1.820
  1.850
  1.880
  1.900
  1.910
  1.930
  1.940
  1.950
  1.960
  1.960
  1.970
  1.970
  1.980
  1.980
  1.990
  1.990
  1.990
  1.990
  2.000
  2.000
  2.000
  2.000
  2.000
  2.010
  2.010
  2.010
Adjusted equity ratio
  0.309
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  52
  103
  130
  161
  195
  232
  274
  319
  367
  419
  475
  551
  613
  678
  746
  817
  891
  969
  1,049
  1,133
  1,220
  1,311
  1,405
  1,502
  1,604
  1,709
  1,819
  1,934
  2,053
  2,177
  2,306
Depreciation, amort., depletion, $m
  28
  46
  52
  58
  64
  72
  80
  89
  98
  109
  120
  107
  119
  132
  146
  160
  175
  190
  206
  223
  240
  258
  277
  296
  317
  338
  359
  382
  406
  431
  456
Funds from operations, $m
  68
  150
  182
  218
  259
  304
  354
  408
  466
  528
  594
  658
  732
  810
  892
  977
  1,066
  1,159
  1,255
  1,356
  1,460
  1,569
  1,681
  1,799
  1,920
  2,047
  2,179
  2,316
  2,459
  2,607
  2,762
Change in working capital, $m
  -7
  72
  83
  94
  106
  117
  129
  140
  152
  163
  173
  184
  194
  204
  214
  224
  234
  244
  254
  264
  274
  285
  296
  308
  320
  333
  346
  360
  375
  390
  407
Cash from operations, $m
  75
  78
  99
  124
  153
  187
  225
  267
  314
  365
  421
  474
  538
  606
  678
  753
  832
  915
  1,002
  1,092
  1,186
  1,284
  1,385
  1,491
  1,601
  1,714
  1,833
  1,956
  2,084
  2,217
  2,355
Maintenance CAPEX, $m
  0
  -18
  -22
  -27
  -33
  -40
  -48
  -56
  -65
  -74
  -84
  -95
  -107
  -119
  -132
  -146
  -160
  -175
  -190
  -206
  -223
  -240
  -258
  -277
  -296
  -317
  -338
  -359
  -382
  -406
  -431
New CAPEX, $m
  -20
  -70
  -81
  -92
  -104
  -115
  -126
  -138
  -149
  -159
  -170
  -180
  -190
  -200
  -210
  -219
  -229
  -239
  -249
  -259
  -269
  -279
  -290
  -302
  -314
  -326
  -339
  -353
  -367
  -382
  -398
Cash from investing activities, $m
  -292
  -88
  -103
  -119
  -137
  -155
  -174
  -194
  -214
  -233
  -254
  -275
  -297
  -319
  -342
  -365
  -389
  -414
  -439
  -465
  -492
  -519
  -548
  -579
  -610
  -643
  -677
  -712
  -749
  -788
  -829
Free cash flow, $m
  -217
  -10
  -4
  4
  16
  32
  51
  74
  101
  132
  167
  199
  241
  287
  336
  388
  443
  502
  563
  627
  694
  764
  837
  912
  991
  1,072
  1,156
  1,244
  1,334
  1,429
  1,526
Issuance/(repayment) of debt, $m
  494
  165
  190
  216
  242
  269
  296
  322
  348
  373
  397
  421
  445
  468
  491
  513
  536
  558
  581
  605
  628
  653
  679
  705
  733
  762
  793
  825
  859
  894
  932
Issuance/(repurchase) of shares, $m
  3
  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  
  263
  165
  190
  216
  242
  269
  296
  322
  348
  373
  397
  421
  445
  468
  491
  513
  536
  558
  581
  605
  628
  653
  679
  705
  733
  762
  793
  825
  859
  894
  932
Total cash flow (excl. dividends), $m
  47
  155
  185
  220
  259
  301
  346
  396
  448
  505
  564
  620
  686
  754
  826
  901
  979
  1,060
  1,144
  1,232
  1,323
  1,417
  1,516
  1,618
  1,724
  1,834
  1,949
  2,069
  2,193
  2,323
  2,458
Retained Cash Flow (-), $m
  147
  -81
  -93
  -106
  -119
  -133
  -146
  -159
  -171
  -184
  -196
  -208
  -219
  -230
  -242
  -253
  -264
  -275
  -286
  -298
  -310
  -322
  -334
  -347
  -361
  -375
  -390
  -406
  -423
  -440
  -459
Prev. year cash balance distribution, $m
 
  63
  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
 
  137
  92
  114
  139
  168
  201
  237
  277
  321
  368
  412
  467
  524
  585
  648
  715
  785
  858
  934
  1,013
  1,096
  1,181
  1,270
  1,363
  1,459
  1,559
  1,662
  1,770
  1,882
  1,999
Discount rate, %
 
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
 
  127
  79
  89
  99
  107
  114
  119
  122
  122
  119
  112
  106
  97
  88
  77
  66
  56
  46
  37
  29
  22
  16
  12
  8
  6
  4
  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

Varex Imaging Corporation is a supplier of medical X-ray tubes and image processing solutions. The Company’s segments include Medical and Industrial. The X-ray imaging system manufacturers use the Company’s components for medical imaging, cargo screening and border security, to detect, diagnose and protect. The Medical business segment designs, manufactures, sells and services X-ray imaging components for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, radiation therapy and computer-aided detection. The Industrial business segment designs, manufactures, sells and services products for use in security and industrial inspection applications, such as cargo screening at ports and borders and non-destructive examination in a range of applications.

FINANCIAL RATIOS  of  Varex Imaging (VREX)

Valuation Ratios
P/E Ratio 29.3
Price to Sales 2.2
Price to Book 4
Price to Tangible Book
Price to Cash Flow 20.3
Price to Free Cash Flow 27.7
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31%
Cap. Spend. - 3 Yr. Gr. Rate -2.8%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 122.4%
Total Debt to Equity 127.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 11.4%
Return On Total Capital 7.5%
Ret/ On T. Cap. - 3 Yr. Avg. 13.4%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 14.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 36.4%
Gross Margin - 3 Yr. Avg. 38.7%
EBITDA Margin 16.2%
EBITDA Margin - 3 Yr. Avg. 19.3%
Operating Margin 12%
Oper. Margin - 3 Yr. Avg. 16.6%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 16%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 10.4%
Effective Tax Rate 30.7%
Eff/ Tax Rate - 3 Yr. Avg. 33.9%
Payout Ratio 0%

VREX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VREX stock intrinsic value calculation we used $698 million for the last fiscal year's total revenue generated by Varex Imaging. The default revenue input number comes from 2017 income statement of Varex Imaging. 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 VREX stock valuation model: a) initial revenue growth rate of 25.6% 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 7.7%, whose default value for VREX is calculated based on our internal credit rating of Varex Imaging, 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 Varex Imaging.
    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 VREX stock the variable cost ratio is equal to 82.4%.

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 VREX 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 4.1% for Varex Imaging.

Corporate tax rate of 27% is the nominal tax rate for Varex Imaging. 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 VREX 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 VREX are equal to 39.3%.

Life of production assets of 15.5 years is the average useful life of capital assets used in Varex Imaging 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 VREX is equal to 40.1%. 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 - $379 million for Varex Imaging - 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 38.835 million for Varex Imaging 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 Varex Imaging at the current share price and the inputted number of shares is $1.6 billion.

RELATED COMPANIES Price Int.Val. Rating
VREX Varex Imaging 40.50 48.57  buy
HOLX Hologic 43.24 6.61  str.sell
CUTR Cutera 49.90 78.73  str.buy

COMPANY NEWS

▶ 5 Best Stocks Worth Buying on Upgraded Broker Ratings   [Jan-08-18 03:00PM  InvestorPlace]
▶ Varex Sets Annual Meeting And Record Dates   [Dec-18-17 06:00PM  PR Newswire]
▶ Varian Medical Systems: Better Aligned, More Focused   [Aug-14-17 09:07AM  Market Realist]
▶ ETFs with exposure to Varex Imaging Corp. : June 15, 2017   [Jun-15-17 03:42PM  Capital Cube]
▶ Which Stocks Are Showing Rising Relative Strength?   [May-30-17 03:30PM  Investor's Business Daily]
▶ IPO Stock News And Analysis: Find Today's Top New Issues   [01:23PM  Investor's Business Daily]
▶ 2017 Tech IPO Examines Potential New Buy Zone   [12:01PM  Investor's Business Daily]
Financial statements of VREX
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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