Intrinsic value of Benchmark Electronics - BHE

Previous Close

$30.50

  Intrinsic Value

$24.62

stock screener

  Rating & Target

hold

-19%

Previous close

$30.50

 
Intrinsic value

$24.62

 
Up/down potential

-19%

 
Rating

hold

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

We calculate the intrinsic value of BHE 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 1.5

 

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, %
  -9.09
  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
  2,310
  2,356
  2,410
  2,472
  2,542
  2,619
  2,704
  2,796
  2,895
  3,003
  3,118
  3,241
  3,373
  3,513
  3,662
  3,820
  3,987
  4,164
  4,351
  4,549
  4,758
  4,979
  5,212
  5,457
  5,715
  5,987
  6,274
  6,575
  6,893
  7,226
  7,577
Variable operating expenses, $m
 
  2,172
  2,222
  2,278
  2,342
  2,412
  2,489
  2,573
  2,665
  2,763
  2,868
  2,961
  3,082
  3,210
  3,346
  3,490
  3,643
  3,805
  3,976
  4,157
  4,348
  4,549
  4,762
  4,986
  5,222
  5,470
  5,732
  6,008
  6,298
  6,603
  6,923
Fixed operating expenses, $m
 
  111
  113
  116
  119
  122
  125
  128
  132
  135
  138
  142
  145
  149
  153
  156
  160
  164
  168
  173
  177
  181
  186
  191
  195
  200
  205
  210
  216
  221
  227
Total operating expenses, $m
  2,235
  2,283
  2,335
  2,394
  2,461
  2,534
  2,614
  2,701
  2,797
  2,898
  3,006
  3,103
  3,227
  3,359
  3,499
  3,646
  3,803
  3,969
  4,144
  4,330
  4,525
  4,730
  4,948
  5,177
  5,417
  5,670
  5,937
  6,218
  6,514
  6,824
  7,150
Operating income, $m
  76
  73
  75
  78
  81
  85
  89
  94
  99
  105
  112
  138
  146
  154
  163
  173
  184
  195
  207
  220
  234
  248
  264
  280
  298
  317
  336
  357
  379
  403
  427
EBITDA, $m
  131
  126
  128
  132
  136
  141
  146
  152
  159
  166
  175
  183
  193
  203
  215
  227
  240
  253
  268
  284
  300
  318
  337
  357
  378
  400
  424
  449
  476
  504
  534
Interest expense (income), $m
  8
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  30
  33
  35
  37
  40
  42
  45
  48
  51
  54
Earnings before tax, $m
  68
  66
  68
  70
  72
  75
  79
  83
  87
  92
  98
  123
  130
  137
  145
  153
  162
  172
  182
  193
  205
  218
  231
  246
  261
  277
  294
  312
  332
  352
  374
Tax expense, $m
  4
  18
  18
  19
  19
  20
  21
  22
  24
  25
  26
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  59
  62
  66
  70
  75
  79
  84
  90
  95
  101
Net income, $m
  64
  48
  49
  51
  53
  55
  57
  60
  64
  67
  71
  90
  95
  100
  106
  112
  118
  125
  133
  141
  150
  159
  169
  179
  190
  202
  215
  228
  242
  257
  273

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  681
  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
  1,999
  1,344
  1,375
  1,410
  1,450
  1,494
  1,542
  1,595
  1,652
  1,713
  1,779
  1,849
  1,924
  2,004
  2,089
  2,179
  2,274
  2,375
  2,482
  2,595
  2,714
  2,840
  2,973
  3,113
  3,260
  3,415
  3,579
  3,751
  3,932
  4,122
  4,323
Adjusted assets (=assets-cash), $m
  1,318
  1,344
  1,375
  1,410
  1,450
  1,494
  1,542
  1,595
  1,652
  1,713
  1,779
  1,849
  1,924
  2,004
  2,089
  2,179
  2,274
  2,375
  2,482
  2,595
  2,714
  2,840
  2,973
  3,113
  3,260
  3,415
  3,579
  3,751
  3,932
  4,122
  4,323
Revenue / Adjusted assets
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.754
  1.753
  1.752
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
  1.753
Average production assets, $m
  274
  280
  287
  294
  302
  312
  322
  333
  345
  357
  371
  386
  401
  418
  436
  455
  474
  496
  518
  541
  566
  593
  620
  649
  680
  712
  747
  782
  820
  860
  902
Working capital, $m
  1,120
  459
  470
  482
  496
  511
  527
  545
  565
  586
  608
  632
  658
  685
  714
  745
  777
  812
  849
  887
  928
  971
  1,016
  1,064
  1,114
  1,168
  1,223
  1,282
  1,344
  1,409
  1,478
Total debt, $m
  224
  224
  239
  256
  274
  295
  318
  343
  370
  398
  429
  463
  498
  536
  576
  618
  663
  711
  762
  815
  871
  931
  993
  1,059
  1,129
  1,202
  1,279
  1,360
  1,446
  1,536
  1,630
Total liabilities, $m
  633
  634
  649
  666
  684
  705
  728
  753
  780
  808
  839
  873
  908
  946
  986
  1,028
  1,073
  1,121
  1,172
  1,225
  1,281
  1,341
  1,403
  1,469
  1,539
  1,612
  1,689
  1,770
  1,856
  1,946
  2,040
Total equity, $m
  1,365
  710
  726
  745
  766
  789
  814
  842
  872
  904
  939
  976
  1,016
  1,058
  1,103
  1,150
  1,201
  1,254
  1,311
  1,370
  1,433
  1,500
  1,570
  1,644
  1,721
  1,803
  1,890
  1,980
  2,076
  2,177
  2,282
Total liabilities and equity, $m
  1,998
  1,344
  1,375
  1,411
  1,450
  1,494
  1,542
  1,595
  1,652
  1,712
  1,778
  1,849
  1,924
  2,004
  2,089
  2,178
  2,274
  2,375
  2,483
  2,595
  2,714
  2,841
  2,973
  3,113
  3,260
  3,415
  3,579
  3,750
  3,932
  4,123
  4,322
Debt-to-equity ratio
  0.164
  0.320
  0.330
  0.340
  0.360
  0.370
  0.390
  0.410
  0.420
  0.440
  0.460
  0.470
  0.490
  0.510
  0.520
  0.540
  0.550
  0.570
  0.580
  0.590
  0.610
  0.620
  0.630
  0.640
  0.660
  0.670
  0.680
  0.690
  0.700
  0.710
  0.710
Adjusted equity ratio
  0.519
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  64
  48
  49
  51
  53
  55
  57
  60
  64
  67
  71
  90
  95
  100
  106
  112
  118
  125
  133
  141
  150
  159
  169
  179
  190
  202
  215
  228
  242
  257
  273
Depreciation, amort., depletion, $m
  55
  52
  53
  54
  55
  56
  57
  58
  60
  61
  63
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  96
  101
  106
Funds from operations, $m
  415
  100
  102
  105
  107
  111
  114
  119
  123
  129
  134
  135
  142
  149
  157
  165
  174
  184
  194
  205
  216
  229
  242
  256
  270
  286
  303
  320
  339
  358
  379
Change in working capital, $m
  142
  9
  11
  12
  14
  15
  16
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
Cash from operations, $m
  273
  91
  92
  92
  94
  96
  98
  101
  104
  108
  112
  111
  116
  122
  128
  134
  142
  149
  157
  166
  176
  186
  196
  208
  220
  233
  247
  261
  277
  293
  310
Maintenance CAPEX, $m
  0
  -32
  -33
  -34
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -96
  -101
New CAPEX, $m
  -32
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
Cash from investing activities, $m
  -21
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -118
  -124
  -130
  -136
  -143
Free cash flow, $m
  252
  53
  52
  51
  51
  51
  51
  52
  53
  54
  56
  53
  55
  58
  61
  64
  68
  72
  77
  82
  87
  93
  99
  106
  113
  121
  129
  138
  147
  157
  167
Issuance/(repayment) of debt, $m
  -12
  12
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  85
  90
  95
Issuance/(repurchase) of shares, $m
  -23
  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  
  -35
  12
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  85
  90
  95
Total cash flow (excl. dividends), $m
  215
  65
  67
  68
  70
  72
  74
  77
  80
  83
  87
  86
  91
  96
  101
  107
  113
  120
  127
  135
  143
  152
  162
  172
  182
  194
  206
  219
  232
  247
  262
Retained Cash Flow (-), $m
  -43
  -14
  -16
  -19
  -21
  -23
  -25
  -28
  -30
  -32
  -35
  -37
  -40
  -42
  -45
  -48
  -50
  -53
  -56
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -96
  -101
  -106
Prev. year cash balance distribution, $m
 
  669
  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
 
  721
  51
  49
  49
  48
  48
  49
  50
  51
  52
  49
  51
  53
  56
  59
  63
  67
  71
  75
  80
  86
  92
  98
  105
  112
  120
  128
  137
  146
  156
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
 
  691
  46
  43
  40
  38
  35
  33
  31
  29
  27
  23
  22
  20
  19
  17
  16
  14
  13
  12
  10
  9
  8
  6
  5
  4
  3
  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

Benchmark Electronics, Inc. is a provider of electronic manufacturing services. The Company operates through three segments: the Americas, Asia and Europe. It provides services to original equipment manufacturers of industrial control equipment, including equipment for the aerospace and defense industry; telecommunication equipment; computers and related products for business enterprises; medical devices, and testing and instrumentation products. It offers integrated design and manufacturing services. Its operations consist of over three principal areas: manufacturing and assembly operations, including printed circuit boards assemblies and subsystem assembly, box build and systems integration; precision technology manufacturing, which include precision machining, metal joining, assembly and functional testing, and specialized engineering services, and specialized engineering services, such as product design, printed circuit board layout, prototyping, automation and test development.

FINANCIAL RATIOS  of  Benchmark Electronics (BHE)

Valuation Ratios
P/E Ratio 23.5
Price to Sales 0.7
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 5.5
Price to Free Cash Flow 6.2
Growth Rates
Sales Growth Rate -9.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.8%
Cap. Spend. - 3 Yr. Gr. Rate 2%
Financial Strength
Quick Ratio 57
Current Ratio 0
LT Debt to Equity 15.5%
Total Debt to Equity 16.4%
Interest Coverage 10
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 4.8%
Return On Equity - 3 Yr. Avg. 6.2%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 9.2%
Gross Margin - 3 Yr. Avg. 8.6%
EBITDA Margin 5.7%
EBITDA Margin - 3 Yr. Avg. 5.5%
Operating Margin 3.2%
Oper. Margin - 3 Yr. Avg. 3.5%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 3.3%
Net Profit Margin 2.8%
Net Profit Margin - 3 Yr. Avg. 3.1%
Effective Tax Rate 5.9%
Eff/ Tax Rate - 3 Yr. Avg. 6.2%
Payout Ratio 0%

BHE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BHE stock intrinsic value calculation we used $2310 million for the last fiscal year's total revenue generated by Benchmark Electronics. The default revenue input number comes from 2016 income statement of Benchmark Electronics. 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 BHE 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 BHE is calculated based on our internal credit rating of Benchmark Electronics, 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 Benchmark Electronics.
    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 BHE stock the variable cost ratio is equal to 92.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $108 million in the base year in the intrinsic value calculation for BHE 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 Benchmark Electronics.

Corporate tax rate of 27% is the nominal tax rate for Benchmark Electronics. 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 BHE 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 BHE are equal to 11.9%.

Life of production assets of 8.5 years is the average useful life of capital assets used in Benchmark Electronics 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 BHE is equal to 19.5%. 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 - $1365 million for Benchmark Electronics - 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 49.836 million for Benchmark Electronics 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 Benchmark Electronics at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ Benchmark posts 3Q profit   [Oct-18-17 04:17PM  Associated Press]
▶ Qualcomm Invents New, Smart Single-Use Biometric Patches   [Sep-27-17 07:30AM  PR Newswire]
▶ Benchmark posts 2Q profit   [Jul-19-17 10:03PM  Associated Press]
▶ 3 Top Printed Circuit Board Stocks to Buy in 2017   [May-17-17 07:33PM  Motley Fool]
▶ Benchmark Electronics Announces Changes Among Officers   [May-16-17 06:15PM  PR Newswire]
▶ Houston-area electronics manufacturer to move corporate headquarters to Arizona   [Apr-20-17 03:32PM  American City Business Journals]
▶ Benchmark posts 1Q profit   [Apr-19-17 04:54PM  Associated Press]
▶ Benchmark posts 4Q profit   [07:21AM  Associated Press]
Financial statements of BHE
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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