Intrinsic value of Cabot Microelectronics - CCMP

Previous Close

$118.30

  Intrinsic Value

$169.74

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  Rating & Target

buy

+43%

Previous close

$118.30

 
Intrinsic value

$169.74

 
Up/down potential

+43%

 
Rating

buy

We calculate the intrinsic value of CCMP 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 2017), $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 3.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  17.80
  16.52
  15.37
  14.33
  13.40
  12.56
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.62
  8.25
  7.93
  7.64
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
Revenue, $m
  597
  696
  803
  918
  1,041
  1,172
  1,310
  1,456
  1,609
  1,769
  1,936
  2,111
  2,293
  2,482
  2,679
  2,883
  3,096
  3,316
  3,546
  3,785
  4,033
  4,291
  4,559
  4,839
  5,131
  5,434
  5,751
  6,081
  6,426
  6,786
Variable operating expenses, $m
  303
  350
  402
  457
  517
  580
  646
  717
  790
  868
  934
  1,018
  1,106
  1,197
  1,292
  1,391
  1,493
  1,600
  1,711
  1,826
  1,945
  2,070
  2,200
  2,334
  2,475
  2,621
  2,774
  2,934
  3,100
  3,274
Fixed operating expenses, $m
  142
  145
  148
  152
  155
  158
  162
  165
  169
  173
  177
  180
  184
  189
  193
  197
  201
  206
  210
  215
  220
  224
  229
  234
  239
  245
  250
  256
  261
  267
Total operating expenses, $m
  445
  495
  550
  609
  672
  738
  808
  882
  959
  1,041
  1,111
  1,198
  1,290
  1,386
  1,485
  1,588
  1,694
  1,806
  1,921
  2,041
  2,165
  2,294
  2,429
  2,568
  2,714
  2,866
  3,024
  3,190
  3,361
  3,541
Operating income, $m
  153
  201
  253
  309
  369
  434
  502
  573
  649
  728
  826
  912
  1,002
  1,096
  1,194
  1,295
  1,401
  1,511
  1,625
  1,744
  1,868
  1,997
  2,131
  2,270
  2,416
  2,568
  2,727
  2,892
  3,065
  3,245
EBITDA, $m
  197
  250
  307
  369
  436
  507
  582
  661
  744
  831
  923
  1,018
  1,117
  1,220
  1,328
  1,440
  1,556
  1,677
  1,803
  1,934
  2,070
  2,212
  2,359
  2,513
  2,673
  2,840
  3,015
  3,197
  3,387
  3,585
Interest expense (income), $m
  4
  7
  9
  12
  14
  17
  20
  23
  27
  30
  34
  38
  42
  46
  51
  55
  60
  65
  70
  75
  81
  87
  93
  99
  106
  112
  120
  127
  135
  143
  151
Earnings before tax, $m
  145
  191
  241
  295
  352
  413
  478
  547
  619
  694
  788
  870
  956
  1,045
  1,139
  1,235
  1,336
  1,441
  1,550
  1,663
  1,781
  1,904
  2,032
  2,165
  2,304
  2,448
  2,600
  2,757
  2,922
  3,094
Tax expense, $m
  39
  52
  65
  80
  95
  112
  129
  148
  167
  187
  213
  235
  258
  282
  307
  334
  361
  389
  418
  449
  481
  514
  549
  584
  622
  661
  702
  744
  789
  835
Net income, $m
  106
  140
  176
  215
  257
  302
  349
  399
  452
  507
  575
  635
  698
  763
  831
  902
  975
  1,052
  1,131
  1,214
  1,300
  1,390
  1,483
  1,580
  1,682
  1,787
  1,898
  2,013
  2,133
  2,259

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
Total assets, $m
  621
  723
  835
  954
  1,082
  1,218
  1,362
  1,513
  1,672
  1,839
  2,013
  2,194
  2,383
  2,580
  2,784
  2,997
  3,218
  3,447
  3,686
  3,934
  4,192
  4,460
  4,740
  5,030
  5,333
  5,649
  5,978
  6,321
  6,680
  7,054
Adjusted assets (=assets-cash), $m
  621
  723
  835
  954
  1,082
  1,218
  1,362
  1,513
  1,672
  1,839
  2,013
  2,194
  2,383
  2,580
  2,784
  2,997
  3,218
  3,447
  3,686
  3,934
  4,192
  4,460
  4,740
  5,030
  5,333
  5,649
  5,978
  6,321
  6,680
  7,054
Revenue / Adjusted assets
  0.961
  0.963
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
  0.962
Average production assets, $m
  299
  349
  402
  460
  521
  587
  656
  729
  806
  886
  970
  1,057
  1,149
  1,243
  1,342
  1,444
  1,551
  1,662
  1,777
  1,896
  2,020
  2,150
  2,284
  2,424
  2,570
  2,723
  2,881
  3,047
  3,219
  3,400
Working capital, $m
  64
  74
  86
  98
  111
  125
  140
  156
  172
  189
  207
  226
  245
  266
  287
  308
  331
  355
  379
  405
  432
  459
  488
  518
  549
  581
  615
  651
  688
  726
Total debt, $m
  174
  218
  266
  318
  373
  432
  494
  560
  629
  701
  776
  855
  937
  1,022
  1,110
  1,203
  1,298
  1,398
  1,501
  1,608
  1,720
  1,836
  1,957
  2,083
  2,214
  2,351
  2,493
  2,642
  2,797
  2,959
Total liabilities, $m
  269
  313
  361
  413
  469
  527
  590
  655
  724
  796
  871
  950
  1,032
  1,117
  1,206
  1,298
  1,393
  1,493
  1,596
  1,703
  1,815
  1,931
  2,052
  2,178
  2,309
  2,446
  2,588
  2,737
  2,892
  3,054
Total equity, $m
  352
  410
  473
  541
  614
  691
  772
  858
  948
  1,043
  1,141
  1,244
  1,351
  1,463
  1,579
  1,699
  1,825
  1,955
  2,090
  2,231
  2,377
  2,529
  2,687
  2,852
  3,024
  3,203
  3,390
  3,584
  3,787
  4,000
Total liabilities and equity, $m
  621
  723
  834
  954
  1,083
  1,218
  1,362
  1,513
  1,672
  1,839
  2,012
  2,194
  2,383
  2,580
  2,785
  2,997
  3,218
  3,448
  3,686
  3,934
  4,192
  4,460
  4,739
  5,030
  5,333
  5,649
  5,978
  6,321
  6,679
  7,054
Debt-to-equity ratio
  0.490
  0.530
  0.560
  0.590
  0.610
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.700
  0.710
  0.710
  0.710
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.730
  0.740
  0.740
  0.740
  0.740
Adjusted equity ratio
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  106
  140
  176
  215
  257
  302
  349
  399
  452
  507
  575
  635
  698
  763
  831
  902
  975
  1,052
  1,131
  1,214
  1,300
  1,390
  1,483
  1,580
  1,682
  1,787
  1,898
  2,013
  2,133
  2,259
Depreciation, amort., depletion, $m
  44
  49
  55
  60
  67
  73
  80
  87
  95
  103
  97
  106
  115
  124
  134
  144
  155
  166
  178
  190
  202
  215
  228
  242
  257
  272
  288
  305
  322
  340
Funds from operations, $m
  151
  189
  231
  276
  324
  375
  429
  487
  547
  610
  672
  741
  813
  888
  965
  1,046
  1,130
  1,218
  1,309
  1,404
  1,502
  1,605
  1,711
  1,823
  1,939
  2,060
  2,186
  2,318
  2,455
  2,599
Change in working capital, $m
  10
  11
  11
  12
  13
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  39
Cash from operations, $m
  141
  178
  219
  263
  311
  361
  414
  471
  530
  593
  654
  722
  793
  867
  944
  1,024
  1,108
  1,194
  1,284
  1,378
  1,476
  1,577
  1,683
  1,793
  1,907
  2,027
  2,152
  2,282
  2,418
  2,560
Maintenance CAPEX, $m
  -25
  -30
  -35
  -40
  -46
  -52
  -59
  -66
  -73
  -81
  -89
  -97
  -106
  -115
  -124
  -134
  -144
  -155
  -166
  -178
  -190
  -202
  -215
  -228
  -242
  -257
  -272
  -288
  -305
  -322
New CAPEX, $m
  -45
  -49
  -54
  -58
  -62
  -65
  -69
  -73
  -77
  -80
  -84
  -87
  -91
  -95
  -99
  -102
  -106
  -111
  -115
  -120
  -124
  -129
  -135
  -140
  -146
  -152
  -159
  -166
  -173
  -180
Cash from investing activities, $m
  -70
  -79
  -89
  -98
  -108
  -117
  -128
  -139
  -150
  -161
  -173
  -184
  -197
  -210
  -223
  -236
  -250
  -266
  -281
  -298
  -314
  -331
  -350
  -368
  -388
  -409
  -431
  -454
  -478
  -502
Free cash flow, $m
  71
  99
  131
  165
  203
  243
  287
  332
  381
  432
  482
  538
  596
  658
  721
  788
  857
  929
  1,003
  1,081
  1,162
  1,246
  1,333
  1,424
  1,519
  1,618
  1,721
  1,829
  1,941
  2,058
Issuance/(repayment) of debt, $m
  41
  44
  48
  52
  55
  59
  62
  66
  69
  72
  75
  79
  82
  85
  89
  92
  96
  99
  103
  107
  112
  116
  121
  126
  131
  137
  143
  149
  155
  162
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
Cash from financing (excl. dividends), $m  
  41
  44
  48
  52
  55
  59
  62
  66
  69
  72
  75
  79
  82
  85
  89
  92
  96
  99
  103
  107
  112
  116
  121
  126
  131
  137
  143
  149
  155
  162
Total cash flow (excl. dividends), $m
  111
  143
  179
  217
  258
  302
  349
  398
  450
  504
  557
  616
  678
  743
  810
  880
  952
  1,028
  1,107
  1,188
  1,273
  1,362
  1,454
  1,550
  1,650
  1,755
  1,864
  1,977
  2,096
  2,220
Retained Cash Flow (-), $m
  -53
  -58
  -63
  -68
  -72
  -77
  -82
  -86
  -90
  -94
  -99
  -103
  -107
  -112
  -116
  -121
  -125
  -130
  -135
  -141
  -146
  -152
  -158
  -165
  -172
  -179
  -187
  -195
  -203
  -212
Prev. year cash balance distribution, $m
  296
  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
  13
  16
  18
  21
  24
  27
  30
  34
  38
  42
  46
  50
  55
  60
  65
  70
  75
  80
  86
  92
  98
  105
  112
  119
  126
  133
  141
  150
  158
  167
Cash available for distribution, $m
  354
  85
  116
  149
  186
  225
  267
  312
  360
  410
  458
  513
  571
  631
  694
  759
  827
  898
  971
  1,048
  1,127
  1,210
  1,296
  1,385
  1,478
  1,576
  1,677
  1,783
  1,893
  2,008
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
  340
  78
  101
  123
  144
  163
  181
  195
  207
  215
  218
  219
  217
  212
  204
  193
  180
  165
  150
  133
  117
  100
  85
  71
  58
  46
  36
  28
  21
  15
Current shareholders' claim on cash, %
  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

Cabot Microelectronics Corporation supplies polishing slurries and pads used in the manufacture of integrated circuit (IC) devices within the semiconductor industry, in a process called chemical mechanical planarization (CMP). The Company is engaged in the development, manufacture and sale of CMP consumables. The Company develops, produces and sells CMP slurries for polishing conducting and insulating materials used in IC devices, and also for polishing the disk substrates and magnetic heads used in hard disk drives. It also develops, manufactures and sells CMP polishing pads, which are used in conjunction with slurries in the CMP process. The Company also pursues other surface modification applications through its engineered surface finishes (ESF) business. The Company offers CMP polishing pads, under the Epic and NexPlanar brand names, for a range of applications and technology nodes.

FINANCIAL RATIOS  of  Cabot Microelectronics (CCMP)

Valuation Ratios
P/E Ratio 34.4
Price to Sales 5.9
Price to Book 5
Price to Tangible Book
Price to Cash Flow 21.2
Price to Free Cash Flow 24.9
Growth Rates
Sales Growth Rate 17.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate 10.1%
Financial Strength
Quick Ratio 36
Current Ratio 0
LT Debt to Equity 22.4%
Total Debt to Equity 24.2%
Interest Coverage 28
Management Effectiveness
Return On Assets 11.6%
Ret/ On Assets - 3 Yr. Avg. 10%
Return On Total Capital 12.5%
Ret/ On T. Cap. - 3 Yr. Avg. 10.7%
Return On Equity 15.9%
Return On Equity - 3 Yr. Avg. 14.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 50.1%
Gross Margin - 3 Yr. Avg. 50%
EBITDA Margin 27.4%
EBITDA Margin - 3 Yr. Avg. 24.5%
Operating Margin 22.1%
Oper. Margin - 3 Yr. Avg. 19.1%
Pre-Tax Margin 21.5%
Pre-Tax Margin - 3 Yr. Avg. 18.3%
Net Profit Margin 17.2%
Net Profit Margin - 3 Yr. Avg. 14.9%
Effective Tax Rate 20.2%
Eff/ Tax Rate - 3 Yr. Avg. 18.5%
Payout Ratio 21.8%

CCMP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CCMP stock intrinsic value calculation we used $507 million for the last fiscal year's total revenue generated by Cabot Microelectronics. The default revenue input number comes from 2017 income statement of Cabot Microelectronics. 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 CCMP stock valuation model: a) initial revenue growth rate of 17.8% 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 CCMP is calculated based on our internal credit rating of Cabot Microelectronics, 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 Cabot Microelectronics.
    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 CCMP stock the variable cost ratio is equal to 51.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $139 million in the base year in the intrinsic value calculation for CCMP 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 5.4% for Cabot Microelectronics.

Corporate tax rate of 27% is the nominal tax rate for Cabot Microelectronics. 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 CCMP stock is equal to 2.6%.

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 CCMP are equal to 50.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Cabot Microelectronics 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 CCMP is equal to 10.7%. 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 - $595 million for Cabot Microelectronics - 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 25 million for Cabot Microelectronics 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 Cabot Microelectronics at the current share price and the inputted number of shares is $3.0 billion.

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COMPANY NEWS

▶ Cabot: Fiscal 2Q Earnings Snapshot   [Apr-26-18 10:36AM  Associated Press]
▶ Earnings Preview For Cabot Microelectronics   [Apr-25-18 03:28PM  Benzinga]
▶ Cabot reports 1Q loss   [Jan-25-18 06:11AM  Associated Press]
▶ Cabot posts 4Q profit   [Oct-26-17 09:16AM  Associated Press]
▶ [$$] CCMP-Backed PQ Declines in Stock Market Debut   [Sep-29-17 12:10PM  The Wall Street Journal]
▶ Cabot posts 3Q profit   [01:24AM  Associated Press]
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