Intrinsic value of Cabot Microelectronics - CCMP

Previous Close

$104.26

  Intrinsic Value

$169.80

stock screener

  Rating & Target

str. buy

+63%

Previous close

$104.26

 
Intrinsic value

$169.80

 
Up/down potential

+63%

 
Rating

str. 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 0001), $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 2.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.60
  16.34
  15.21
  14.19
  13.27
  12.44
  11.70
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.90
  5.81
  5.73
  5.66
  5.59
Revenue, $m
  596
  694
  799
  913
  1,034
  1,163
  1,299
  1,442
  1,592
  1,749
  1,914
  2,085
  2,263
  2,449
  2,642
  2,843
  3,051
  3,268
  3,493
  3,727
  3,971
  4,224
  4,488
  4,762
  5,048
  5,346
  5,657
  5,981
  6,320
  6,673
Variable operating expenses, $m
  303
  351
  402
  457
  515
  578
  644
  713
  786
  862
  927
  1,010
  1,097
  1,187
  1,280
  1,377
  1,478
  1,583
  1,692
  1,806
  1,924
  2,046
  2,174
  2,307
  2,446
  2,590
  2,741
  2,898
  3,062
  3,233
Fixed operating expenses, $m
  141
  144
  147
  151
  154
  157
  161
  164
  168
  172
  175
  179
  183
  187
  191
  195
  200
  204
  209
  213
  218
  223
  228
  233
  238
  243
  248
  254
  259
  265
Total operating expenses, $m
  444
  495
  549
  608
  669
  735
  805
  877
  954
  1,034
  1,102
  1,189
  1,280
  1,374
  1,471
  1,572
  1,678
  1,787
  1,901
  2,019
  2,142
  2,269
  2,402
  2,540
  2,684
  2,833
  2,989
  3,152
  3,321
  3,498
Operating income, $m
  152
  199
  250
  306
  365
  428
  494
  565
  638
  716
  811
  896
  984
  1,075
  1,171
  1,270
  1,373
  1,481
  1,592
  1,708
  1,829
  1,955
  2,086
  2,222
  2,365
  2,513
  2,668
  2,830
  2,999
  3,175
EBITDA, $m
  188
  239
  294
  353
  417
  484
  556
  631
  711
  794
  881
  971
  1,066
  1,164
  1,267
  1,373
  1,484
  1,599
  1,719
  1,844
  1,973
  2,108
  2,249
  2,395
  2,548
  2,707
  2,873
  3,047
  3,228
  3,417
Interest expense (income), $m
  4
  8
  10
  12
  15
  18
  21
  24
  27
  30
  34
  38
  42
  46
  50
  55
  60
  65
  70
  75
  80
  86
  92
  98
  105
  111
  118
  125
  133
  141
  149
Earnings before tax, $m
  144
  189
  238
  291
  347
  407
  471
  537
  608
  682
  773
  854
  938
  1,025
  1,116
  1,210
  1,309
  1,411
  1,517
  1,628
  1,743
  1,863
  1,988
  2,118
  2,253
  2,395
  2,543
  2,697
  2,858
  3,026
Tax expense, $m
  39
  51
  64
  78
  94
  110
  127
  145
  164
  184
  209
  230
  253
  277
  301
  327
  353
  381
  410
  440
  471
  503
  537
  572
  608
  647
  686
  728
  772
  817
Net income, $m
  105
  138
  174
  212
  253
  297
  343
  392
  444
  498
  564
  623
  684
  748
  815
  884
  955
  1,030
  1,108
  1,188
  1,272
  1,360
  1,451
  1,546
  1,645
  1,748
  1,856
  1,969
  2,086
  2,209

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
  607
  707
  814
  930
  1,053
  1,184
  1,322
  1,468
  1,621
  1,781
  1,949
  2,123
  2,305
  2,494
  2,691
  2,895
  3,107
  3,328
  3,557
  3,796
  4,043
  4,301
  4,570
  4,849
  5,141
  5,444
  5,761
  6,091
  6,436
  6,796
Adjusted assets (=assets-cash), $m
  607
  707
  814
  930
  1,053
  1,184
  1,322
  1,468
  1,621
  1,781
  1,949
  2,123
  2,305
  2,494
  2,691
  2,895
  3,107
  3,328
  3,557
  3,796
  4,043
  4,301
  4,570
  4,849
  5,141
  5,444
  5,761
  6,091
  6,436
  6,796
Revenue / Adjusted assets
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.983
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
Average production assets, $m
  212
  247
  285
  325
  368
  414
  462
  513
  567
  623
  681
  742
  806
  872
  941
  1,012
  1,086
  1,163
  1,244
  1,327
  1,414
  1,504
  1,598
  1,695
  1,797
  1,903
  2,014
  2,129
  2,250
  2,376
Working capital, $m
  86
  100
  115
  131
  149
  167
  187
  208
  229
  252
  276
  300
  326
  353
  380
  409
  439
  471
  503
  537
  572
  608
  646
  686
  727
  770
  815
  861
  910
  961
Total debt, $m
  184
  228
  276
  327
  381
  439
  500
  565
  632
  703
  777
  854
  935
  1,018
  1,105
  1,195
  1,289
  1,387
  1,488
  1,593
  1,703
  1,817
  1,936
  2,059
  2,188
  2,322
  2,462
  2,608
  2,760
  2,919
Total liabilities, $m
  268
  312
  360
  411
  465
  523
  584
  649
  717
  787
  861
  938
  1,019
  1,102
  1,189
  1,280
  1,373
  1,471
  1,572
  1,678
  1,787
  1,901
  2,020
  2,143
  2,272
  2,406
  2,546
  2,692
  2,845
  3,004
Total equity, $m
  339
  394
  454
  519
  588
  661
  738
  819
  905
  994
  1,087
  1,185
  1,286
  1,392
  1,501
  1,615
  1,734
  1,857
  1,985
  2,118
  2,256
  2,400
  2,550
  2,706
  2,868
  3,038
  3,214
  3,399
  3,591
  3,792
Total liabilities and equity, $m
  607
  706
  814
  930
  1,053
  1,184
  1,322
  1,468
  1,622
  1,781
  1,948
  2,123
  2,305
  2,494
  2,690
  2,895
  3,107
  3,328
  3,557
  3,796
  4,043
  4,301
  4,570
  4,849
  5,140
  5,444
  5,760
  6,091
  6,436
  6,796
Debt-to-equity ratio
  0.540
  0.580
  0.610
  0.630
  0.650
  0.660
  0.680
  0.690
  0.700
  0.710
  0.710
  0.720
  0.730
  0.730
  0.740
  0.740
  0.740
  0.750
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
  0.760
  0.760
  0.770
  0.770
  0.770
  0.770
Adjusted equity ratio
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  105
  138
  174
  212
  253
  297
  343
  392
  444
  498
  564
  623
  684
  748
  815
  884
  955
  1,030
  1,108
  1,188
  1,272
  1,360
  1,451
  1,546
  1,645
  1,748
  1,856
  1,969
  2,086
  2,209
Depreciation, amort., depletion, $m
  36
  40
  44
  48
  52
  57
  62
  67
  72
  78
  70
  76
  82
  89
  96
  103
  111
  119
  127
  135
  144
  153
  163
  173
  183
  194
  205
  217
  230
  242
Funds from operations, $m
  141
  178
  217
  260
  305
  354
  405
  459
  516
  576
  634
  699
  767
  837
  911
  987
  1,066
  1,149
  1,234
  1,324
  1,417
  1,513
  1,614
  1,719
  1,828
  1,942
  2,062
  2,186
  2,316
  2,451
Change in working capital, $m
  13
  14
  15
  16
  17
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  51
Cash from operations, $m
  129
  164
  202
  243
  288
  335
  386
  439
  494
  553
  610
  674
  741
  810
  883
  958
  1,036
  1,117
  1,202
  1,290
  1,382
  1,477
  1,576
  1,679
  1,787
  1,900
  2,017
  2,139
  2,267
  2,401
Maintenance CAPEX, $m
  -18
  -22
  -25
  -29
  -33
  -38
  -42
  -47
  -52
  -58
  -64
  -70
  -76
  -82
  -89
  -96
  -103
  -111
  -119
  -127
  -135
  -144
  -153
  -163
  -173
  -183
  -194
  -205
  -217
  -230
New CAPEX, $m
  -32
  -35
  -38
  -40
  -43
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -66
  -69
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -102
  -106
  -111
  -115
  -121
  -126
Cash from investing activities, $m
  -50
  -57
  -63
  -69
  -76
  -84
  -90
  -98
  -105
  -114
  -122
  -131
  -140
  -148
  -158
  -167
  -177
  -188
  -199
  -210
  -222
  -234
  -247
  -261
  -275
  -289
  -305
  -320
  -338
  -356
Free cash flow, $m
  78
  107
  139
  174
  212
  252
  295
  340
  389
  439
  488
  544
  602
  662
  725
  791
  859
  929
  1,003
  1,080
  1,159
  1,242
  1,329
  1,419
  1,512
  1,610
  1,712
  1,818
  1,929
  2,045
Issuance/(repayment) of debt, $m
  40
  44
  47
  51
  55
  58
  61
  64
  68
  71
  74
  77
  80
  84
  87
  90
  94
  98
  101
  105
  110
  114
  119
  124
  129
  134
  140
  146
  152
  159
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  
  40
  44
  47
  51
  55
  58
  61
  64
  68
  71
  74
  77
  80
  84
  87
  90
  94
  98
  101
  105
  110
  114
  119
  124
  129
  134
  140
  146
  152
  159
Total cash flow (excl. dividends), $m
  118
  151
  187
  225
  266
  310
  356
  405
  456
  510
  562
  621
  682
  746
  812
  881
  952
  1,027
  1,105
  1,185
  1,269
  1,356
  1,447
  1,542
  1,641
  1,744
  1,852
  1,964
  2,082
  2,204
Retained Cash Flow (-), $m
  -51
  -55
  -60
  -64
  -69
  -73
  -77
  -81
  -85
  -89
  -93
  -97
  -101
  -105
  -110
  -114
  -118
  -123
  -128
  -133
  -138
  -144
  -150
  -156
  -162
  -169
  -177
  -184
  -192
  -201
Prev. year cash balance distribution, $m
  307
  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
  375
  96
  127
  161
  197
  237
  279
  324
  371
  421
  469
  524
  581
  640
  702
  767
  834
  904
  977
  1,052
  1,131
  1,213
  1,298
  1,386
  1,479
  1,575
  1,675
  1,780
  1,889
  2,003
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
  359
  88
  110
  132
  153
  172
  188
  202
  213
  220
  223
  223
  221
  215
  206
  195
  181
  166
  150
  134
  117
  101
  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 30.3
Price to Sales 5.2
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 18.7
Price to Free Cash Flow 22
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 $507.179 million for the last fiscal year's total revenue generated by Cabot Microelectronics. The default revenue input number comes from 0001 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 17.6% 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 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 51.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $138 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 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 CCMP are equal to 35.6%.

Life of production assets of 9.8 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 14.4%. 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 - $595.037 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 25.683 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 $2.7 billion.

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COMPANY NEWS

▶ WeissLaw LLP Investigates KMG Chemicals, Inc.   [Aug-21-18 11:38AM  PR Newswire]
▶ [$$] Cabot Microelectronics to Buy Chemicals Maker KMG   [Aug-15-18 07:46PM  The Wall Street Journal]
▶ [$$] Cabot Microelectronics to Buy Chemicals Maker KMG   [10:32AM  The Wall Street Journal]
▶ Cabot: Fiscal 3Q Earnings Snapshot   [Jul-25-18 07:12PM  Associated Press]
▶ 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]

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