Intrinsic value of Cabot Microelectronics - CCMP

Previous Close

$100.34

  Intrinsic Value

$129.95

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  Rating & Target

buy

+30%

Previous close

$100.34

 
Intrinsic value

$129.95

 
Up/down potential

+30%

 
Rating

buy

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

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

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, %
  17.91
  11.40
  10.76
  10.18
  9.67
  9.20
  8.78
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
Revenue, $m
  507
  565
  626
  689
  756
  825
  898
  973
  1,052
  1,133
  1,218
  1,306
  1,398
  1,493
  1,592
  1,695
  1,802
  1,913
  2,029
  2,150
  2,276
  2,408
  2,545
  2,689
  2,838
  2,995
  3,158
  3,329
  3,508
  3,695
  3,891
Variable operating expenses, $m
 
  285
  315
  346
  378
  412
  447
  484
  522
  562
  603
  636
  681
  727
  775
  825
  877
  932
  988
  1,047
  1,108
  1,172
  1,239
  1,309
  1,382
  1,458
  1,538
  1,621
  1,708
  1,799
  1,894
Fixed operating expenses, $m
 
  145
  148
  152
  156
  160
  164
  168
  172
  176
  180
  185
  190
  194
  199
  204
  209
  215
  220
  225
  231
  237
  243
  249
  255
  261
  268
  275
  282
  289
  296
Total operating expenses, $m
  395
  430
  463
  498
  534
  572
  611
  652
  694
  738
  783
  821
  871
  921
  974
  1,029
  1,086
  1,147
  1,208
  1,272
  1,339
  1,409
  1,482
  1,558
  1,637
  1,719
  1,806
  1,896
  1,990
  2,088
  2,190
Operating income, $m
  112
  135
  163
  192
  222
  254
  287
  322
  358
  395
  434
  485
  528
  572
  618
  665
  715
  767
  821
  878
  937
  999
  1,063
  1,131
  1,201
  1,275
  1,353
  1,434
  1,518
  1,607
  1,701
EBITDA, $m
  138
  154
  183
  213
  244
  277
  312
  348
  385
  424
  464
  506
  550
  596
  643
  693
  744
  798
  854
  913
  974
  1,038
  1,104
  1,174
  1,247
  1,324
  1,404
  1,487
  1,575
  1,667
  1,764
Interest expense (income), $m
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
Earnings before tax, $m
  109
  130
  157
  185
  215
  245
  277
  311
  346
  382
  420
  469
  510
  553
  597
  644
  692
  742
  795
  849
  907
  966
  1,029
  1,094
  1,162
  1,234
  1,309
  1,387
  1,469
  1,556
  1,646
Tax expense, $m
  22
  35
  42
  50
  58
  66
  75
  84
  93
  103
  113
  127
  138
  149
  161
  174
  187
  200
  215
  229
  245
  261
  278
  295
  314
  333
  353
  375
  397
  420
  444
Net income, $m
  87
  95
  115
  135
  157
  179
  202
  227
  252
  279
  306
  343
  373
  404
  436
  470
  505
  542
  580
  620
  662
  705
  751
  799
  848
  901
  955
  1,013
  1,073
  1,136
  1,202

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  398
  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
  834
  486
  538
  593
  650
  710
  772
  837
  904
  975
  1,047
  1,123
  1,202
  1,284
  1,369
  1,457
  1,549
  1,645
  1,745
  1,849
  1,957
  2,070
  2,189
  2,312
  2,440
  2,575
  2,715
  2,862
  3,016
  3,177
  3,346
Adjusted assets (=assets-cash), $m
  436
  486
  538
  593
  650
  710
  772
  837
  904
  975
  1,047
  1,123
  1,202
  1,284
  1,369
  1,457
  1,549
  1,645
  1,745
  1,849
  1,957
  2,070
  2,189
  2,312
  2,440
  2,575
  2,715
  2,862
  3,016
  3,177
  3,346
Revenue / Adjusted assets
  1.163
  1.163
  1.164
  1.162
  1.163
  1.162
  1.163
  1.162
  1.164
  1.162
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
  1.163
Average production assets, $m
  47
  52
  58
  63
  70
  76
  83
  90
  97
  104
  112
  120
  129
  137
  146
  156
  166
  176
  187
  198
  209
  222
  234
  247
  261
  276
  291
  306
  323
  340
  358
Working capital, $m
  460
  81
  90
  99
  109
  119
  129
  140
  151
  163
  175
  188
  201
  215
  229
  244
  259
  276
  292
  310
  328
  347
  367
  387
  409
  431
  455
  479
  505
  532
  560
Total debt, $m
  144
  159
  186
  215
  245
  276
  309
  343
  378
  415
  453
  492
  534
  576
  621
  667
  715
  765
  818
  872
  929
  988
  1,050
  1,114
  1,181
  1,252
  1,325
  1,402
  1,483
  1,567
  1,655
Total liabilities, $m
  239
  254
  281
  310
  340
  371
  404
  438
  473
  510
  548
  587
  629
  671
  716
  762
  810
  860
  913
  967
  1,024
  1,083
  1,145
  1,209
  1,276
  1,347
  1,420
  1,497
  1,578
  1,662
  1,750
Total equity, $m
  595
  232
  257
  283
  310
  339
  368
  399
  431
  465
  500
  536
  573
  612
  653
  695
  739
  785
  832
  882
  934
  988
  1,044
  1,103
  1,164
  1,228
  1,295
  1,365
  1,439
  1,516
  1,596
Total liabilities and equity, $m
  834
  486
  538
  593
  650
  710
  772
  837
  904
  975
  1,048
  1,123
  1,202
  1,283
  1,369
  1,457
  1,549
  1,645
  1,745
  1,849
  1,958
  2,071
  2,189
  2,312
  2,440
  2,575
  2,715
  2,862
  3,017
  3,178
  3,346
Debt-to-equity ratio
  0.242
  0.690
  0.730
  0.760
  0.790
  0.820
  0.840
  0.860
  0.880
  0.890
  0.910
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.980
  0.990
  0.990
  1.000
  1.010
  1.010
  1.010
  1.020
  1.020
  1.030
  1.030
  1.030
  1.040
Adjusted equity ratio
  0.452
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  87
  95
  115
  135
  157
  179
  202
  227
  252
  279
  306
  343
  373
  404
  436
  470
  505
  542
  580
  620
  662
  705
  751
  799
  848
  901
  955
  1,013
  1,073
  1,136
  1,202
Depreciation, amort., depletion, $m
  26
  19
  20
  21
  22
  24
  25
  26
  27
  28
  30
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
Funds from operations, $m
  156
  115
  135
  156
  179
  203
  227
  253
  280
  307
  336
  364
  395
  428
  462
  497
  534
  573
  613
  655
  699
  744
  792
  842
  894
  949
  1,006
  1,066
  1,129
  1,195
  1,264
Change in working capital, $m
  15
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
Cash from operations, $m
  141
  106
  126
  147
  169
  193
  217
  242
  268
  296
  324
  351
  382
  414
  448
  482
  519
  557
  596
  637
  680
  725
  772
  821
  873
  927
  983
  1,042
  1,104
  1,168
  1,236
Maintenance CAPEX, $m
  0
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
New CAPEX, $m
  -21
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
Cash from investing activities, $m
  -20
  -13
  -15
  -16
  -17
  -18
  -20
  -21
  -23
  -25
  -26
  -28
  -29
  -32
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
Free cash flow, $m
  121
  93
  112
  131
  152
  174
  197
  221
  245
  271
  298
  323
  352
  383
  414
  447
  482
  517
  555
  593
  634
  676
  721
  767
  816
  866
  919
  975
  1,033
  1,094
  1,158
Issuance/(repayment) of debt, $m
  -11
  26
  27
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  74
  77
  80
  84
  88
Issuance/(repurchase) of shares, $m
  16
  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  
  12
  26
  27
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  74
  77
  80
  84
  88
Total cash flow (excl. dividends), $m
  129
  119
  139
  160
  182
  205
  229
  254
  281
  308
  336
  363
  394
  426
  459
  494
  530
  567
  607
  648
  691
  736
  782
  832
  883
  937
  993
  1,052
  1,114
  1,179
  1,247
Retained Cash Flow (-), $m
  -97
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -80
Prev. year cash balance distribution, $m
 
  387
  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
 
  482
  114
  134
  155
  177
  200
  224
  248
  274
  301
  327
  356
  387
  418
  451
  486
  522
  559
  598
  639
  682
  726
  773
  822
  873
  926
  982
  1,040
  1,102
  1,166
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
 
  462
  104
  116
  127
  137
  145
  151
  155
  158
  158
  155
  152
  147
  140
  133
  123
  114
  103
  92
  81
  71
  60
  51
  42
  34
  27
  21
  16
  12
  9
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

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 29.2
Price to Sales 5
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 18
Price to Free Cash Flow 21.1
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 11.4% 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 50.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $141 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 3.5% 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 9.2%.

Life of production assets of 5.7 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 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 25.51 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 $2.6 billion.

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COMPANY NEWS

▶ 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]
▶ STOCKS SLIP LOWER: Here's what you need to know   [May-12-17 04:02PM  Business Insider]
▶ STOCKS SLIDE LOWER: Here's what you need to know   [May-11-17 04:06PM  Business Insider]
▶ STOCKS DO NOTHING: Here's what you need to know   [May-10-17 04:00PM  Business Insider]
▶ STOCKS EDGE LOWER: Here's what you need to know   [May-09-17 04:00PM  Business Insider]
▶ STOCKS GO NOWHERE: Here's what you need to know   [May-08-17 04:04PM  Business Insider]
▶ Cabot posts 2Q profit   [Apr-27-17 09:32AM  Associated Press]
Financial statements of CCMP
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