Intrinsic value of Cree, Inc. - CREE

Previous Close

$56.51

  Intrinsic Value

$3.41

stock screener

  Rating & Target

str. sell

-94%

Previous close

$56.51

 
Intrinsic value

$3.41

 
Up/down potential

-94%

 
Rating

str. sell

We calculate the intrinsic value of CREE 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 5.8

 

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, %
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
  6.50
  6.35
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  1,678
  1,872
  2,076
  2,290
  2,515
  2,749
  2,993
  3,247
  3,511
  3,786
  4,072
  4,369
  4,677
  4,998
  5,331
  5,678
  6,039
  6,414
  6,805
  7,213
  7,637
  8,080
  8,542
  9,025
  9,528
  10,055
  10,605
  11,180
  11,782
  12,412
Variable operating expenses, $m
  1,691
  1,879
  2,077
  2,285
  2,502
  2,729
  2,965
  3,212
  3,468
  3,734
  3,945
  4,232
  4,531
  4,842
  5,165
  5,501
  5,850
  6,214
  6,593
  6,987
  7,399
  7,828
  8,275
  8,743
  9,231
  9,741
  10,274
  10,831
  11,414
  12,024
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
  1,691
  1,879
  2,077
  2,285
  2,502
  2,729
  2,965
  3,212
  3,468
  3,734
  3,945
  4,232
  4,531
  4,842
  5,165
  5,501
  5,850
  6,214
  6,593
  6,987
  7,399
  7,828
  8,275
  8,743
  9,231
  9,741
  10,274
  10,831
  11,414
  12,024
Operating income, $m
  -14
  -8
  -1
  5
  12
  20
  27
  35
  44
  52
  127
  136
  146
  156
  167
  177
  189
  200
  213
  225
  239
  252
  267
  282
  298
  314
  331
  349
  368
  388
EBITDA, $m
  173
  193
  214
  236
  260
  284
  309
  335
  362
  391
  420
  451
  483
  516
  550
  586
  623
  662
  702
  744
  788
  834
  882
  931
  983
  1,038
  1,094
  1,154
  1,216
  1,281
Interest expense (income), $m
  4
  16
  20
  24
  28
  32
  37
  42
  47
  52
  57
  63
  69
  75
  81
  88
  95
  102
  109
  117
  125
  133
  142
  151
  161
  171
  181
  192
  203
  215
  228
Earnings before tax, $m
  -29
  -27
  -25
  -22
  -20
  -17
  -14
  -11
  -8
  -5
  64
  68
  71
  75
  79
  83
  87
  91
  96
  100
  105
  110
  116
  121
  127
  133
  139
  146
  153
  160
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
  43
Net income, $m
  -29
  -27
  -25
  -22
  -20
  -17
  -14
  -11
  -8
  -5
  47
  49
  52
  55
  57
  60
  63
  67
  70
  73
  77
  80
  84
  88
  93
  97
  102
  107
  112
  117

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
  2,806
  3,130
  3,472
  3,830
  4,205
  4,597
  5,005
  5,430
  5,872
  6,332
  6,809
  7,306
  7,822
  8,358
  8,915
  9,495
  10,098
  10,726
  11,380
  12,061
  12,771
  13,512
  14,285
  15,091
  15,934
  16,814
  17,734
  18,696
  19,702
  20,755
Adjusted assets (=assets-cash), $m
  2,806
  3,130
  3,472
  3,830
  4,205
  4,597
  5,005
  5,430
  5,872
  6,332
  6,809
  7,306
  7,822
  8,358
  8,915
  9,495
  10,098
  10,726
  11,380
  12,061
  12,771
  13,512
  14,285
  15,091
  15,934
  16,814
  17,734
  18,696
  19,702
  20,755
Revenue / Adjusted assets
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
Average production assets, $m
  1,231
  1,374
  1,524
  1,681
  1,846
  2,018
  2,197
  2,383
  2,577
  2,779
  2,989
  3,207
  3,433
  3,669
  3,913
  4,168
  4,433
  4,708
  4,995
  5,294
  5,606
  5,931
  6,270
  6,624
  6,994
  7,380
  7,784
  8,206
  8,648
  9,110
Working capital, $m
  285
  318
  353
  389
  427
  467
  509
  552
  597
  644
  692
  743
  795
  850
  906
  965
  1,027
  1,090
  1,157
  1,226
  1,298
  1,374
  1,452
  1,534
  1,620
  1,709
  1,803
  1,901
  2,003
  2,110
Total debt, $m
  361
  435
  513
  595
  680
  770
  863
  960
  1,060
  1,165
  1,274
  1,387
  1,505
  1,627
  1,754
  1,886
  2,024
  2,167
  2,316
  2,472
  2,633
  2,802
  2,979
  3,162
  3,355
  3,555
  3,765
  3,984
  4,214
  4,454
Total liabilities, $m
  640
  714
  792
  873
  959
  1,048
  1,141
  1,238
  1,339
  1,444
  1,553
  1,666
  1,783
  1,906
  2,033
  2,165
  2,302
  2,446
  2,595
  2,750
  2,912
  3,081
  3,257
  3,441
  3,633
  3,834
  4,043
  4,263
  4,492
  4,732
Total equity, $m
  2,166
  2,417
  2,680
  2,957
  3,246
  3,549
  3,864
  4,192
  4,533
  4,888
  5,257
  5,640
  6,038
  6,452
  6,883
  7,330
  7,796
  8,281
  8,785
  9,311
  9,860
  10,431
  11,028
  11,651
  12,301
  12,980
  13,691
  14,433
  15,210
  16,023
Total liabilities and equity, $m
  2,806
  3,131
  3,472
  3,830
  4,205
  4,597
  5,005
  5,430
  5,872
  6,332
  6,810
  7,306
  7,821
  8,358
  8,916
  9,495
  10,098
  10,727
  11,380
  12,061
  12,772
  13,512
  14,285
  15,092
  15,934
  16,814
  17,734
  18,696
  19,702
  20,755
Debt-to-equity ratio
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
Adjusted equity ratio
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -29
  -27
  -25
  -22
  -20
  -17
  -14
  -11
  -8
  -5
  47
  49
  52
  55
  57
  60
  63
  67
  70
  73
  77
  80
  84
  88
  93
  97
  102
  107
  112
  117
Depreciation, amort., depletion, $m
  187
  201
  216
  231
  247
  264
  281
  300
  319
  339
  293
  314
  337
  360
  384
  409
  435
  462
  490
  519
  550
  581
  615
  649
  686
  724
  763
  805
  848
  893
Funds from operations, $m
  157
  174
  191
  209
  227
  247
  267
  289
  311
  334
  340
  364
  389
  414
  441
  469
  498
  528
  559
  592
  626
  662
  699
  738
  778
  821
  865
  911
  959
  1,010
Change in working capital, $m
  31
  33
  35
  36
  38
  40
  41
  43
  45
  47
  49
  50
  52
  55
  57
  59
  61
  64
  66
  69
  72
  75
  79
  82
  86
  89
  94
  98
  102
  107
Cash from operations, $m
  126
  141
  156
  172
  189
  207
  226
  245
  266
  287
  291
  313
  336
  360
  384
  410
  437
  464
  493
  523
  554
  587
  621
  656
  693
  731
  771
  813
  857
  903
Maintenance CAPEX, $m
  -108
  -121
  -135
  -149
  -165
  -181
  -198
  -215
  -234
  -253
  -272
  -293
  -314
  -337
  -360
  -384
  -409
  -435
  -462
  -490
  -519
  -550
  -581
  -615
  -649
  -686
  -724
  -763
  -805
  -848
New CAPEX, $m
  -134
  -142
  -150
  -157
  -165
  -172
  -179
  -187
  -194
  -202
  -210
  -218
  -226
  -235
  -245
  -254
  -265
  -276
  -287
  -299
  -312
  -325
  -339
  -354
  -370
  -386
  -404
  -422
  -442
  -462
Cash from investing activities, $m
  -242
  -263
  -285
  -306
  -330
  -353
  -377
  -402
  -428
  -455
  -482
  -511
  -540
  -572
  -605
  -638
  -674
  -711
  -749
  -789
  -831
  -875
  -920
  -969
  -1,019
  -1,072
  -1,128
  -1,185
  -1,247
  -1,310
Free cash flow, $m
  -116
  -123
  -129
  -134
  -140
  -146
  -151
  -157
  -162
  -168
  -191
  -198
  -205
  -212
  -220
  -228
  -237
  -246
  -256
  -266
  -277
  -288
  -300
  -313
  -327
  -341
  -356
  -372
  -389
  -407
Issuance/(repayment) of debt, $m
  69
  74
  78
  82
  85
  89
  93
  97
  101
  105
  109
  113
  118
  122
  127
  132
  138
  143
  149
  155
  162
  169
  176
  184
  192
  201
  210
  219
  229
  240
Issuance/(repurchase) of shares, $m
  267
  278
  288
  299
  309
  319
  329
  339
  350
  360
  322
  334
  346
  359
  373
  387
  402
  418
  435
  453
  471
  491
  512
  534
  558
  582
  609
  636
  665
  696
Cash from financing (excl. dividends), $m  
  336
  352
  366
  381
  394
  408
  422
  436
  451
  465
  431
  447
  464
  481
  500
  519
  540
  561
  584
  608
  633
  660
  688
  718
  750
  783
  819
  855
  894
  936
Total cash flow (excl. dividends), $m
  220
  229
  238
  246
  254
  263
  271
  280
  288
  297
  240
  249
  259
  269
  280
  291
  303
  315
  329
  342
  357
  372
  388
  405
  423
  442
  462
  483
  506
  529
Retained Cash Flow (-), $m
  -267
  -278
  -288
  -299
  -309
  -319
  -329
  -339
  -350
  -360
  -369
  -383
  -398
  -414
  -430
  -448
  -466
  -485
  -505
  -526
  -548
  -572
  -597
  -623
  -650
  -680
  -710
  -743
  -777
  -813
Prev. year cash balance distribution, $m
  139
  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
  92
  -49
  -51
  -53
  -55
  -56
  -58
  -60
  -61
  -63
  -129
  -134
  -139
  -145
  -150
  -156
  -163
  -169
  -176
  -184
  -191
  -200
  -208
  -217
  -227
  -237
  -248
  -259
  -271
  -284
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
  89
  -44
  -44
  -43
  -42
  -41
  -39
  -37
  -35
  -33
  -61
  -57
  -53
  -49
  -44
  -40
  -35
  -31
  -27
  -23
  -20
  -17
  -14
  -11
  -9
  -7
  -5
  -4
  -3
  -2
Current shareholders' claim on cash, %
  95.3
  91.2
  87.5
  84.2
  81.1
  78.4
  75.9
  73.6
  71.5
  69.6
  68.0
  66.5
  65.1
  63.7
  62.4
  61.2
  60.0
  58.9
  57.8
  56.8
  55.8
  54.8
  53.9
  53.0
  52.1
  51.2
  50.4
  49.6
  48.8
  48.0

Cree, Inc. is a manufacturer of lighting-class light emitting diode (LED) products, lighting products and semiconductor products for power and radio-frequency (RF) applications. The Company's products are focused for applications, such as indoor and outdoor lighting, video displays, transportation, electronic signs and signals, power supplies, inverters and wireless systems. The Company has three segments: Lighting Products, LED Products, and Power and RF Products. The Company's Lighting Products segment offers LED lighting systems and bulbs. The Company's LED Products segment offers LED components, LED chips and silicon carbide (SiC) materials. The Company's Power and RF Products segment offers power devices and RF devices. The Company designs, manufactures and markets lighting systems for indoor and outdoor applications, with a focus on LED lighting systems for the commercial, industrial and consumer markets.

FINANCIAL RATIOS  of  Cree, Inc. (CREE)

Valuation Ratios
P/E Ratio -56.3
Price to Sales 3.7
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 25.6
Price to Free Cash Flow 47.2
Growth Rates
Sales Growth Rate -8.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -26.1%
Cap. Spend. - 3 Yr. Gr. Rate -13%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 6.5%
Total Debt to Equity 6.5%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.7%
Ret/ On Assets - 3 Yr. Avg. -1.1%
Return On Total Capital -4%
Ret/ On T. Cap. - 3 Yr. Avg. -2.4%
Return On Equity -4.3%
Return On Equity - 3 Yr. Avg. -2.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 29.5%
Gross Margin - 3 Yr. Avg. 29.6%
EBITDA Margin 10.2%
EBITDA Margin - 3 Yr. Avg. 8.1%
Operating Margin -1.3%
Oper. Margin - 3 Yr. Avg. -2.1%
Pre-Tax Margin -0.3%
Pre-Tax Margin - 3 Yr. Avg. -2.3%
Net Profit Margin -6.7%
Net Profit Margin - 3 Yr. Avg. -4%
Effective Tax Rate -1860%
Eff/ Tax Rate - 3 Yr. Avg. -609.7%
Payout Ratio 0%

CREE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CREE stock intrinsic value calculation we used $1494 million for the last fiscal year's total revenue generated by Cree, Inc.. The default revenue input number comes from 0001 income statement of Cree, Inc.. 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 CREE stock valuation model: a) initial revenue growth rate of 12.3% 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 CREE is calculated based on our internal credit rating of Cree, Inc., 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 Cree, Inc..
    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 CREE stock the variable cost ratio is equal to 101.3%.

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 CREE 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 Cree, Inc..

Corporate tax rate of 27% is the nominal tax rate for Cree, Inc.. 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 CREE 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 CREE are equal to 73.4%.

Life of production assets of 10.2 years is the average useful life of capital assets used in Cree, Inc. 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 CREE is equal to 17%. 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 - $2067.136 million for Cree, Inc. - 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 103.218 million for Cree, Inc. 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 Cree, Inc. at the current share price and the inputted number of shares is $5.8 billion.

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