Intrinsic value of CTS Corporation - CTS

Previous Close

$27.60

  Intrinsic Value

$41.77

stock screener

  Rating & Target

str. buy

+51%

Previous close

$27.60

 
Intrinsic value

$41.77

 
Up/down potential

+51%

 
Rating

str. buy

We calculate the intrinsic value of CTS 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 0.9

 

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, %
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  509
  550
  592
  636
  681
  728
  778
  829
  882
  937
  995
  1,055
  1,118
  1,183
  1,251
  1,322
  1,396
  1,474
  1,555
  1,639
  1,728
  1,821
  1,918
  2,019
  2,125
  2,237
  2,353
  2,475
  2,603
  2,738
Variable operating expenses, $m
  269
  289
  310
  332
  355
  379
  404
  429
  456
  484
  500
  530
  561
  594
  628
  664
  701
  740
  781
  823
  868
  914
  963
  1,014
  1,067
  1,123
  1,182
  1,243
  1,307
  1,375
Fixed operating expenses, $m
  168
  171
  175
  179
  183
  187
  191
  195
  199
  204
  208
  213
  218
  222
  227
  232
  237
  243
  248
  253
  259
  265
  271
  276
  283
  289
  295
  302
  308
  315
Total operating expenses, $m
  437
  460
  485
  511
  538
  566
  595
  624
  655
  688
  708
  743
  779
  816
  855
  896
  938
  983
  1,029
  1,076
  1,127
  1,179
  1,234
  1,290
  1,350
  1,412
  1,477
  1,545
  1,615
  1,690
Operating income, $m
  73
  89
  106
  124
  143
  163
  183
  204
  227
  250
  287
  312
  339
  367
  396
  426
  458
  491
  526
  563
  601
  642
  684
  729
  776
  825
  876
  931
  988
  1,048
EBITDA, $m
  103
  121
  140
  159
  179
  201
  223
  246
  270
  295
  321
  348
  377
  407
  438
  471
  505
  541
  579
  618
  660
  704
  749
  797
  848
  901
  956
  1,015
  1,076
  1,141
Interest expense (income), $m
  3
  3
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  40
  42
  45
Earnings before tax, $m
  70
  86
  102
  119
  137
  156
  175
  196
  217
  239
  275
  299
  325
  351
  379
  408
  438
  470
  504
  539
  576
  614
  655
  698
  742
  790
  839
  891
  946
  1,003
Tax expense, $m
  19
  23
  28
  32
  37
  42
  47
  53
  59
  65
  74
  81
  88
  95
  102
  110
  118
  127
  136
  145
  155
  166
  177
  188
  200
  213
  227
  241
  255
  271
Net income, $m
  51
  63
  75
  87
  100
  114
  128
  143
  158
  174
  201
  219
  237
  256
  277
  298
  320
  343
  368
  393
  420
  448
  478
  509
  542
  576
  613
  651
  691
  733

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
  594
  641
  690
  742
  795
  850
  907
  967
  1,029
  1,094
  1,161
  1,231
  1,304
  1,380
  1,460
  1,543
  1,629
  1,720
  1,814
  1,913
  2,016
  2,124
  2,237
  2,356
  2,480
  2,610
  2,746
  2,888
  3,038
  3,194
Adjusted assets (=assets-cash), $m
  594
  641
  690
  742
  795
  850
  907
  967
  1,029
  1,094
  1,161
  1,231
  1,304
  1,380
  1,460
  1,543
  1,629
  1,720
  1,814
  1,913
  2,016
  2,124
  2,237
  2,356
  2,480
  2,610
  2,746
  2,888
  3,038
  3,194
Revenue / Adjusted assets
  0.857
  0.858
  0.858
  0.857
  0.857
  0.856
  0.858
  0.857
  0.857
  0.856
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
Average production assets, $m
  175
  189
  203
  218
  234
  250
  267
  284
  303
  322
  341
  362
  383
  406
  429
  453
  479
  505
  533
  562
  593
  624
  658
  693
  729
  767
  807
  849
  893
  939
Working capital, $m
  37
  40
  43
  46
  50
  53
  57
  61
  64
  68
  73
  77
  82
  86
  91
  97
  102
  108
  113
  120
  126
  133
  140
  147
  155
  163
  172
  181
  190
  200
Total debt, $m
  64
  79
  94
  110
  127
  144
  162
  180
  200
  220
  241
  262
  285
  309
  334
  359
  386
  414
  444
  475
  507
  540
  575
  612
  651
  691
  734
  778
  824
  873
Total liabilities, $m
  185
  199
  215
  231
  247
  264
  282
  301
  320
  340
  361
  383
  406
  429
  454
  480
  507
  535
  564
  595
  627
  661
  696
  733
  771
  812
  854
  898
  945
  993
Total equity, $m
  409
  442
  476
  511
  548
  586
  625
  666
  709
  754
  800
  848
  899
  951
  1,006
  1,063
  1,123
  1,185
  1,250
  1,318
  1,389
  1,464
  1,542
  1,623
  1,709
  1,798
  1,892
  1,990
  2,093
  2,201
Total liabilities and equity, $m
  594
  641
  691
  742
  795
  850
  907
  967
  1,029
  1,094
  1,161
  1,231
  1,305
  1,380
  1,460
  1,543
  1,630
  1,720
  1,814
  1,913
  2,016
  2,125
  2,238
  2,356
  2,480
  2,610
  2,746
  2,888
  3,038
  3,194
Debt-to-equity ratio
  0.160
  0.180
  0.200
  0.220
  0.230
  0.250
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.320
  0.330
  0.340
  0.340
  0.350
  0.360
  0.360
  0.360
  0.370
  0.370
  0.380
  0.380
  0.380
  0.390
  0.390
  0.390
  0.400
Adjusted equity ratio
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689
  0.689

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  51
  63
  75
  87
  100
  114
  128
  143
  158
  174
  201
  219
  237
  256
  277
  298
  320
  343
  368
  393
  420
  448
  478
  509
  542
  576
  613
  651
  691
  733
Depreciation, amort., depletion, $m
  30
  32
  33
  35
  36
  38
  40
  41
  43
  45
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  93
Funds from operations, $m
  81
  94
  108
  122
  136
  152
  167
  184
  201
  219
  235
  254
  275
  297
  319
  343
  367
  393
  421
  449
  479
  510
  543
  578
  614
  652
  692
  735
  779
  825
Change in working capital, $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
Cash from operations, $m
  79
  91
  105
  119
  133
  148
  164
  180
  197
  215
  230
  250
  270
  292
  314
  337
  362
  388
  415
  443
  472
  504
  536
  570
  606
  644
  684
  726
  770
  816
Maintenance CAPEX, $m
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -88
New CAPEX, $m
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
Cash from investing activities, $m
  -29
  -31
  -33
  -35
  -38
  -39
  -42
  -44
  -46
  -49
  -52
  -55
  -57
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -134
Free cash flow, $m
  49
  60
  72
  83
  96
  109
  122
  136
  151
  166
  179
  196
  213
  231
  251
  271
  292
  314
  337
  361
  386
  413
  441
  471
  501
  534
  568
  604
  642
  681
Issuance/(repayment) of debt, $m
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
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  
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
Total cash flow (excl. dividends), $m
  64
  75
  87
  99
  112
  126
  140
  155
  170
  186
  200
  217
  236
  255
  275
  296
  319
  342
  366
  392
  419
  447
  476
  507
  540
  574
  610
  648
  688
  730
Retained Cash Flow (-), $m
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -85
  -89
  -94
  -98
  -103
  -108
Prev. year cash balance distribution, $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 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
  32
  42
  53
  64
  76
  88
  101
  114
  128
  142
  153
  169
  185
  203
  221
  239
  259
  279
  301
  324
  347
  372
  398
  426
  455
  485
  517
  550
  585
  622
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
  31
  39
  46
  53
  59
  64
  68
  71
  73
  74
  73
  72
  71
  68
  65
  61
  56
  51
  46
  41
  36
  31
  26
  22
  18
  14
  11
  9
  6
  5
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
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CTS Corporation is a manufacturer of sensors, electronic components and actuators. The Company designs, manufactures and sells a line of sensors, electronic components and actuators primarily to original equipment manufacturers (OEMs) for the transportation, industrial, medical, information technology, defense and aerospace, and communications markets. It operates manufacturing facilities in North America, Asia and Europe. Its products perform specific electronic functions for a given product family and are intended for use in customer assemblies. The Company's products consist principally of sensors and actuators used in passenger or commercial vehicles; electronic components used in communications infrastructure, information technology and other high-speed applications; switches and potentiometers supplied to multiple markets, and fabricated piezoelectric materials and substrates used primarily in medical, industrial, defense and aerospace, and information technology markets.

FINANCIAL RATIOS  of  CTS Corporation (CTS)

Valuation Ratios
P/E Ratio 26.6
Price to Sales 2.3
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 19.2
Price to Free Cash Flow 34.8
Growth Rates
Sales Growth Rate 3.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 110%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 114
Current Ratio 0.1
LT Debt to Equity 28%
Total Debt to Equity 28.3%
Interest Coverage 20
Management Effectiveness
Return On Assets 7.2%
Ret/ On Assets - 3 Yr. Avg. 5%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6%
Return On Equity 11.3%
Return On Equity - 3 Yr. Avg. 7.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 35.3%
Gross Margin - 3 Yr. Avg. 33.7%
EBITDA Margin 19.9%
EBITDA Margin - 3 Yr. Avg. 14%
Operating Margin 15.9%
Oper. Margin - 3 Yr. Avg. 10.3%
Pre-Tax Margin 14.4%
Pre-Tax Margin - 3 Yr. Avg. 9.1%
Net Profit Margin 8.6%
Net Profit Margin - 3 Yr. Avg. 5.7%
Effective Tax Rate 40.4%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 14.7%

CTS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CTS stock intrinsic value calculation we used $470 million for the last fiscal year's total revenue generated by CTS Corporation. The default revenue input number comes from 0001 income statement of CTS Corporation. 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 CTS stock valuation model: a) initial revenue growth rate of 8.3% 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 CTS is calculated based on our internal credit rating of CTS Corporation, 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 CTS Corporation.
    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 CTS stock the variable cost ratio is equal to 53%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $164 million in the base year in the intrinsic value calculation for CTS 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 CTS Corporation.

Corporate tax rate of 27% is the nominal tax rate for CTS Corporation. 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 CTS 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 CTS are equal to 34.3%.

Life of production assets of 10.1 years is the average useful life of capital assets used in CTS Corporation 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 CTS is equal to 7.3%. 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 - $377.929 million for CTS Corporation - 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 32.782 million for CTS Corporation 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 CTS Corporation at the current share price and the inputted number of shares is $0.9 billion.

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