Intrinsic value of Digi International - DGII

Previous Close

$13.70

  Intrinsic Value

$8.94

stock screener

  Rating & Target

sell

-35%

Previous close

$13.70

 
Intrinsic value

$8.94

 
Up/down potential

-35%

 
Rating

sell

We calculate the intrinsic value of DGII 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 0.4

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  186
  190
  195
  200
  206
  213
  220
  228
  237
  246
  255
  266
  277
  288
  301
  314
  328
  343
  358
  375
  392
  411
  430
  450
  472
  494
  518
  543
  569
  597
Variable operating expenses, $m
  113
  115
  118
  121
  124
  128
  132
  136
  140
  145
  136
  141
  147
  153
  160
  167
  174
  182
  191
  199
  209
  218
  229
  239
  251
  263
  276
  289
  303
  318
Fixed operating expenses, $m
  64
  66
  67
  69
  70
  72
  73
  75
  77
  78
  80
  82
  84
  85
  87
  89
  91
  93
  95
  97
  99
  102
  104
  106
  109
  111
  113
  116
  118
  121
Total operating expenses, $m
  177
  181
  185
  190
  194
  200
  205
  211
  217
  223
  216
  223
  231
  238
  247
  256
  265
  275
  286
  296
  308
  320
  333
  345
  360
  374
  389
  405
  421
  439
Operating income, $m
  8
  9
  10
  11
  12
  14
  15
  17
  20
  22
  40
  43
  46
  50
  54
  58
  62
  67
  73
  78
  84
  91
  97
  105
  112
  120
  129
  138
  148
  158
EBITDA, $m
  37
  38
  39
  41
  42
  45
  47
  50
  53
  56
  59
  63
  68
  72
  77
  82
  88
  94
  101
  107
  115
  123
  131
  140
  149
  159
  170
  181
  193
  205
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
Earnings before tax, $m
  8
  9
  9
  11
  12
  13
  15
  17
  19
  22
  39
  42
  45
  49
  53
  57
  61
  66
  71
  77
  83
  89
  96
  103
  110
  118
  127
  136
  145
  155
Tax expense, $m
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  11
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
Net income, $m
  6
  6
  7
  8
  9
  10
  11
  12
  14
  16
  28
  31
  33
  36
  38
  42
  45
  48
  52
  56
  60
  65
  70
  75
  80
  86
  93
  99
  106
  113

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
  259
  264
  271
  279
  287
  297
  307
  318
  329
  342
  356
  370
  385
  402
  419
  437
  457
  477
  499
  522
  546
  572
  599
  627
  657
  688
  722
  756
  793
  831
Adjusted assets (=assets-cash), $m
  259
  264
  271
  279
  287
  297
  307
  318
  329
  342
  356
  370
  385
  402
  419
  437
  457
  477
  499
  522
  546
  572
  599
  627
  657
  688
  722
  756
  793
  831
Revenue / Adjusted assets
  0.718
  0.720
  0.720
  0.717
  0.718
  0.717
  0.717
  0.717
  0.720
  0.719
  0.716
  0.719
  0.719
  0.716
  0.718
  0.719
  0.718
  0.719
  0.717
  0.718
  0.718
  0.719
  0.718
  0.718
  0.718
  0.718
  0.717
  0.718
  0.718
  0.718
Average production assets, $m
  145
  149
  152
  157
  161
  167
  172
  178
  185
  192
  200
  208
  216
  226
  235
  246
  257
  268
  280
  293
  307
  321
  336
  352
  369
  387
  405
  425
  445
  467
Working capital, $m
  25
  25
  26
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  72
  75
  79
Total debt, $m
  0
  1
  2
  3
  3
  4
  5
  7
  8
  9
  10
  12
  14
  15
  17
  19
  21
  23
  25
  28
  30
  33
  35
  38
  41
  45
  48
  52
  55
  59
Total liabilities, $m
  27
  27
  28
  29
  30
  31
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
Total equity, $m
  232
  237
  243
  250
  258
  266
  275
  285
  296
  307
  319
  332
  346
  360
  376
  392
  410
  428
  448
  468
  490
  513
  537
  563
  589
  618
  647
  678
  711
  746
Total liabilities and equity, $m
  259
  264
  271
  279
  288
  297
  307
  318
  330
  342
  356
  370
  386
  401
  419
  437
  457
  477
  499
  522
  546
  572
  599
  628
  657
  689
  721
  756
  793
  832
Debt-to-equity ratio
  0.000
  0.000
  0.010
  0.010
  0.010
  0.020
  0.020
  0.020
  0.030
  0.030
  0.030
  0.040
  0.040
  0.040
  0.050
  0.050
  0.050
  0.050
  0.060
  0.060
  0.060
  0.060
  0.070
  0.070
  0.070
  0.070
  0.070
  0.080
  0.080
  0.080
Adjusted equity ratio
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897
  0.897

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  6
  7
  8
  9
  10
  11
  12
  14
  16
  28
  31
  33
  36
  38
  42
  45
  48
  52
  56
  60
  65
  70
  75
  80
  86
  93
  99
  106
  113
Depreciation, amort., depletion, $m
  29
  29
  30
  30
  31
  31
  32
  32
  33
  34
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  42
  45
  47
Funds from operations, $m
  35
  36
  37
  38
  39
  41
  43
  45
  47
  50
  48
  51
  55
  58
  62
  66
  70
  75
  80
  85
  91
  97
  103
  110
  117
  125
  133
  142
  151
  160
Change in working capital, $m
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
Cash from operations, $m
  34
  35
  36
  37
  38
  40
  42
  44
  46
  48
  47
  50
  53
  57
  60
  64
  69
  73
  78
  83
  89
  95
  101
  107
  115
  122
  130
  138
  147
  157
Maintenance CAPEX, $m
  -14
  -15
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -42
  -45
New CAPEX, $m
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from investing activities, $m
  -17
  -18
  -19
  -19
  -21
  -21
  -23
  -23
  -25
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -63
  -67
Free cash flow, $m
  17
  17
  17
  18
  18
  19
  19
  20
  21
  23
  20
  22
  24
  26
  28
  31
  33
  36
  39
  42
  46
  50
  54
  58
  63
  67
  73
  78
  84
  90
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
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  
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
Total cash flow (excl. dividends), $m
  18
  18
  18
  18
  19
  20
  20
  21
  23
  24
  22
  24
  25
  28
  30
  32
  35
  38
  41
  45
  48
  52
  56
  61
  66
  71
  76
  82
  88
  94
Retained Cash Flow (-), $m
  -5
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
Prev. year cash balance distribution, $m
  92
  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
  4
  4
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Cash available for distribution, $m
  105
  12
  12
  11
  11
  11
  11
  12
  12
  13
  10
  11
  12
  13
  14
  16
  18
  20
  22
  24
  27
  29
  32
  35
  39
  42
  46
  51
  55
  60
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
  100
  11
  10
  9
  9
  8
  8
  7
  7
  7
  5
  5
  4
  4
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  2
  1
  1
  1
  1
  0
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

Digi International Inc. is a provider of mission and business-critical machine-to-machine (M2M) and Internet-of-Things (IoT) connectivity products and services. The Company creates connected products and deploys and manages critical communications infrastructures in a range of environments. It offers four categories of hardware products: cellular routers and gateways, radio frequency (RF), embedded and network products. The Company's cellular product category includes its cellular routers and all gateways. The Company's RF product category includes its XBee modules, as well as other RF Solutions. Its embedded product category includes Digi Connect and Rabbit embedded systems on module and single board computers. Its network product category includes console and serial servers and universal serial bus (USB) connected products. The Company's service offerings include wireless design services, Digi Device Cloud (which includes Digi Remote Manager) and enterprise support services.

FINANCIAL RATIOS  of  Digi International (DGII)

Valuation Ratios
P/E Ratio 40.4
Price to Sales 2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 182
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -10.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate -7.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 2.9%
Ret/ On T. Cap. - 3 Yr. Avg. 3.8%
Return On Equity 2.9%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 47.8%
Gross Margin - 3 Yr. Avg. 48.2%
EBITDA Margin 8.2%
EBITDA Margin - 3 Yr. Avg. 9.5%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 6.2%
Pre-Tax Margin 4.9%
Pre-Tax Margin - 3 Yr. Avg. 6.6%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 5.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 18.1%
Payout Ratio 0%

DGII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DGII stock intrinsic value calculation we used $182 million for the last fiscal year's total revenue generated by Digi International. The default revenue input number comes from 2017 income statement of Digi International. 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 DGII stock valuation model: a) initial revenue growth rate of 2% 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 DGII is calculated based on our internal credit rating of Digi International, 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 Digi International.
    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 DGII stock the variable cost ratio is equal to 61.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $63 million in the base year in the intrinsic value calculation for DGII 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 Digi International.

Corporate tax rate of 27% is the nominal tax rate for Digi International. 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 DGII stock is equal to 2.4%.

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 DGII are equal to 78.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Digi International 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 DGII is equal to 13.2%. 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 - $319 million for Digi International - 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 26 million for Digi International 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 Digi International at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Digi International Announces Appointment of New CFO   [Jun-14-18 04:07PM  PR Newswire]
▶ Digi International: Fiscal 2Q Earnings Snapshot   [06:16PM  Associated Press]
▶ Digi Smart Solutions Becomes SmartSense by Digi   [Apr-19-18 10:00AM  PR Newswire]
▶ Digi International to cut 60 Twin Cities jobs   [Apr-03-18 03:06PM  American City Business Journals]
▶ New Strong Sell Stocks for February 22nd   [Feb-22-18 08:59AM  Zacks]
▶ Digi International reports 1Q loss   [Jan-25-18 04:50PM  Associated Press]
▶ Digi International Acquires Accelerated Concepts, Inc.   [Jan-22-18 04:05PM  PR Newswire]
▶ Digi International posts 4Q profit   [Oct-26-17 06:21PM  Associated Press]
▶ Digi International Acquires TempAlert   [Oct-23-17 09:30AM  PR Newswire]
▶ 3 New Faces Pop Up in Deep-Value Land   [Sep-22-17 12:00PM  TheStreet.com]
▶ LD Micro Index Reconstitution as of August 1, 2017   [Aug-01-17 09:40AM  ACCESSWIRE]
▶ Digi International posts 3Q profit   [Jul-28-17 12:12AM  Associated Press]
▶ Digi International Ships ConnectCore 6UL SBC Pro   [Jul-10-17 09:00AM  CNW Group]
▶ Digi International Announces Support for AWS Greengrass   [Jun-07-17 03:03PM  PR Newswire]
▶ Digi International misses 2Q profit forecasts   [May-04-17 06:20PM  Associated Press]
▶ Digi International Enabling IoT in Space   [Mar-04-17 09:00AM  PR Newswire]
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