Intrinsic value of Dolby Laboratories - DLB

Previous Close

$62.63

  Intrinsic Value

$37.12

stock screener

  Rating & Target

sell

-41%

Previous close

$62.63

 
Intrinsic value

$37.12

 
Up/down potential

-41%

 
Rating

sell

We calculate the intrinsic value of DLB 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 6.4

 

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, %
  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
  1,195
  1,223
  1,254
  1,290
  1,329
  1,372
  1,418
  1,469
  1,523
  1,582
  1,644
  1,711
  1,782
  1,858
  1,938
  2,023
  2,113
  2,208
  2,308
  2,414
  2,526
  2,644
  2,769
  2,900
  3,038
  3,183
  3,336
  3,497
  3,666
  3,844
Variable operating expenses, $m
  515
  526
  538
  552
  567
  584
  602
  622
  643
  665
  639
  664
  692
  721
  753
  785
  820
  857
  896
  937
  981
  1,027
  1,075
  1,126
  1,180
  1,236
  1,295
  1,358
  1,424
  1,493
Fixed operating expenses, $m
  382
  391
  399
  408
  417
  426
  436
  445
  455
  465
  475
  486
  496
  507
  518
  530
  541
  553
  566
  578
  591
  604
  617
  631
  644
  659
  673
  688
  703
  718
Total operating expenses, $m
  897
  917
  937
  960
  984
  1,010
  1,038
  1,067
  1,098
  1,130
  1,114
  1,150
  1,188
  1,228
  1,271
  1,315
  1,361
  1,410
  1,462
  1,515
  1,572
  1,631
  1,692
  1,757
  1,824
  1,895
  1,968
  2,046
  2,127
  2,211
Operating income, $m
  298
  306
  317
  330
  345
  362
  381
  402
  426
  451
  531
  561
  594
  629
  667
  708
  751
  797
  846
  899
  955
  1,014
  1,077
  1,143
  1,214
  1,288
  1,368
  1,451
  1,540
  1,633
EBITDA, $m
  411
  421
  433
  448
  465
  484
  505
  529
  556
  585
  616
  650
  686
  725
  767
  812
  860
  911
  966
  1,024
  1,085
  1,151
  1,220
  1,293
  1,371
  1,453
  1,540
  1,632
  1,729
  1,832
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  43
  46
  50
  53
  57
Earnings before tax, $m
  298
  306
  316
  328
  342
  358
  376
  397
  419
  443
  521
  550
  581
  615
  651
  690
  731
  775
  823
  873
  926
  983
  1,043
  1,106
  1,174
  1,246
  1,321
  1,401
  1,486
  1,576
Tax expense, $m
  80
  83
  85
  88
  92
  97
  102
  107
  113
  120
  141
  149
  157
  166
  176
  186
  197
  209
  222
  236
  250
  265
  282
  299
  317
  336
  357
  378
  401
  425
Net income, $m
  217
  223
  230
  239
  250
  261
  275
  289
  306
  324
  381
  402
  424
  449
  475
  504
  534
  566
  600
  637
  676
  717
  761
  808
  857
  909
  965
  1,023
  1,085
  1,150

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
  2,120
  2,168
  2,224
  2,287
  2,356
  2,432
  2,515
  2,604
  2,701
  2,805
  2,916
  3,034
  3,160
  3,294
  3,436
  3,587
  3,746
  3,914
  4,093
  4,281
  4,479
  4,688
  4,909
  5,141
  5,386
  5,644
  5,915
  6,200
  6,501
  6,816
Adjusted assets (=assets-cash), $m
  2,120
  2,168
  2,224
  2,287
  2,356
  2,432
  2,515
  2,604
  2,701
  2,805
  2,916
  3,034
  3,160
  3,294
  3,436
  3,587
  3,746
  3,914
  4,093
  4,281
  4,479
  4,688
  4,909
  5,141
  5,386
  5,644
  5,915
  6,200
  6,501
  6,816
Revenue / Adjusted assets
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
Average production assets, $m
  767
  785
  805
  828
  853
  881
  911
  943
  978
  1,016
  1,056
  1,099
  1,144
  1,193
  1,244
  1,299
  1,356
  1,417
  1,482
  1,550
  1,622
  1,698
  1,777
  1,862
  1,950
  2,044
  2,142
  2,245
  2,354
  2,468
Working capital, $m
  112
  115
  118
  121
  125
  129
  133
  138
  143
  149
  155
  161
  168
  175
  182
  190
  199
  208
  217
  227
  237
  249
  260
  273
  286
  299
  314
  329
  345
  361
Total debt, $m
  10
  22
  35
  50
  67
  85
  105
  127
  150
  175
  201
  230
  260
  292
  326
  362
  401
  441
  484
  529
  577
  627
  680
  735
  794
  856
  921
  990
  1,062
  1,138
Total liabilities, $m
  509
  520
  534
  549
  565
  584
  604
  625
  648
  673
  700
  728
  758
  791
  825
  861
  899
  939
  982
  1,027
  1,075
  1,125
  1,178
  1,234
  1,293
  1,354
  1,420
  1,488
  1,560
  1,636
Total equity, $m
  1,611
  1,648
  1,690
  1,738
  1,791
  1,848
  1,911
  1,979
  2,053
  2,132
  2,216
  2,306
  2,402
  2,503
  2,611
  2,726
  2,847
  2,975
  3,110
  3,253
  3,404
  3,563
  3,731
  3,907
  4,093
  4,289
  4,495
  4,712
  4,940
  5,181
Total liabilities and equity, $m
  2,120
  2,168
  2,224
  2,287
  2,356
  2,432
  2,515
  2,604
  2,701
  2,805
  2,916
  3,034
  3,160
  3,294
  3,436
  3,587
  3,746
  3,914
  4,092
  4,280
  4,479
  4,688
  4,909
  5,141
  5,386
  5,643
  5,915
  6,200
  6,500
  6,817
Debt-to-equity ratio
  0.010
  0.010
  0.020
  0.030
  0.040
  0.050
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.120
  0.130
  0.140
  0.150
  0.160
  0.160
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
Adjusted equity ratio
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  217
  223
  230
  239
  250
  261
  275
  289
  306
  324
  381
  402
  424
  449
  475
  504
  534
  566
  600
  637
  676
  717
  761
  808
  857
  909
  965
  1,023
  1,085
  1,150
Depreciation, amort., depletion, $m
  113
  115
  116
  118
  120
  122
  125
  127
  130
  133
  85
  89
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  143
  150
  157
  165
  173
  181
  190
  199
Funds from operations, $m
  330
  338
  347
  357
  370
  384
  399
  417
  436
  457
  466
  490
  517
  545
  576
  608
  643
  680
  720
  762
  807
  854
  905
  958
  1,014
  1,074
  1,137
  1,204
  1,275
  1,349
Change in working capital, $m
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
Cash from operations, $m
  328
  335
  344
  354
  366
  380
  395
  412
  431
  451
  460
  484
  510
  538
  568
  600
  635
  671
  711
  752
  796
  843
  893
  946
  1,001
  1,060
  1,123
  1,189
  1,259
  1,333
Maintenance CAPEX, $m
  -61
  -62
  -63
  -65
  -67
  -69
  -71
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -105
  -109
  -114
  -120
  -125
  -131
  -137
  -143
  -150
  -157
  -165
  -173
  -181
  -190
New CAPEX, $m
  -15
  -18
  -20
  -23
  -25
  -28
  -30
  -32
  -35
  -38
  -40
  -43
  -46
  -48
  -51
  -55
  -58
  -61
  -64
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -109
  -114
Cash from investing activities, $m
  -76
  -80
  -83
  -88
  -92
  -97
  -101
  -105
  -111
  -117
  -122
  -128
  -135
  -140
  -147
  -155
  -163
  -170
  -178
  -188
  -197
  -207
  -217
  -227
  -239
  -250
  -263
  -276
  -290
  -304
Free cash flow, $m
  253
  256
  260
  266
  274
  283
  294
  306
  320
  335
  338
  356
  376
  397
  421
  446
  472
  501
  532
  565
  599
  637
  676
  718
  763
  810
  860
  913
  969
  1,028
Issuance/(repayment) of debt, $m
  10
  12
  13
  15
  17
  18
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
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  
  10
  12
  13
  15
  17
  18
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
Total cash flow (excl. dividends), $m
  264
  267
  274
  281
  291
  301
  314
  328
  343
  360
  364
  384
  406
  429
  455
  482
  511
  542
  574
  610
  647
  687
  729
  774
  821
  872
  925
  981
  1,041
  1,104
Retained Cash Flow (-), $m
  -32
  -37
  -42
  -48
  -53
  -58
  -63
  -68
  -73
  -79
  -84
  -90
  -96
  -102
  -108
  -114
  -121
  -128
  -135
  -143
  -151
  -159
  -168
  -177
  -186
  -196
  -206
  -217
  -228
  -240
Prev. year cash balance distribution, $m
  785
  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
  1,016
  230
  231
  234
  238
  244
  251
  259
  269
  281
  280
  294
  310
  328
  347
  367
  389
  413
  439
  467
  496
  528
  561
  597
  635
  676
  719
  765
  813
  864
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
  974
  211
  201
  192
  184
  177
  169
  162
  155
  147
  133
  126
  118
  110
  102
  93
  85
  76
  68
  59
  51
  44
  37
  30
  25
  20
  15
  12
  9
  7
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

Dolby Laboratories, Inc. designs and manufactures audio and imaging products for the cinema, television, broadcast and entertainment industries. Its products for cinema include Digital Cinema Servers and Cinema Audio Products, and broadcast and other include Dolby Conference Phone and Other Products. It offers services to support theatrical and television production for cinema exhibition, broadcast and home entertainment, including equipment training and maintenance, mixing room alignment and equalization, as well as audio, color and light image calibration. Its technologies include Advanced Audio Coding and High Efficiency Advanced Audio Coding, Dolby AC-4, Dolby Atmos, Dolby Digital, Dolby Digital Plus, Dolby TrueHD, Dolby Vision, Dolby Voice and High Efficiency Video Coding. It distributes its products in over 80 countries. Its technologies are incorporated in offerings in various end markets, such as the broadcast, Personal Computer, mobile, consumer electronics and other markets.

FINANCIAL RATIOS  of  Dolby Laboratories (DLB)

Valuation Ratios
P/E Ratio 31.7
Price to Sales 5.9
Price to Book 3
Price to Tangible Book
Price to Cash Flow 17.2
Price to Free Cash Flow 24.1
Growth Rates
Sales Growth Rate 5.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -52.7%
Cap. Spend. - 3 Yr. Gr. Rate -2.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.3%
Ret/ On Assets - 3 Yr. Avg. 8.5%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 10%
Return On Equity 9.8%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 89.1%
Gross Margin - 3 Yr. Avg. 89.6%
EBITDA Margin 31.5%
EBITDA Margin - 3 Yr. Avg. 31.8%
Operating Margin 22.9%
Oper. Margin - 3 Yr. Avg. 22.5%
Pre-Tax Margin 23.8%
Pre-Tax Margin - 3 Yr. Avg. 24%
Net Profit Margin 18.7%
Net Profit Margin - 3 Yr. Avg. 18.5%
Effective Tax Rate 21.4%
Eff/ Tax Rate - 3 Yr. Avg. 22.7%
Payout Ratio 28.2%

DLB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DLB stock intrinsic value calculation we used $1172 million for the last fiscal year's total revenue generated by Dolby Laboratories. The default revenue input number comes from 0001 income statement of Dolby Laboratories. 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 DLB 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 DLB is calculated based on our internal credit rating of Dolby Laboratories, 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 Dolby Laboratories.
    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 DLB stock the variable cost ratio is equal to 43.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $374 million in the base year in the intrinsic value calculation for DLB 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 Dolby Laboratories.

Corporate tax rate of 27% is the nominal tax rate for Dolby Laboratories. 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 DLB 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 DLB are equal to 64.2%.

Life of production assets of 12.4 years is the average useful life of capital assets used in Dolby Laboratories 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 DLB is equal to 9.4%. 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 - $2363.936 million for Dolby Laboratories - 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 102.564 million for Dolby Laboratories 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 Dolby Laboratories at the current share price and the inputted number of shares is $6.4 billion.

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