Intrinsic value of ESCO Technologies Inc. - ESE

Previous Close

$73.14

  Intrinsic Value

$51.71

stock screener

  Rating & Target

sell

-29%

Previous close

$73.14

 
Intrinsic value

$51.71

 
Up/down potential

-29%

 
Rating

sell

We calculate the intrinsic value of ESE 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 1.9

 

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, %
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
Revenue, $m
  812
  854
  898
  945
  993
  1,044
  1,097
  1,153
  1,212
  1,273
  1,338
  1,405
  1,477
  1,551
  1,629
  1,712
  1,798
  1,888
  1,983
  2,083
  2,188
  2,297
  2,413
  2,534
  2,661
  2,794
  2,934
  3,081
  3,236
  3,398
Variable operating expenses, $m
  691
  723
  757
  792
  829
  868
  909
  951
  996
  1,043
  1,019
  1,071
  1,125
  1,182
  1,241
  1,304
  1,370
  1,438
  1,511
  1,587
  1,667
  1,750
  1,838
  1,930
  2,027
  2,129
  2,235
  2,348
  2,465
  2,589
Fixed operating expenses, $m
  14
  15
  15
  15
  16
  16
  16
  17
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
Total operating expenses, $m
  705
  738
  772
  807
  845
  884
  925
  968
  1,013
  1,060
  1,037
  1,089
  1,144
  1,201
  1,260
  1,324
  1,390
  1,459
  1,532
  1,609
  1,689
  1,773
  1,861
  1,954
  2,051
  2,154
  2,260
  2,374
  2,491
  2,616
Operating income, $m
  106
  116
  126
  137
  148
  160
  172
  185
  199
  213
  301
  317
  333
  350
  369
  388
  408
  429
  451
  474
  499
  525
  552
  580
  610
  641
  674
  708
  744
  782
EBITDA, $m
  202
  213
  224
  236
  249
  262
  276
  291
  306
  322
  339
  356
  375
  394
  415
  436
  459
  482
  507
  533
  561
  590
  620
  652
  685
  720
  757
  795
  836
  879
Interest expense (income), $m
  4
  12
  13
  15
  16
  18
  20
  22
  23
  25
  27
  30
  32
  34
  37
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  79
  84
  88
  94
  99
Earnings before tax, $m
  95
  103
  111
  121
  130
  140
  151
  162
  173
  186
  271
  285
  299
  314
  329
  346
  363
  381
  400
  420
  441
  463
  486
  510
  535
  562
  590
  620
  651
  683
Tax expense, $m
  26
  28
  30
  33
  35
  38
  41
  44
  47
  50
  73
  77
  81
  85
  89
  93
  98
  103
  108
  113
  119
  125
  131
  138
  145
  152
  159
  167
  176
  184
Net income, $m
  69
  75
  81
  88
  95
  102
  110
  118
  127
  136
  198
  208
  218
  229
  240
  252
  265
  278
  292
  306
  322
  338
  355
  372
  391
  410
  431
  452
  475
  499

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
  1,331
  1,400
  1,473
  1,548
  1,628
  1,711
  1,799
  1,890
  1,986
  2,087
  2,193
  2,304
  2,421
  2,543
  2,671
  2,806
  2,947
  3,095
  3,251
  3,415
  3,586
  3,766
  3,955
  4,154
  4,362
  4,581
  4,810
  5,052
  5,305
  5,570
Adjusted assets (=assets-cash), $m
  1,331
  1,400
  1,473
  1,548
  1,628
  1,711
  1,799
  1,890
  1,986
  2,087
  2,193
  2,304
  2,421
  2,543
  2,671
  2,806
  2,947
  3,095
  3,251
  3,415
  3,586
  3,766
  3,955
  4,154
  4,362
  4,581
  4,810
  5,052
  5,305
  5,570
Revenue / Adjusted assets
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
Average production assets, $m
  524
  551
  579
  609
  640
  673
  708
  744
  782
  821
  863
  907
  952
  1,000
  1,051
  1,104
  1,160
  1,218
  1,279
  1,343
  1,411
  1,482
  1,556
  1,634
  1,716
  1,802
  1,893
  1,988
  2,087
  2,192
Working capital, $m
  195
  205
  216
  227
  238
  251
  263
  277
  291
  306
  321
  337
  354
  372
  391
  411
  431
  453
  476
  500
  525
  551
  579
  608
  639
  671
  704
  740
  777
  816
Total debt, $m
  247
  274
  303
  334
  365
  399
  434
  470
  509
  549
  591
  636
  683
  731
  783
  837
  893
  952
  1,015
  1,080
  1,149
  1,221
  1,296
  1,376
  1,459
  1,547
  1,638
  1,735
  1,836
  1,942
Total liabilities, $m
  533
  560
  589
  619
  651
  684
  719
  756
  795
  835
  877
  922
  968
  1,017
  1,068
  1,122
  1,179
  1,238
  1,300
  1,366
  1,434
  1,506
  1,582
  1,661
  1,745
  1,832
  1,924
  2,021
  2,122
  2,228
Total equity, $m
  799
  840
  884
  929
  977
  1,027
  1,079
  1,134
  1,192
  1,252
  1,316
  1,382
  1,452
  1,526
  1,603
  1,683
  1,768
  1,857
  1,951
  2,049
  2,152
  2,260
  2,373
  2,492
  2,617
  2,748
  2,886
  3,031
  3,183
  3,342
Total liabilities and equity, $m
  1,332
  1,400
  1,473
  1,548
  1,628
  1,711
  1,798
  1,890
  1,987
  2,087
  2,193
  2,304
  2,420
  2,543
  2,671
  2,805
  2,947
  3,095
  3,251
  3,415
  3,586
  3,766
  3,955
  4,153
  4,362
  4,580
  4,810
  5,052
  5,305
  5,570
Debt-to-equity ratio
  0.310
  0.330
  0.340
  0.360
  0.370
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.510
  0.520
  0.530
  0.530
  0.540
  0.550
  0.550
  0.560
  0.560
  0.570
  0.570
  0.580
  0.580
Adjusted equity ratio
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  69
  75
  81
  88
  95
  102
  110
  118
  127
  136
  198
  208
  218
  229
  240
  252
  265
  278
  292
  306
  322
  338
  355
  372
  391
  410
  431
  452
  475
  499
Depreciation, amort., depletion, $m
  96
  97
  98
  99
  101
  102
  104
  105
  107
  109
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  92
  96
Funds from operations, $m
  165
  172
  179
  187
  196
  205
  214
  223
  234
  244
  236
  248
  260
  273
  286
  301
  316
  331
  348
  365
  384
  403
  423
  444
  466
  489
  514
  540
  567
  595
Change in working capital, $m
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
Cash from operations, $m
  155
  162
  169
  176
  184
  192
  201
  210
  220
  229
  220
  231
  243
  255
  268
  281
  295
  310
  325
  341
  358
  376
  395
  415
  436
  457
  480
  504
  529
  556
Maintenance CAPEX, $m
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -92
New CAPEX, $m
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -56
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -100
  -105
Cash from investing activities, $m
  -48
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -133
  -139
  -146
  -154
  -161
  -169
  -178
  -187
  -197
Free cash flow, $m
  107
  112
  116
  121
  126
  132
  137
  143
  149
  156
  143
  150
  157
  165
  173
  182
  191
  200
  210
  221
  232
  244
  256
  268
  282
  296
  311
  326
  343
  360
Issuance/(repayment) of debt, $m
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  47
  49
  51
  54
  57
  59
  62
  65
  69
  72
  76
  79
  83
  87
  92
  96
  101
  106
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  
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  47
  49
  51
  54
  57
  59
  62
  65
  69
  72
  76
  79
  83
  87
  92
  96
  101
  106
Total cash flow (excl. dividends), $m
  134
  139
  145
  151
  158
  165
  172
  180
  188
  196
  185
  194
  204
  214
  225
  236
  247
  260
  273
  286
  301
  316
  331
  348
  365
  384
  403
  423
  444
  466
Retained Cash Flow (-), $m
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -61
  -63
  -67
  -70
  -73
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -138
  -145
  -152
  -159
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
  95
  98
  102
  106
  110
  115
  120
  125
  130
  135
  121
  128
  134
  141
  148
  155
  163
  171
  179
  188
  198
  208
  218
  229
  240
  252
  265
  278
  292
  307
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
  91
  90
  89
  87
  86
  83
  81
  78
  75
  71
  58
  54
  51
  47
  43
  39
  35
  31
  28
  24
  20
  17
  14
  12
  9
  7
  6
  4
  3
  2
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

ESCO Technologies Inc. (ESCO) is a producer of engineered products and systems sold to customers for utility, industrial, aerospace and commercial applications. The Company operates through four segments: Filtration/Fluid Flow (Filtration), RF Shielding and Test (Test), Utility Solutions Group (USG) and Technical Packaging. The filtration segment's activities are managed by its subsidiaries, Crissair, Inc. (Crissair), PTI Technologies Inc. (PTI), VACCO Industries (VACCO) and Westland Technologies Inc. (Westland). The Test segment activities are managed by its subsidiaries, Beijing Lindgren ElectronMagnetic Technology Co., Ltd., ETS-Lindgren Inc. and ETS-Lindgren OY. The USG segment activities are managed by its subsidiaries, including Doble Engineering Company, Doble PowerTest Ltd and Doble TransiNor AS. The technical packaging activities are managed by its subsidiaries, Thermoform Engineered Quality LLC (TEQ), Plastique Limited and Plastique Sp. z o.o.

FINANCIAL RATIOS  of  ESCO Technologies Inc. (ESE)

Valuation Ratios
P/E Ratio 35
Price to Sales 2.8
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 28.2
Price to Free Cash Flow 67.5
Growth Rates
Sales Growth Rate 20.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 69.6%
Cap. Spend. - 3 Yr. Gr. Rate 13.2%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 37.9%
Total Debt to Equity 40.9%
Interest Coverage 21
Management Effectiveness
Return On Assets 5.1%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 6.7%
Return On Equity 8.4%
Return On Equity - 3 Yr. Avg. 7.8%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 36.3%
Gross Margin - 3 Yr. Avg. 37.5%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 16.2%
Operating Margin 12.2%
Oper. Margin - 3 Yr. Avg. 12.5%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 11.7%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 32.5%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 14.8%

ESE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESE stock intrinsic value calculation we used $772 million for the last fiscal year's total revenue generated by ESCO Technologies Inc.. The default revenue input number comes from 0001 income statement of ESCO Technologies 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 ESE stock valuation model: a) initial revenue growth rate of 5.2% 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 ESE is calculated based on our internal credit rating of ESCO Technologies 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 ESCO Technologies 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 ESE stock the variable cost ratio is equal to 85.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14 million in the base year in the intrinsic value calculation for ESE 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 ESCO Technologies Inc..

Corporate tax rate of 27% is the nominal tax rate for ESCO Technologies 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 ESE 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 ESE are equal to 64.5%.

Life of production assets of 22.8 years is the average useful life of capital assets used in ESCO Technologies 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 ESE is equal to 24%. 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 - $759.41 million for ESCO Technologies 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 25.940 million for ESCO Technologies 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 ESCO Technologies Inc. at the current share price and the inputted number of shares is $1.9 billion.

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