Intrinsic value of ESCO Technologies - ESE

Previous Close

$61.88

  Intrinsic Value

$45.27

stock screener

  Rating & Target

sell

-27%

Previous close

$61.88

 
Intrinsic value

$45.27

 
Up/down potential

-27%

 
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 1.6

 

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
  770
  859
  953
  1,051
  1,154
  1,262
  1,374
  1,490
  1,612
  1,738
  1,869
  2,005
  2,147
  2,294
  2,447
  2,606
  2,772
  2,944
  3,124
  3,311
  3,505
  3,709
  3,921
  4,142
  4,374
  4,615
  4,868
  5,132
  5,408
  5,697
Variable operating expenses, $m
  659
  726
  798
  873
  951
  1,033
  1,118
  1,207
  1,299
  1,395
  1,422
  1,525
  1,633
  1,745
  1,861
  1,983
  2,108
  2,240
  2,376
  2,518
  2,667
  2,821
  2,983
  3,151
  3,327
  3,511
  3,703
  3,904
  4,114
  4,334
Fixed operating expenses, $m
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  13
Total operating expenses, $m
  666
  733
  805
  881
  959
  1,041
  1,126
  1,215
  1,308
  1,404
  1,431
  1,534
  1,642
  1,754
  1,871
  1,993
  2,118
  2,250
  2,387
  2,529
  2,678
  2,832
  2,995
  3,163
  3,339
  3,523
  3,716
  3,917
  4,127
  4,347
Operating income, $m
  104
  125
  148
  171
  196
  221
  248
  275
  304
  334
  438
  471
  504
  540
  576
  614
  653
  694
  737
  781
  828
  876
  927
  979
  1,035
  1,092
  1,152
  1,215
  1,281
  1,350
EBITDA, $m
  198
  222
  246
  272
  300
  328
  358
  389
  421
  454
  489
  525
  562
  601
  642
  684
  728
  774
  821
  871
  923
  976
  1,033
  1,091
  1,153
  1,217
  1,284
  1,354
  1,427
  1,504
Interest expense (income), $m
  4
  15
  19
  23
  27
  32
  37
  42
  47
  52
  58
  64
  70
  76
  83
  89
  97
  104
  112
  120
  128
  137
  146
  155
  165
  175
  186
  197
  209
  221
  234
Earnings before tax, $m
  89
  107
  125
  144
  164
  184
  206
  229
  252
  277
  375
  401
  428
  457
  486
  517
  549
  583
  617
  654
  691
  731
  772
  815
  859
  906
  955
  1,006
  1,060
  1,116
Tax expense, $m
  24
  29
  34
  39
  44
  50
  56
  62
  68
  75
  101
  108
  116
  123
  131
  140
  148
  157
  167
  176
  187
  197
  208
  220
  232
  245
  258
  272
  286
  301
Net income, $m
  65
  78
  91
  105
  120
  135
  150
  167
  184
  202
  274
  293
  313
  334
  355
  378
  401
  425
  451
  477
  505
  533
  563
  595
  627
  662
  697
  735
  774
  815

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
  1,416
  1,579
  1,752
  1,933
  2,122
  2,319
  2,525
  2,740
  2,963
  3,195
  3,436
  3,686
  3,947
  4,217
  4,498
  4,791
  5,095
  5,412
  5,742
  6,086
  6,444
  6,818
  7,207
  7,614
  8,040
  8,484
  8,948
  9,433
  9,941
  10,472
Adjusted assets (=assets-cash), $m
  1,416
  1,579
  1,752
  1,933
  2,122
  2,319
  2,525
  2,740
  2,963
  3,195
  3,436
  3,686
  3,947
  4,217
  4,498
  4,791
  5,095
  5,412
  5,742
  6,086
  6,444
  6,818
  7,207
  7,614
  8,040
  8,484
  8,948
  9,433
  9,941
  10,472
Revenue / Adjusted assets
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
Average production assets, $m
  487
  543
  602
  664
  729
  797
  868
  942
  1,019
  1,098
  1,181
  1,267
  1,357
  1,450
  1,547
  1,647
  1,752
  1,861
  1,974
  2,092
  2,215
  2,344
  2,478
  2,618
  2,764
  2,917
  3,076
  3,243
  3,418
  3,600
Working capital, $m
  193
  216
  239
  264
  290
  317
  345
  374
  405
  436
  469
  503
  539
  576
  614
  654
  696
  739
  784
  831
  880
  931
  984
  1,040
  1,098
  1,158
  1,222
  1,288
  1,357
  1,430
Total debt, $m
  348
  424
  505
  589
  677
  770
  866
  966
  1,070
  1,178
  1,291
  1,408
  1,529
  1,656
  1,787
  1,924
  2,066
  2,214
  2,368
  2,528
  2,696
  2,870
  3,052
  3,242
  3,441
  3,648
  3,865
  4,092
  4,329
  4,577
Total liabilities, $m
  661
  738
  818
  903
  991
  1,083
  1,179
  1,279
  1,384
  1,492
  1,604
  1,721
  1,843
  1,969
  2,101
  2,237
  2,379
  2,527
  2,681
  2,842
  3,009
  3,184
  3,366
  3,556
  3,754
  3,962
  4,179
  4,405
  4,642
  4,890
Total equity, $m
  755
  842
  934
  1,030
  1,131
  1,236
  1,346
  1,460
  1,579
  1,703
  1,831
  1,965
  2,103
  2,248
  2,398
  2,554
  2,716
  2,885
  3,060
  3,244
  3,435
  3,634
  3,842
  4,059
  4,285
  4,522
  4,769
  5,028
  5,299
  5,582
Total liabilities and equity, $m
  1,416
  1,580
  1,752
  1,933
  2,122
  2,319
  2,525
  2,739
  2,963
  3,195
  3,435
  3,686
  3,946
  4,217
  4,499
  4,791
  5,095
  5,412
  5,741
  6,086
  6,444
  6,818
  7,208
  7,615
  8,039
  8,484
  8,948
  9,433
  9,941
  10,472
Debt-to-equity ratio
  0.460
  0.500
  0.540
  0.570
  0.600
  0.620
  0.640
  0.660
  0.680
  0.690
  0.700
  0.720
  0.730
  0.740
  0.750
  0.750
  0.760
  0.770
  0.770
  0.780
  0.780
  0.790
  0.790
  0.800
  0.800
  0.810
  0.810
  0.810
  0.820
  0.820
Adjusted equity ratio
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  65
  78
  91
  105
  120
  135
  150
  167
  184
  202
  274
  293
  313
  334
  355
  378
  401
  425
  451
  477
  505
  533
  563
  595
  627
  662
  697
  735
  774
  815
Depreciation, amort., depletion, $m
  94
  96
  99
  101
  104
  107
  110
  113
  116
  120
  50
  54
  58
  62
  66
  70
  75
  80
  84
  89
  95
  100
  106
  112
  118
  125
  131
  139
  146
  154
Funds from operations, $m
  159
  174
  190
  206
  224
  242
  260
  280
  300
  322
  324
  347
  371
  396
  421
  448
  476
  505
  535
  567
  599
  634
  669
  707
  746
  786
  829
  873
  920
  969
Change in working capital, $m
  21
  22
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  73
Cash from operations, $m
  138
  152
  166
  182
  198
  215
  232
  251
  270
  290
  291
  313
  335
  359
  383
  408
  434
  462
  490
  520
  550
  583
  616
  651
  687
  726
  765
  807
  851
  896
Maintenance CAPEX, $m
  -19
  -21
  -23
  -26
  -28
  -31
  -34
  -37
  -40
  -44
  -47
  -50
  -54
  -58
  -62
  -66
  -70
  -75
  -80
  -84
  -89
  -95
  -100
  -106
  -112
  -118
  -125
  -131
  -139
  -146
New CAPEX, $m
  -53
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -109
  -113
  -118
  -123
  -128
  -134
  -140
  -146
  -153
  -160
  -167
  -175
  -183
Cash from investing activities, $m
  -72
  -77
  -82
  -88
  -93
  -99
  -105
  -111
  -117
  -124
  -130
  -136
  -143
  -151
  -159
  -167
  -175
  -184
  -193
  -202
  -212
  -223
  -234
  -246
  -258
  -271
  -285
  -298
  -314
  -329
Free cash flow, $m
  66
  74
  84
  94
  104
  116
  127
  140
  153
  167
  161
  176
  192
  208
  224
  241
  259
  278
  297
  317
  338
  359
  382
  405
  429
  455
  481
  509
  537
  567
Issuance/(repayment) of debt, $m
  73
  76
  80
  84
  88
  92
  96
  100
  104
  108
  113
  117
  122
  126
  131
  137
  142
  148
  154
  161
  167
  175
  182
  190
  199
  207
  217
  227
  237
  248
Issuance/(repurchase) of shares, $m
  17
  9
  1
  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  
  90
  85
  81
  84
  88
  92
  96
  100
  104
  108
  113
  117
  122
  126
  131
  137
  142
  148
  154
  161
  167
  175
  182
  190
  199
  207
  217
  227
  237
  248
Total cash flow (excl. dividends), $m
  156
  160
  165
  178
  193
  208
  224
  240
  257
  275
  274
  293
  313
  334
  356
  378
  401
  426
  451
  478
  505
  534
  564
  595
  628
  662
  698
  735
  775
  815
Retained Cash Flow (-), $m
  -83
  -87
  -92
  -96
  -101
  -105
  -110
  -114
  -119
  -124
  -128
  -134
  -139
  -144
  -150
  -156
  -162
  -169
  -176
  -183
  -191
  -199
  -208
  -217
  -227
  -237
  -247
  -259
  -271
  -283
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
  74
  73
  73
  82
  92
  103
  114
  126
  138
  151
  145
  160
  174
  190
  206
  222
  239
  257
  275
  294
  314
  335
  356
  378
  401
  425
  451
  477
  504
  532
Discount rate, %
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
  70
  66
  62
  64
  67
  69
  70
  71
  70
  69
  58
  56
  53
  50
  46
  42
  37
  33
  28
  24
  20
  16
  13
  10
  8
  6
  4
  3
  2
  1
Current shareholders' claim on cash, %
  98.9
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4

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 (ESE)

Valuation Ratios
P/E Ratio 29.6
Price to Sales 2.3
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 23.9
Price to Free Cash Flow 57.1
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 $685.74 million for the last fiscal year's total revenue generated by ESCO Technologies. The default revenue input number comes from 0001 income statement of ESCO Technologies. 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 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 5.3%, whose default value for ESE is calculated based on our internal credit rating of ESCO Technologies, 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.
    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 86.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7 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.

Corporate tax rate of 27% is the nominal tax rate for ESCO Technologies. 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 63.2%.

Life of production assets of 23.4 years is the average useful life of capital assets used in ESCO Technologies 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 25.1%. 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 - $671.918 million for ESCO Technologies - 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 25.911 million for ESCO Technologies 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 at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ Esco Technologies: Fiscal 4Q Earnings Snapshot   [05:10PM  Associated Press]
▶ ESCO Announces Fiscal 2018 Results   [04:16PM  GlobeNewswire]
▶ How St. Louis stocks weathered this weeks tumble   [Oct-12-18 01:37PM  American City Business Journals]
▶ 5 Top Stocks That Flaunt Superb Earnings Acceleration   [Aug-30-18 12:36PM  InvestorPlace]
▶ Esco Technologies: Fiscal 3Q Earnings Snapshot   [05:05AM  Associated Press]
▶ Esco Technologies: Fiscal 2Q Earnings Snapshot   [May-09-18 05:08AM  Associated Press]
▶ ESCO Announces Second Quarter Fiscal 2018 Results   [May-08-18 04:16PM  GlobeNewswire]
▶ Esco Technologies posts 1Q profit   [Feb-06-18 07:41PM  Associated Press]
▶ What Is ESCO Technologies Incs (NYSE:ESE) Share Price Doing?   [Dec-30-17 07:45AM  Simply Wall St.]
▶ Esco Technologies posts 4Q profit   [Nov-16-17 05:23AM  Associated Press]
▶ ESCO Announces Fiscal 2017 Results   [Nov-14-17 04:16PM  GlobeNewswire]
▶ Esco Technologies posts 3Q profit   [01:08AM  Associated Press]

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