Intrinsic value of Exponent - EXPO

Previous Close

$72.80

  Intrinsic Value

$54.86

stock screener

  Rating & Target

sell

-25%

Previous close

$72.80

 
Intrinsic value

$54.86

 
Up/down potential

-25%

 
Rating

sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of EXPO 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 2016), $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
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.64
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.61
  6.45
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
Revenue, $m
  315
  355
  398
  443
  490
  540
  592
  646
  702
  761
  822
  886
  952
  1,020
  1,091
  1,166
  1,242
  1,323
  1,406
  1,493
  1,583
  1,677
  1,775
  1,878
  1,985
  2,096
  2,213
  2,335
  2,462
  2,595
  2,734
Variable operating expenses, $m
 
  277
  311
  346
  383
  421
  461
  504
  548
  593
  641
  689
  741
  794
  849
  907
  967
  1,029
  1,094
  1,162
  1,232
  1,305
  1,381
  1,461
  1,544
  1,631
  1,722
  1,817
  1,916
  2,019
  2,128
Fixed operating expenses, $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 operating expenses, $m
  253
  277
  311
  346
  383
  421
  461
  504
  548
  593
  641
  689
  741
  794
  849
  907
  967
  1,029
  1,094
  1,162
  1,232
  1,305
  1,381
  1,461
  1,544
  1,631
  1,722
  1,817
  1,916
  2,019
  2,128
Operating income, $m
  62
  78
  87
  97
  108
  119
  130
  142
  155
  168
  182
  196
  211
  226
  242
  259
  276
  293
  312
  331
  351
  372
  394
  417
  440
  465
  491
  518
  546
  576
  607
EBITDA, $m
  68
  84
  94
  105
  116
  128
  140
  153
  166
  180
  195
  210
  225
  242
  258
  276
  294
  313
  333
  353
  375
  397
  420
  445
  470
  496
  524
  553
  583
  614
  647
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  3
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
Earnings before tax, $m
  69
  78
  87
  96
  106
  116
  127
  138
  150
  162
  175
  189
  203
  217
  232
  247
  263
  280
  297
  315
  334
  354
  374
  395
  418
  441
  465
  490
  517
  544
  573
Tax expense, $m
  22
  21
  23
  26
  29
  31
  34
  37
  41
  44
  47
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  101
  107
  113
  119
  126
  132
  140
  147
  155
Net income, $m
  47
  57
  63
  70
  77
  85
  93
  101
  110
  118
  128
  138
  148
  158
  169
  181
  192
  204
  217
  230
  244
  258
  273
  289
  305
  322
  339
  358
  377
  397
  419

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  174
  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
  404
  259
  291
  323
  358
  394
  432
  472
  513
  556
  600
  646
  695
  745
  797
  851
  907
  965
  1,026
  1,090
  1,155
  1,224
  1,296
  1,371
  1,449
  1,530
  1,615
  1,704
  1,797
  1,894
  1,996
Adjusted assets (=assets-cash), $m
  230
  259
  291
  323
  358
  394
  432
  472
  513
  556
  600
  646
  695
  745
  797
  851
  907
  965
  1,026
  1,090
  1,155
  1,224
  1,296
  1,371
  1,449
  1,530
  1,615
  1,704
  1,797
  1,894
  1,996
Revenue / Adjusted assets
  1.370
  1.371
  1.368
  1.372
  1.369
  1.371
  1.370
  1.369
  1.368
  1.369
  1.370
  1.372
  1.370
  1.369
  1.369
  1.370
  1.369
  1.371
  1.370
  1.370
  1.371
  1.370
  1.370
  1.370
  1.370
  1.370
  1.370
  1.370
  1.370
  1.370
  1.370
Average production assets, $m
  33
  37
  41
  46
  51
  56
  61
  67
  72
  78
  85
  91
  98
  105
  112
  120
  128
  136
  145
  154
  163
  173
  183
  193
  204
  216
  228
  240
  254
  267
  282
Working capital, $m
  194
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  64
  69
  73
  78
  83
  89
  94
  100
  106
  112
  118
  125
  132
  139
  147
  155
  163
  172
Total debt, $m
  0
  17
  35
  53
  73
  94
  115
  138
  161
  186
  211
  238
  265
  293
  323
  354
  386
  419
  454
  490
  528
  567
  608
  650
  695
  741
  790
  840
  893
  949
  1,007
Total liabilities, $m
  130
  148
  166
  184
  204
  225
  246
  269
  292
  317
  342
  369
  396
  424
  454
  485
  517
  550
  585
  621
  659
  698
  739
  781
  826
  872
  921
  971
  1,024
  1,080
  1,138
Total equity, $m
  273
  112
  125
  139
  154
  170
  186
  203
  220
  239
  258
  278
  299
  320
  343
  366
  390
  415
  441
  469
  497
  526
  557
  589
  623
  658
  695
  733
  773
  814
  858
Total liabilities and equity, $m
  403
  260
  291
  323
  358
  395
  432
  472
  512
  556
  600
  647
  695
  744
  797
  851
  907
  965
  1,026
  1,090
  1,156
  1,224
  1,296
  1,370
  1,449
  1,530
  1,616
  1,704
  1,797
  1,894
  1,996
Debt-to-equity ratio
  0.000
  0.150
  0.280
  0.380
  0.470
  0.550
  0.620
  0.680
  0.730
  0.780
  0.820
  0.850
  0.890
  0.920
  0.940
  0.970
  0.990
  1.010
  1.030
  1.050
  1.060
  1.080
  1.090
  1.100
  1.120
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
Adjusted equity ratio
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  47
  57
  63
  70
  77
  85
  93
  101
  110
  118
  128
  138
  148
  158
  169
  181
  192
  204
  217
  230
  244
  258
  273
  289
  305
  322
  339
  358
  377
  397
  419
Depreciation, amort., depletion, $m
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
Funds from operations, $m
  67
  63
  70
  78
  86
  94
  103
  112
  121
  131
  141
  151
  162
  174
  186
  198
  211
  224
  238
  252
  267
  283
  300
  317
  334
  353
  372
  393
  414
  436
  459
Change in working capital, $m
  0
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  67
  61
  68
  75
  83
  91
  99
  108
  117
  127
  137
  147
  158
  169
  181
  193
  206
  219
  233
  247
  262
  277
  293
  310
  328
  346
  365
  385
  406
  428
  451
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
New CAPEX, $m
  -14
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
Cash from investing activities, $m
  -27
  -9
  -9
  -11
  -12
  -12
  -13
  -15
  -16
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -29
  -30
  -31
  -34
  -35
  -38
  -39
  -41
  -43
  -46
  -48
  -51
  -53
Free cash flow, $m
  40
  52
  58
  64
  71
  78
  86
  94
  102
  111
  119
  128
  138
  148
  159
  169
  181
  192
  204
  217
  230
  244
  258
  273
  289
  305
  322
  340
  358
  377
  398
Issuance/(repayment) of debt, $m
  0
  17
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
Issuance/(repurchase) of shares, $m
  -23
  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  
  -30
  17
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
Total cash flow (excl. dividends), $m
  8
  69
  76
  83
  91
  99
  107
  116
  125
  135
  145
  155
  166
  177
  188
  200
  213
  226
  239
  253
  268
  283
  299
  316
  333
  351
  370
  390
  411
  433
  456
Retained Cash Flow (-), $m
  -10
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
Prev. year cash balance distribution, $m
 
  174
  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
 
  230
  62
  69
  76
  83
  91
  99
  108
  117
  126
  135
  145
  155
  166
  177
  188
  200
  213
  226
  239
  254
  268
  284
  300
  316
  334
  352
  371
  391
  412
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
 
  221
  57
  60
  63
  65
  66
  67
  67
  67
  66
  64
  62
  59
  56
  52
  48
  44
  39
  35
  30
  26
  22
  19
  15
  12
  10
  8
  6
  4
  3
Current shareholders' claim on cash, %
  100
  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

Exponent, Inc. (Exponent), along with its subsidiaries, is a science and engineering consulting company. Exponent provides engineering and scientific consulting services to clients around the world. Its service offerings are provided on a project-by-project basis. It operates in two segments: Engineering and Other Scientific, and Environmental and Health. Its Engineering and Other Scientific segment includes biomechanics, biomedical engineering, buildings and structures, civil engineering, construction consulting, materials and corrosion engineering, mechanical engineering, polymer science and materials chemistry, statistical and data sciences, thermal sciences and vehicle analysis services. Its Environmental and Health segment includes chemical regulation and food safety; ecological and biological sciences; environmental and earth sciences, and health sciences. Exponent serves clients in automotive, government, health, insurance, manufacturing and technology, among others.

FINANCIAL RATIOS  of  Exponent (EXPO)

Valuation Ratios
P/E Ratio 39.7
Price to Sales 5.9
Price to Book 6.8
Price to Tangible Book
Price to Cash Flow 27.8
Price to Free Cash Flow 35.2
Growth Rates
Sales Growth Rate 0.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 180%
Cap. Spend. - 3 Yr. Gr. Rate 18.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 11.9%
Ret/ On Assets - 3 Yr. Avg. 11.7%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 17.3%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 17.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 33.7%
Gross Margin - 3 Yr. Avg. 34.6%
EBITDA Margin 23.8%
EBITDA Margin - 3 Yr. Avg. 24%
Operating Margin 19.7%
Oper. Margin - 3 Yr. Avg. 20.9%
Pre-Tax Margin 21.9%
Pre-Tax Margin - 3 Yr. Avg. 22.3%
Net Profit Margin 14.9%
Net Profit Margin - 3 Yr. Avg. 14.1%
Effective Tax Rate 31.9%
Eff/ Tax Rate - 3 Yr. Avg. 36.5%
Payout Ratio 40.4%

EXPO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EXPO stock intrinsic value calculation we used $315 million for the last fiscal year's total revenue generated by Exponent. The default revenue input number comes from 2016 income statement of Exponent. 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 EXPO stock valuation model: a) initial revenue growth rate of 12.8% 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 EXPO is calculated based on our internal credit rating of Exponent, 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 Exponent.
    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 EXPO stock the variable cost ratio is equal to 78.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for EXPO 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 3.5% for Exponent.

Corporate tax rate of 27% is the nominal tax rate for Exponent. 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 EXPO 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 EXPO are equal to 10.3%.

Life of production assets of 6.9 years is the average useful life of capital assets used in Exponent 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 EXPO is equal to 6.3%. 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 - $273 million for Exponent - 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 25.847 million for Exponent 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 Exponent at the current share price and the inputted number of shares is $1.9 billion.

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COMPANY NEWS

▶ Exponent beats 3Q profit forecasts   [Oct-18-17 04:11PM  Associated Press]
▶ Exponent Declares Regular Quarterly Dividend   [04:05PM  GlobeNewswire]
▶ ETFs with exposure to Exponent, Inc. : October 3, 2017   [Oct-03-17 11:13AM  Capital Cube]
▶ Exponent posts 2Q profit   [Jul-18-17 09:13PM  Associated Press]
▶ Exponent Declares Regular Quarterly Dividend   [04:05PM  GlobeNewswire]
▶ ETFs with exposure to Exponent, Inc. : June 20, 2017   [Jun-20-17 02:55PM  Capital Cube]
▶ Exponent to Present at Upcoming Investor Conferences   [May-18-17 04:05PM  GlobeNewswire]
▶ Exponent posts 1Q profit   [Apr-19-17 05:05PM  Associated Press]
▶ Exponent Declares Regular Quarterly Dividend   [04:05PM  GlobeNewswire]
▶ Exponent to Present at Upcoming Investor Conference   [Feb-15-17 04:15PM  GlobeNewswire]
▶ [$$] Samsungs Conclusions on Galaxy Note 7 Recall Backed Up by Regulator   [Feb-07-17 12:13AM  The Wall Street Journal]
▶ Do Hedge Funds Love Exponent, Inc. (EXPO)?   [Dec-10-16 03:04PM  at Insider Monkey]
Financial statements of EXPO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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