Intrinsic value of FARO Technologies - FARO

Previous Close

$57.95

  Intrinsic Value

$5.18

stock screener

  Rating & Target

str. sell

-91%

Previous close

$57.95

 
Intrinsic value

$5.18

 
Up/down potential

-91%

 
Rating

str. sell

We calculate the intrinsic value of FARO 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 1.0

 

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, %
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
Revenue, $m
  400
  442
  485
  530
  577
  626
  677
  730
  785
  842
  901
  963
  1,027
  1,094
  1,164
  1,236
  1,311
  1,390
  1,471
  1,557
  1,646
  1,739
  1,836
  1,937
  2,043
  2,154
  2,270
  2,391
  2,518
  2,651
Variable operating expenses, $m
  384
  424
  465
  508
  553
  600
  649
  700
  753
  807
  864
  924
  985
  1,049
  1,116
  1,185
  1,257
  1,333
  1,411
  1,493
  1,578
  1,667
  1,760
  1,858
  1,959
  2,065
  2,177
  2,293
  2,415
  2,542
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
  384
  424
  465
  508
  553
  600
  649
  700
  753
  807
  864
  924
  985
  1,049
  1,116
  1,185
  1,257
  1,333
  1,411
  1,493
  1,578
  1,667
  1,760
  1,858
  1,959
  2,065
  2,177
  2,293
  2,415
  2,542
Operating income, $m
  16
  18
  20
  22
  24
  26
  28
  30
  32
  35
  37
  39
  42
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  84
  88
  93
  98
  103
  109
EBITDA, $m
  24
  26
  29
  31
  34
  37
  40
  43
  47
  50
  54
  57
  61
  65
  69
  73
  78
  83
  87
  92
  98
  103
  109
  115
  121
  128
  135
  142
  150
  157
Interest expense (income), $m
  0
  1
  2
  3
  4
  6
  7
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  34
  36
  39
  42
  45
  48
  51
  54
  58
  61
  65
Earnings before tax, $m
  16
  16
  17
  17
  18
  19
  19
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
Tax expense, $m
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
Net income, $m
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  24
  25
  26
  27
  28
  29
  31
  32

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
  612
  675
  741
  810
  882
  957
  1,035
  1,116
  1,200
  1,287
  1,378
  1,473
  1,571
  1,673
  1,779
  1,890
  2,005
  2,125
  2,250
  2,380
  2,516
  2,658
  2,807
  2,962
  3,124
  3,293
  3,470
  3,656
  3,850
  4,053
Adjusted assets (=assets-cash), $m
  612
  675
  741
  810
  882
  957
  1,035
  1,116
  1,200
  1,287
  1,378
  1,473
  1,571
  1,673
  1,779
  1,890
  2,005
  2,125
  2,250
  2,380
  2,516
  2,658
  2,807
  2,962
  3,124
  3,293
  3,470
  3,656
  3,850
  4,053
Revenue / Adjusted assets
  0.654
  0.655
  0.655
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
  0.654
Average production assets, $m
  74
  81
  89
  98
  106
  115
  125
  134
  144
  155
  166
  177
  189
  201
  214
  227
  241
  256
  271
  286
  303
  320
  338
  356
  376
  396
  418
  440
  463
  488
Working capital, $m
  91
  100
  110
  120
  131
  142
  154
  166
  178
  191
  205
  219
  233
  248
  264
  281
  298
  315
  334
  353
  374
  395
  417
  440
  464
  489
  515
  543
  572
  602
Total debt, $m
  33
  56
  80
  105
  131
  158
  186
  215
  246
  278
  310
  345
  380
  417
  456
  496
  537
  581
  626
  673
  722
  774
  828
  884
  942
  1,004
  1,068
  1,135
  1,205
  1,279
Total liabilities, $m
  222
  244
  268
  293
  319
  346
  375
  404
  434
  466
  499
  533
  569
  606
  644
  684
  726
  769
  814
  862
  911
  962
  1,016
  1,072
  1,131
  1,192
  1,256
  1,323
  1,394
  1,467
Total equity, $m
  391
  431
  473
  517
  563
  611
  660
  712
  766
  821
  879
  940
  1,002
  1,067
  1,135
  1,206
  1,279
  1,356
  1,435
  1,519
  1,605
  1,696
  1,791
  1,890
  1,993
  2,101
  2,214
  2,332
  2,456
  2,586
Total liabilities and equity, $m
  613
  675
  741
  810
  882
  957
  1,035
  1,116
  1,200
  1,287
  1,378
  1,473
  1,571
  1,673
  1,779
  1,890
  2,005
  2,125
  2,249
  2,381
  2,516
  2,658
  2,807
  2,962
  3,124
  3,293
  3,470
  3,655
  3,850
  4,053
Debt-to-equity ratio
  0.080
  0.130
  0.170
  0.200
  0.230
  0.260
  0.280
  0.300
  0.320
  0.340
  0.350
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.460
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
Adjusted equity ratio
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638
  0.638

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  24
  25
  26
  27
  28
  29
  31
  32
Depreciation, amort., depletion, $m
  7
  8
  9
  10
  11
  12
  12
  13
  14
  15
  17
  18
  19
  20
  21
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
Funds from operations, $m
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
Change in working capital, $m
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
Cash from operations, $m
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  50
Maintenance CAPEX, $m
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
New CAPEX, $m
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
Cash from investing activities, $m
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -34
  -37
  -38
  -41
  -43
  -45
  -47
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
Free cash flow, $m
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
Issuance/(repayment) of debt, $m
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  38
  40
  42
  43
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
  70
  74
Issuance/(repurchase) of shares, $m
  27
  28
  30
  31
  33
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  52
  54
  56
  59
  61
  64
  67
  70
  74
  77
  81
  85
  89
  93
  98
Cash from financing (excl. dividends), $m  
  49
  51
  54
  56
  59
  61
  64
  66
  69
  72
  75
  78
  81
  84
  87
  92
  96
  99
  104
  108
  113
  118
  124
  130
  136
  142
  149
  156
  163
  172
Total cash flow (excl. dividends), $m
  45
  47
  49
  51
  53
  56
  58
  60
  63
  65
  68
  70
  73
  76
  79
  82
  86
  89
  93
  97
  101
  106
  110
  115
  120
  126
  132
  138
  144
  151
Retained Cash Flow (-), $m
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -73
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -124
  -130
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
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
Cash available for distribution, $m
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  20
  21
Discount rate, %
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
  6
  6
  6
  6
  5
  5
  5
  5
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  97.3
  94.9
  92.6
  90.4
  88.4
  86.6
  84.8
  83.1
  81.5
  80.0
  78.6
  77.2
  75.9
  74.7
  73.4
  72.3
  71.1
  70.0
  69.0
  67.9
  66.9
  65.9
  65.0
  64.0
  63.1
  62.2
  61.3
  60.5
  59.6
  58.8

FARO Technologies, Inc. designs, develops, manufactures, markets and supports software driven, three-dimensional (3D) measurement, imaging and realization systems. The Company operates in three segments: Factory Metrology, Construction BIM-CIM and Other. It sells its products through a direct sales force across customers in a range of manufacturing, industrial, architecture, surveying, building construction and law enforcement applications. Its FaroArm, FARO Laser ScanArm, FARO Gage, FARO Laser Tracker, FARO Cobalt Array 3D Imager AMP, and their companion CAM2 software provide for Computer-Aided Design-based inspection and/or factory-level statistical process control and surveying. It operates in international markets throughout the world and maintain sales offices in Australia, Brazil, Canada, China, India, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Portugal, Singapore, South Korea, Spain, Switzerland, Thailand, Turkey, the United Kingdom, the United States and Vietnam.

FINANCIAL RATIOS  of  FARO Technologies (FARO)

Valuation Ratios
P/E Ratio 87.9
Price to Sales 3
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 25.4
Price to Free Cash Flow 33.3
Growth Rates
Sales Growth Rate 2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -43.8%
Cap. Spend. - 3 Yr. Gr. Rate 5.2%
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 2.6%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 3.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.8%
Return On Equity 3.3%
Return On Equity - 3 Yr. Avg. 5.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 54.6%
Gross Margin - 3 Yr. Avg. 54.1%
EBITDA Margin 8.3%
EBITDA Margin - 3 Yr. Avg. 9.7%
Operating Margin 4.3%
Oper. Margin - 3 Yr. Avg. 6.6%
Pre-Tax Margin 4%
Pre-Tax Margin - 3 Yr. Avg. 6.4%
Net Profit Margin 3.4%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 15.4%
Eff/ Tax Rate - 3 Yr. Avg. 8.6%
Payout Ratio 0%

FARO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FARO stock intrinsic value calculation we used $361 million for the last fiscal year's total revenue generated by FARO Technologies. The default revenue input number comes from 2017 income statement of FARO 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 FARO stock valuation model: a) initial revenue growth rate of 10.9% 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 5.8%, whose default value for FARO is calculated based on our internal credit rating of FARO 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 FARO 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 FARO stock the variable cost ratio is equal to 95.9%.

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 FARO 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 FARO Technologies.

Corporate tax rate of 27% is the nominal tax rate for FARO 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 FARO stock is equal to 1.8%.

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 FARO are equal to 18.4%.

Life of production assets of 10 years is the average useful life of capital assets used in FARO 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 FARO is equal to 22.7%. 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 - $352 million for FARO 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 17 million for FARO 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 FARO Technologies at the current share price and the inputted number of shares is $1.0 billion.

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COMPANY NEWS

▶ FARO® Announces Acquisition of Open Technologies   [Jul-16-18 02:00AM  PR Newswire]
▶ FARO® Announces Acquisition of Lanmark Controls, Inc.   [Jul-09-18 09:00AM  PR Newswire]
▶ FARO® Digi-Cube® Redefines Value for Laser Marking   [Jun-28-18 09:07AM  PR Newswire]
▶ Faro Technologies: 1Q Earnings Snapshot   [Apr-25-18 06:03PM  Associated Press]
▶ Top Ranked Momentum Stocks to Buy for March 8th   [Mar-08-18 07:20AM  Zacks]
▶ FARO® Introduces VR-Enabled FARO ZONE 3D 2018   [Feb-28-18 09:00AM  PR Newswire]
▶ FARO Technologies, Inc. to Host Earnings Call   [Feb-22-18 06:10AM  ACCESSWIRE]
▶ Faro Technologies reports 4Q loss   [Feb-21-18 06:01PM  Associated Press]
▶ FARO® Announces Appointment of Two New Directors   [Dec-14-17 04:05PM  PR Newswire]
▶ FARO® Announces Acquisition of Dustin Forensics   [Nov-15-17 05:01PM  PR Newswire]
▶ FARO Technologies, Inc. to Host Earnings Call   [Oct-27-17 06:10AM  ACCESSWIRE]
▶ Faro Technologies beats 3Q profit forecasts   [Oct-26-17 05:49PM  Associated Press]
▶ FARO® Extends Next Generation FaroArm® with Quantum M   [Aug-17-17 09:07AM  PR Newswire]
▶ Faro Technologies reports 2Q loss   [Aug-01-17 10:34PM  Associated Press]
▶ 5 ETFs to play the next tech revolution   [Jul-14-17 01:06PM  MarketWatch]
▶ Faro Technologies reports 1Q loss   [May-09-17 05:52PM  Associated Press]
▶ Faro Technologies misses Street 4Q forecasts   [Feb-22-17 04:18PM  Associated Press]
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