Intrinsic value of Fabrinet - FN

Previous Close

$49.65

  Intrinsic Value

$105.43

stock screener

  Rating & Target

str. buy

+112%

Previous close

$49.65

 
Intrinsic value

$105.43

 
Up/down potential

+112%

 
Rating

str. buy

We calculate the intrinsic value of FN 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 1.8

 

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, %
  19.60
  18.14
  16.83
  15.64
  14.58
  13.62
  12.76
  11.98
  11.28
  10.66
  10.09
  9.58
  9.12
  8.71
  8.34
  8.01
  7.71
  7.43
  7.19
  6.97
  6.78
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
Revenue, $m
  1,641
  1,939
  2,265
  2,619
  3,001
  3,410
  3,845
  4,305
  4,791
  5,302
  5,837
  6,396
  6,980
  7,588
  8,220
  8,879
  9,563
  10,274
  11,012
  11,780
  12,578
  13,408
  14,271
  15,170
  16,105
  17,079
  18,094
  19,152
  20,256
  21,408
Variable operating expenses, $m
  1,237
  1,461
  1,707
  1,974
  2,262
  2,570
  2,897
  3,244
  3,610
  3,995
  4,397
  4,818
  5,258
  5,716
  6,193
  6,689
  7,204
  7,740
  8,296
  8,875
  9,476
  10,101
  10,751
  11,428
  12,132
  12,866
  13,631
  14,428
  15,260
  16,128
Fixed operating expenses, $m
  254
  260
  266
  272
  278
  284
  290
  296
  303
  310
  316
  323
  330
  338
  345
  353
  360
  368
  377
  385
  393
  402
  411
  420
  429
  438
  448
  458
  468
  478
Total operating expenses, $m
  1,491
  1,721
  1,973
  2,246
  2,540
  2,854
  3,187
  3,540
  3,913
  4,305
  4,713
  5,141
  5,588
  6,054
  6,538
  7,042
  7,564
  8,108
  8,673
  9,260
  9,869
  10,503
  11,162
  11,848
  12,561
  13,304
  14,079
  14,886
  15,728
  16,606
Operating income, $m
  149
  217
  292
  373
  462
  556
  657
  765
  878
  997
  1,123
  1,254
  1,391
  1,534
  1,682
  1,837
  1,998
  2,166
  2,340
  2,521
  2,709
  2,905
  3,109
  3,322
  3,543
  3,774
  4,015
  4,266
  4,528
  4,802
EBITDA, $m
  184
  258
  340
  429
  525
  628
  738
  855
  978
  1,108
  1,245
  1,387
  1,536
  1,691
  1,853
  2,022
  2,197
  2,379
  2,569
  2,766
  2,971
  3,184
  3,406
  3,637
  3,878
  4,129
  4,391
  4,664
  4,949
  5,247
Interest expense (income), $m
  2
  4
  7
  11
  16
  20
  26
  31
  37
  43
  50
  57
  64
  71
  79
  88
  96
  105
  114
  124
  134
  144
  155
  166
  178
  190
  203
  216
  230
  244
  259
Earnings before tax, $m
  146
  210
  281
  358
  441
  531
  626
  728
  835
  948
  1,067
  1,190
  1,320
  1,454
  1,595
  1,741
  1,893
  2,051
  2,216
  2,387
  2,565
  2,750
  2,943
  3,144
  3,353
  3,571
  3,799
  4,036
  4,284
  4,543
Tax expense, $m
  39
  57
  76
  97
  119
  143
  169
  196
  225
  256
  288
  321
  356
  393
  431
  470
  511
  554
  598
  644
  693
  743
  795
  849
  905
  964
  1,026
  1,090
  1,157
  1,227
Net income, $m
  106
  153
  205
  261
  322
  388
  457
  531
  609
  692
  779
  869
  963
  1,062
  1,164
  1,271
  1,382
  1,498
  1,618
  1,743
  1,872
  2,008
  2,148
  2,295
  2,448
  2,607
  2,773
  2,947
  3,128
  3,317

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
  1,223
  1,445
  1,688
  1,952
  2,236
  2,541
  2,865
  3,208
  3,570
  3,951
  4,349
  4,766
  5,201
  5,654
  6,125
  6,616
  7,126
  7,655
  8,206
  8,778
  9,373
  9,991
  10,634
  11,304
  12,001
  12,726
  13,483
  14,271
  15,094
  15,952
Adjusted assets (=assets-cash), $m
  1,223
  1,445
  1,688
  1,952
  2,236
  2,541
  2,865
  3,208
  3,570
  3,951
  4,349
  4,766
  5,201
  5,654
  6,125
  6,616
  7,126
  7,655
  8,206
  8,778
  9,373
  9,991
  10,634
  11,304
  12,001
  12,726
  13,483
  14,271
  15,094
  15,952
Revenue / Adjusted assets
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
  1.342
Average production assets, $m
  266
  314
  367
  424
  486
  552
  623
  697
  776
  859
  946
  1,036
  1,131
  1,229
  1,332
  1,438
  1,549
  1,664
  1,784
  1,908
  2,038
  2,172
  2,312
  2,457
  2,609
  2,767
  2,931
  3,103
  3,281
  3,468
Working capital, $m
  305
  361
  421
  487
  558
  634
  715
  801
  891
  986
  1,086
  1,190
  1,298
  1,411
  1,529
  1,651
  1,779
  1,911
  2,048
  2,191
  2,340
  2,494
  2,654
  2,822
  2,995
  3,177
  3,365
  3,562
  3,768
  3,982
Total debt, $m
  133
  207
  289
  378
  473
  575
  684
  800
  921
  1,049
  1,183
  1,323
  1,469
  1,622
  1,780
  1,945
  2,116
  2,294
  2,479
  2,671
  2,871
  3,079
  3,295
  3,520
  3,754
  3,998
  4,252
  4,517
  4,793
  5,082
Total liabilities, $m
  411
  485
  567
  656
  751
  854
  963
  1,078
  1,200
  1,327
  1,461
  1,601
  1,747
  1,900
  2,058
  2,223
  2,394
  2,572
  2,757
  2,949
  3,149
  3,357
  3,573
  3,798
  4,032
  4,276
  4,530
  4,795
  5,072
  5,360
Total equity, $m
  812
  959
  1,121
  1,296
  1,485
  1,687
  1,902
  2,130
  2,371
  2,623
  2,888
  3,165
  3,453
  3,754
  4,067
  4,393
  4,731
  5,083
  5,449
  5,829
  6,224
  6,634
  7,061
  7,506
  7,968
  8,450
  8,953
  9,476
  10,022
  10,592
Total liabilities and equity, $m
  1,223
  1,444
  1,688
  1,952
  2,236
  2,541
  2,865
  3,208
  3,571
  3,950
  4,349
  4,766
  5,200
  5,654
  6,125
  6,616
  7,125
  7,655
  8,206
  8,778
  9,373
  9,991
  10,634
  11,304
  12,000
  12,726
  13,483
  14,271
  15,094
  15,952
Debt-to-equity ratio
  0.160
  0.220
  0.260
  0.290
  0.320
  0.340
  0.360
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.430
  0.440
  0.440
  0.450
  0.450
  0.450
  0.460
  0.460
  0.460
  0.470
  0.470
  0.470
  0.470
  0.470
  0.480
  0.480
  0.480
Adjusted equity ratio
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  106
  153
  205
  261
  322
  388
  457
  531
  609
  692
  779
  869
  963
  1,062
  1,164
  1,271
  1,382
  1,498
  1,618
  1,743
  1,872
  2,008
  2,148
  2,295
  2,448
  2,607
  2,773
  2,947
  3,128
  3,317
Depreciation, amort., depletion, $m
  35
  41
  48
  55
  63
  72
  81
  90
  100
  111
  121
  133
  145
  158
  171
  184
  199
  213
  229
  245
  261
  278
  296
  315
  334
  355
  376
  398
  421
  445
Funds from operations, $m
  141
  194
  253
  317
  385
  459
  538
  622
  710
  803
  900
  1,002
  1,108
  1,219
  1,335
  1,455
  1,581
  1,711
  1,846
  1,987
  2,134
  2,286
  2,445
  2,610
  2,782
  2,962
  3,149
  3,344
  3,548
  3,761
Change in working capital, $m
  50
  55
  61
  66
  71
  76
  81
  86
  90
  95
  100
  104
  109
  113
  118
  122
  127
  132
  137
  143
  148
  154
  161
  167
  174
  181
  189
  197
  205
  214
Cash from operations, $m
  91
  139
  192
  251
  314
  383
  457
  536
  619
  708
  800
  898
  1,000
  1,106
  1,217
  1,333
  1,453
  1,579
  1,709
  1,844
  1,985
  2,132
  2,284
  2,443
  2,608
  2,781
  2,960
  3,148
  3,343
  3,547
Maintenance CAPEX, $m
  -29
  -34
  -40
  -47
  -54
  -62
  -71
  -80
  -89
  -100
  -110
  -121
  -133
  -145
  -158
  -171
  -184
  -199
  -213
  -229
  -245
  -261
  -278
  -296
  -315
  -334
  -355
  -376
  -398
  -421
New CAPEX, $m
  -43
  -48
  -53
  -57
  -62
  -66
  -70
  -75
  -79
  -83
  -87
  -91
  -95
  -98
  -103
  -107
  -111
  -115
  -120
  -124
  -129
  -134
  -140
  -146
  -151
  -158
  -164
  -171
  -179
  -187
Cash from investing activities, $m
  -72
  -82
  -93
  -104
  -116
  -128
  -141
  -155
  -168
  -183
  -197
  -212
  -228
  -243
  -261
  -278
  -295
  -314
  -333
  -353
  -374
  -395
  -418
  -442
  -466
  -492
  -519
  -547
  -577
  -608
Free cash flow, $m
  20
  57
  99
  146
  198
  255
  316
  381
  451
  526
  604
  686
  772
  863
  957
  1,056
  1,158
  1,265
  1,376
  1,491
  1,611
  1,736
  1,866
  2,001
  2,142
  2,288
  2,441
  2,600
  2,766
  2,940
Issuance/(repayment) of debt, $m
  67
  75
  82
  89
  96
  102
  109
  115
  122
  128
  134
  140
  146
  152
  158
  165
  171
  178
  185
  192
  200
  208
  216
  225
  234
  244
  254
  265
  276
  288
Issuance/(repurchase) of shares, $m
  27
  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  
  94
  75
  82
  89
  96
  102
  109
  115
  122
  128
  134
  140
  146
  152
  158
  165
  171
  178
  185
  192
  200
  208
  216
  225
  234
  244
  254
  265
  276
  288
Total cash flow (excl. dividends), $m
  114
  131
  181
  235
  294
  357
  425
  497
  573
  653
  738
  826
  919
  1,015
  1,116
  1,220
  1,329
  1,443
  1,561
  1,684
  1,811
  1,944
  2,082
  2,226
  2,376
  2,532
  2,695
  2,865
  3,043
  3,228
Retained Cash Flow (-), $m
  -133
  -147
  -161
  -175
  -189
  -202
  -215
  -228
  -240
  -253
  -265
  -277
  -289
  -301
  -313
  -326
  -338
  -352
  -366
  -380
  -395
  -411
  -427
  -444
  -463
  -482
  -502
  -524
  -546
  -570
Prev. year cash balance distribution, $m
  62
  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
  43
  -16
  19
  60
  105
  155
  209
  269
  333
  401
  473
  549
  630
  714
  803
  895
  991
  1,091
  1,195
  1,304
  1,416
  1,533
  1,655
  1,782
  1,913
  2,050
  2,193
  2,342
  2,497
  2,658
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
  41
  -15
  17
  49
  81
  112
  142
  168
  191
  210
  225
  234
  239
  240
  236
  227
  216
  201
  184
  166
  146
  127
  108
  91
  74
  60
  47
  36
  27
  20
Current shareholders' claim on cash, %
  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
  98.4

Fabrinet provides optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers (OEMs) of products, such as optical communication components, modules and sub-systems, industrial lasers, medical devices and sensors. The Company offers a range of optical and electro-mechanical capabilities across the manufacturing process, including process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and test. The Company's customer base includes companies in industries that require precision manufacturing capabilities, such as optical communications, industrial lasers, automotive, medical and sensors. Its customers in these industries support end-markets, including automotive, biotechnology, communications, materials processing, medical devices, metrology and semiconductor processing.

FINANCIAL RATIOS  of  Fabrinet (FN)

Valuation Ratios
P/E Ratio 19.1
Price to Sales 1.3
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 26.1
Price to Free Cash Flow 1853.9
Growth Rates
Sales Growth Rate 45.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 70.7%
Cap. Spend. - 3 Yr. Gr. Rate 44.8%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 3.4%
Total Debt to Equity 10.6%
Interest Coverage 53
Management Effectiveness
Return On Assets 10.5%
Ret/ On Assets - 3 Yr. Avg. 8.7%
Return On Total Capital 14.2%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 15.7%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 12%
Gross Margin - 3 Yr. Avg. 11.9%
EBITDA Margin 9.2%
EBITDA Margin - 3 Yr. Avg. 8.7%
Operating Margin 7.4%
Oper. Margin - 3 Yr. Avg. 6.9%
Pre-Tax Margin 7.3%
Pre-Tax Margin - 3 Yr. Avg. 6.8%
Net Profit Margin 6.8%
Net Profit Margin - 3 Yr. Avg. 6.3%
Effective Tax Rate 6.7%
Eff/ Tax Rate - 3 Yr. Avg. 8%
Payout Ratio 0%

FN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FN stock intrinsic value calculation we used $1372 million for the last fiscal year's total revenue generated by Fabrinet. The default revenue input number comes from 0001 income statement of Fabrinet. 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 FN stock valuation model: a) initial revenue growth rate of 19.6% 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 FN is calculated based on our internal credit rating of Fabrinet, 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 Fabrinet.
    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 FN stock the variable cost ratio is equal to 75.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $249 million in the base year in the intrinsic value calculation for FN 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 Fabrinet.

Corporate tax rate of 27% is the nominal tax rate for Fabrinet. 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 FN 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 FN are equal to 16.2%.

Life of production assets of 7.8 years is the average useful life of capital assets used in Fabrinet 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 FN is equal to 18.6%. 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 - $740.939 million for Fabrinet - 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 36.826 million for Fabrinet 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 Fabrinet at the current share price and the inputted number of shares is $1.8 billion.

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