Intrinsic value of Finisar Corporation - FNSR

Previous Close

$24.31

  Intrinsic Value

$18.10

stock screener

  Rating & Target

sell

-26%

Previous close

$24.31

 
Intrinsic value

$18.10

 
Up/down potential

-26%

 
Rating

sell

We calculate the intrinsic value of FNSR 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 2.9

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,342
  1,373
  1,408
  1,448
  1,492
  1,540
  1,593
  1,649
  1,711
  1,776
  1,846
  1,921
  2,001
  2,086
  2,176
  2,271
  2,372
  2,479
  2,592
  2,711
  2,837
  2,969
  3,109
  3,256
  3,411
  3,574
  3,746
  3,927
  4,117
  4,317
Variable operating expenses, $m
  1,178
  1,203
  1,233
  1,266
  1,303
  1,343
  1,387
  1,435
  1,486
  1,541
  1,548
  1,611
  1,678
  1,749
  1,824
  1,904
  1,989
  2,078
  2,173
  2,273
  2,378
  2,489
  2,606
  2,730
  2,860
  2,997
  3,141
  3,292
  3,452
  3,619
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
  1,178
  1,203
  1,233
  1,266
  1,303
  1,343
  1,387
  1,435
  1,486
  1,541
  1,548
  1,611
  1,678
  1,749
  1,824
  1,904
  1,989
  2,078
  2,173
  2,273
  2,378
  2,489
  2,606
  2,730
  2,860
  2,997
  3,141
  3,292
  3,452
  3,619
Operating income, $m
  165
  170
  175
  182
  189
  197
  205
  214
  224
  235
  298
  310
  323
  337
  352
  367
  383
  401
  419
  438
  458
  480
  502
  526
  551
  578
  605
  635
  665
  698
EBITDA, $m
  313
  321
  329
  338
  348
  360
  372
  385
  399
  415
  431
  449
  467
  487
  508
  530
  554
  579
  605
  633
  662
  693
  726
  760
  796
  834
  874
  917
  961
  1,008
Interest expense (income), $m
  1
  40
  41
  42
  43
  44
  45
  47
  48
  50
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  106
  111
  116
  121
Earnings before tax, $m
  125
  129
  134
  139
  145
  152
  159
  166
  175
  183
  245
  255
  266
  277
  289
  302
  316
  330
  345
  361
  378
  396
  414
  434
  455
  477
  500
  524
  549
  576
Tax expense, $m
  34
  35
  36
  38
  39
  41
  43
  45
  47
  50
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
  135
  141
  148
  156
Net income, $m
  91
  94
  98
  102
  106
  111
  116
  121
  127
  134
  179
  186
  194
  202
  211
  220
  230
  241
  252
  263
  276
  289
  302
  317
  332
  348
  365
  382
  401
  421

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
  1,625
  1,662
  1,705
  1,753
  1,806
  1,865
  1,928
  1,997
  2,071
  2,150
  2,235
  2,326
  2,423
  2,525
  2,634
  2,750
  2,872
  3,001
  3,138
  3,282
  3,434
  3,595
  3,764
  3,942
  4,129
  4,327
  4,535
  4,754
  4,984
  5,226
Adjusted assets (=assets-cash), $m
  1,625
  1,662
  1,705
  1,753
  1,806
  1,865
  1,928
  1,997
  2,071
  2,150
  2,235
  2,326
  2,423
  2,525
  2,634
  2,750
  2,872
  3,001
  3,138
  3,282
  3,434
  3,595
  3,764
  3,942
  4,129
  4,327
  4,535
  4,754
  4,984
  5,226
Revenue / Adjusted assets
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
Average production assets, $m
  521
  533
  546
  562
  579
  598
  618
  640
  664
  689
  716
  746
  776
  809
  844
  881
  920
  962
  1,006
  1,052
  1,101
  1,152
  1,206
  1,263
  1,323
  1,387
  1,453
  1,524
  1,597
  1,675
Working capital, $m
  440
  450
  462
  475
  489
  505
  522
  541
  561
  583
  606
  630
  656
  684
  714
  745
  778
  813
  850
  889
  930
  974
  1,020
  1,068
  1,119
  1,172
  1,229
  1,288
  1,350
  1,416
Total debt, $m
  755
  772
  791
  812
  836
  862
  890
  920
  953
  989
  1,027
  1,067
  1,110
  1,156
  1,204
  1,256
  1,310
  1,367
  1,428
  1,492
  1,560
  1,631
  1,707
  1,786
  1,869
  1,957
  2,050
  2,147
  2,250
  2,358
Total liabilities, $m
  723
  740
  759
  780
  804
  830
  858
  889
  922
  957
  995
  1,035
  1,078
  1,124
  1,172
  1,224
  1,278
  1,336
  1,396
  1,460
  1,528
  1,600
  1,675
  1,754
  1,838
  1,926
  2,018
  2,115
  2,218
  2,326
Total equity, $m
  902
  923
  946
  973
  1,002
  1,035
  1,070
  1,108
  1,149
  1,193
  1,241
  1,291
  1,345
  1,402
  1,462
  1,526
  1,594
  1,666
  1,741
  1,821
  1,906
  1,995
  2,089
  2,188
  2,292
  2,401
  2,517
  2,638
  2,766
  2,901
Total liabilities and equity, $m
  1,625
  1,663
  1,705
  1,753
  1,806
  1,865
  1,928
  1,997
  2,071
  2,150
  2,236
  2,326
  2,423
  2,526
  2,634
  2,750
  2,872
  3,002
  3,137
  3,281
  3,434
  3,595
  3,764
  3,942
  4,130
  4,327
  4,535
  4,753
  4,984
  5,227
Debt-to-equity ratio
  0.840
  0.840
  0.840
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.810
  0.810
  0.810
  0.810
Adjusted equity ratio
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  91
  94
  98
  102
  106
  111
  116
  121
  127
  134
  179
  186
  194
  202
  211
  220
  230
  241
  252
  263
  276
  289
  302
  317
  332
  348
  365
  382
  401
  421
Depreciation, amort., depletion, $m
  149
  151
  153
  156
  159
  163
  167
  171
  175
  180
  133
  138
  144
  150
  156
  163
  170
  178
  186
  195
  204
  213
  223
  234
  245
  257
  269
  282
  296
  310
Funds from operations, $m
  240
  245
  251
  258
  265
  273
  282
  292
  302
  314
  312
  324
  338
  352
  367
  384
  401
  419
  438
  458
  480
  502
  526
  551
  577
  605
  634
  665
  697
  731
Change in working capital, $m
  9
  10
  12
  13
  14
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  56
  59
  62
  66
Cash from operations, $m
  231
  235
  239
  245
  251
  258
  265
  273
  282
  292
  288
  300
  312
  324
  338
  352
  368
  384
  401
  419
  438
  459
  480
  502
  526
  551
  578
  605
  634
  665
Maintenance CAPEX, $m
  -95
  -96
  -99
  -101
  -104
  -107
  -111
  -114
  -119
  -123
  -128
  -133
  -138
  -144
  -150
  -156
  -163
  -170
  -178
  -186
  -195
  -204
  -213
  -223
  -234
  -245
  -257
  -269
  -282
  -296
New CAPEX, $m
  -10
  -12
  -14
  -15
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
Cash from investing activities, $m
  -105
  -108
  -113
  -116
  -121
  -126
  -131
  -136
  -143
  -148
  -155
  -162
  -169
  -177
  -185
  -193
  -202
  -211
  -222
  -232
  -244
  -255
  -267
  -280
  -294
  -308
  -324
  -339
  -356
  -374
Free cash flow, $m
  127
  126
  127
  128
  130
  132
  134
  137
  140
  144
  134
  138
  143
  148
  153
  159
  165
  172
  179
  187
  195
  203
  212
  222
  232
  243
  254
  266
  278
  292
Issuance/(repayment) of debt, $m
  15
  17
  19
  21
  24
  26
  28
  31
  33
  35
  38
  40
  43
  46
  48
  51
  54
  58
  61
  64
  68
  71
  75
  79
  84
  88
  93
  97
  102
  108
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  
  15
  17
  19
  21
  24
  26
  28
  31
  33
  35
  38
  40
  43
  46
  48
  51
  54
  58
  61
  64
  68
  71
  75
  79
  84
  88
  93
  97
  102
  108
Total cash flow (excl. dividends), $m
  141
  143
  146
  150
  153
  158
  162
  168
  173
  179
  171
  178
  186
  193
  202
  210
  220
  230
  240
  251
  263
  275
  288
  301
  316
  331
  347
  363
  381
  399
Retained Cash Flow (-), $m
  -17
  -21
  -24
  -27
  -29
  -32
  -35
  -38
  -41
  -44
  -47
  -50
  -54
  -57
  -60
  -64
  -68
  -72
  -76
  -80
  -84
  -89
  -94
  -99
  -104
  -110
  -115
  -121
  -128
  -134
Prev. year cash balance distribution, $m
  739
  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
  863
  122
  122
  123
  124
  125
  127
  129
  132
  135
  124
  128
  132
  136
  141
  146
  152
  158
  164
  171
  178
  186
  194
  202
  211
  221
  231
  242
  253
  265
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
  828
  112
  106
  101
  96
  91
  86
  81
  76
  71
  59
  55
  50
  46
  41
  37
  33
  29
  25
  22
  18
  15
  13
  10
  8
  6
  5
  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

Finisar Corporation (Finisar) is a provider of optical subsystems and components that are used in data communication and telecommunication applications. The Company's optical subsystems consist of transmitters, receivers, transceivers, transponders and active optical cables, which provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in these networks, including the switches, routers, and servers used in wireline networks. These products rely on the use of semiconductor lasers and photodetectors in conjunction with integrated circuits and optoelectronic packaging to provide a means for transmitting and receiving digital signals over fiber optic cable at speeds ranging from less than one gigabit per second (Gbps), to more than 100 Gbps, over distances of less than 10 meters to more than 2,000 kilometers, using a range of network protocols and physical configurations.

FINANCIAL RATIOS  of  Finisar Corporation (FNSR)

Valuation Ratios
P/E Ratio 10.9
Price to Sales 1.9
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 11.9
Price to Free Cash Flow 31.5
Growth Rates
Sales Growth Rate 14.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.3%
Cap. Spend. - 3 Yr. Gr. Rate 1.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 45.3%
Total Debt to Equity 45.3%
Interest Coverage 164
Management Effectiveness
Return On Assets 12%
Ret/ On Assets - 3 Yr. Avg. 5%
Return On Total Capital 13.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 18.2%
Return On Equity - 3 Yr. Avg. 7.5%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 34.8%
Gross Margin - 3 Yr. Avg. 30.5%
EBITDA Margin 17.9%
EBITDA Margin - 3 Yr. Avg. 12.5%
Operating Margin 12.2%
Oper. Margin - 3 Yr. Avg. 5.9%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 5.2%
Net Profit Margin 17.2%
Net Profit Margin - 3 Yr. Avg. 7%
Effective Tax Rate -52.8%
Eff/ Tax Rate - 3 Yr. Avg. -3.3%
Payout Ratio 0%

FNSR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FNSR stock intrinsic value calculation we used $1316 million for the last fiscal year's total revenue generated by Finisar Corporation. The default revenue input number comes from 0001 income statement of Finisar Corporation. 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 FNSR stock valuation model: a) initial revenue growth rate of 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 FNSR is calculated based on our internal credit rating of Finisar Corporation, 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 Finisar Corporation.
    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 FNSR stock the variable cost ratio is equal to 87.8%.

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 FNSR 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 Finisar Corporation.

Corporate tax rate of 27% is the nominal tax rate for Finisar Corporation. 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 FNSR 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 FNSR are equal to 38.8%.

Life of production assets of 5.4 years is the average useful life of capital assets used in Finisar Corporation 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 FNSR is equal to 32.8%. 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 - $1623.617 million for Finisar Corporation - 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 117.895 million for Finisar Corporation 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 Finisar Corporation at the current share price and the inputted number of shares is $2.9 billion.

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