Intrinsic value of II-VI Incorporated - IIVI

Previous Close

$34.50

  Intrinsic Value

$11.38

stock screener

  Rating & Target

str. sell

-67%

Previous close

$34.50

 
Intrinsic value

$11.38

 
Up/down potential

-67%

 
Rating

str. sell

We calculate the intrinsic value of IIVI 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 2.2

 

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, %
  21.80
  20.12
  18.61
  17.25
  16.02
  14.92
  13.93
  13.04
  12.23
  11.51
  10.86
  10.27
  9.74
  9.27
  8.84
  8.46
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.09
  5.98
  5.88
  5.79
Revenue, $m
  1,412
  1,696
  2,011
  2,358
  2,736
  3,144
  3,582
  4,049
  4,544
  5,067
  5,617
  6,194
  6,798
  7,428
  8,085
  8,769
  9,481
  10,220
  10,989
  11,788
  12,618
  13,481
  14,378
  15,311
  16,282
  17,292
  18,344
  19,441
  20,584
  21,776
Variable operating expenses, $m
  1,218
  1,453
  1,713
  2,000
  2,312
  2,649
  3,010
  3,396
  3,805
  4,237
  4,638
  5,115
  5,613
  6,134
  6,676
  7,241
  7,828
  8,439
  9,074
  9,733
  10,419
  11,131
  11,872
  12,642
  13,444
  14,278
  15,147
  16,052
  16,996
  17,980
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
  1,218
  1,453
  1,713
  2,000
  2,312
  2,649
  3,010
  3,396
  3,805
  4,237
  4,638
  5,115
  5,613
  6,134
  6,676
  7,241
  7,828
  8,439
  9,074
  9,733
  10,419
  11,131
  11,872
  12,642
  13,444
  14,278
  15,147
  16,052
  16,996
  17,980
Operating income, $m
  194
  243
  298
  359
  424
  496
  572
  653
  740
  831
  979
  1,080
  1,185
  1,295
  1,409
  1,528
  1,652
  1,781
  1,915
  2,055
  2,199
  2,350
  2,506
  2,669
  2,838
  3,014
  3,197
  3,388
  3,588
  3,795
EBITDA, $m
  321
  386
  457
  536
  622
  715
  815
  921
  1,034
  1,153
  1,278
  1,409
  1,546
  1,690
  1,839
  1,995
  2,157
  2,325
  2,500
  2,681
  2,870
  3,066
  3,271
  3,483
  3,704
  3,933
  4,173
  4,422
  4,682
  4,953
Interest expense (income), $m
  7
  24
  32
  42
  52
  64
  76
  90
  104
  120
  137
  154
  172
  192
  212
  233
  255
  278
  301
  326
  352
  378
  406
  435
  465
  496
  528
  562
  597
  634
  672
Earnings before tax, $m
  170
  211
  257
  306
  361
  419
  482
  549
  619
  694
  825
  907
  993
  1,083
  1,176
  1,274
  1,375
  1,480
  1,589
  1,703
  1,821
  1,944
  2,071
  2,204
  2,342
  2,486
  2,635
  2,791
  2,954
  3,124
Tax expense, $m
  46
  57
  69
  83
  97
  113
  130
  148
  167
  187
  223
  245
  268
  292
  318
  344
  371
  400
  429
  460
  492
  525
  559
  595
  632
  671
  712
  754
  798
  843
Net income, $m
  124
  154
  187
  224
  263
  306
  352
  401
  452
  507
  602
  662
  725
  791
  859
  930
  1,004
  1,080
  1,160
  1,243
  1,329
  1,419
  1,512
  1,609
  1,710
  1,815
  1,924
  2,038
  2,156
  2,280

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
  2,107
  2,531
  3,002
  3,520
  4,083
  4,693
  5,346
  6,043
  6,782
  7,563
  8,384
  9,245
  10,146
  11,087
  12,067
  13,088
  14,150
  15,254
  16,401
  17,594
  18,833
  20,121
  21,459
  22,852
  24,301
  25,809
  27,380
  29,016
  30,722
  32,501
Adjusted assets (=assets-cash), $m
  2,107
  2,531
  3,002
  3,520
  4,083
  4,693
  5,346
  6,043
  6,782
  7,563
  8,384
  9,245
  10,146
  11,087
  12,067
  13,088
  14,150
  15,254
  16,401
  17,594
  18,833
  20,121
  21,459
  22,852
  24,301
  25,809
  27,380
  29,016
  30,722
  32,501
Revenue / Adjusted assets
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
Average production assets, $m
  781
  938
  1,112
  1,304
  1,513
  1,739
  1,981
  2,239
  2,513
  2,802
  3,106
  3,426
  3,759
  4,108
  4,471
  4,849
  5,243
  5,652
  6,077
  6,519
  6,978
  7,455
  7,951
  8,467
  9,004
  9,562
  10,144
  10,751
  11,383
  12,042
Working capital, $m
  363
  436
  517
  606
  703
  808
  921
  1,041
  1,168
  1,302
  1,444
  1,592
  1,747
  1,909
  2,078
  2,254
  2,437
  2,627
  2,824
  3,029
  3,243
  3,465
  3,695
  3,935
  4,184
  4,444
  4,714
  4,996
  5,290
  5,596
Total debt, $m
  594
  769
  964
  1,179
  1,412
  1,664
  1,935
  2,224
  2,530
  2,853
  3,193
  3,549
  3,922
  4,312
  4,718
  5,140
  5,580
  6,037
  6,512
  7,005
  7,518
  8,052
  8,606
  9,182
  9,782
  10,407
  11,057
  11,734
  12,441
  13,177
Total liabilities, $m
  872
  1,048
  1,243
  1,457
  1,691
  1,943
  2,213
  2,502
  2,808
  3,131
  3,471
  3,828
  4,201
  4,590
  4,996
  5,419
  5,858
  6,315
  6,790
  7,284
  7,797
  8,330
  8,884
  9,461
  10,061
  10,685
  11,335
  12,013
  12,719
  13,455
Total equity, $m
  1,235
  1,483
  1,759
  2,062
  2,393
  2,750
  3,133
  3,541
  3,975
  4,432
  4,913
  5,418
  5,946
  6,497
  7,072
  7,670
  8,292
  8,939
  9,611
  10,310
  11,036
  11,791
  12,575
  13,391
  14,240
  15,124
  16,044
  17,003
  18,003
  19,046
Total liabilities and equity, $m
  2,107
  2,531
  3,002
  3,519
  4,084
  4,693
  5,346
  6,043
  6,783
  7,563
  8,384
  9,246
  10,147
  11,087
  12,068
  13,089
  14,150
  15,254
  16,401
  17,594
  18,833
  20,121
  21,459
  22,852
  24,301
  25,809
  27,379
  29,016
  30,722
  32,501
Debt-to-equity ratio
  0.480
  0.520
  0.550
  0.570
  0.590
  0.610
  0.620
  0.630
  0.640
  0.640
  0.650
  0.660
  0.660
  0.660
  0.670
  0.670
  0.670
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.690
  0.690
  0.690
  0.690
  0.690
  0.690
  0.690
Adjusted equity ratio
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  124
  154
  187
  224
  263
  306
  352
  401
  452
  507
  602
  662
  725
  791
  859
  930
  1,004
  1,080
  1,160
  1,243
  1,329
  1,419
  1,512
  1,609
  1,710
  1,815
  1,924
  2,038
  2,156
  2,280
Depreciation, amort., depletion, $m
  128
  143
  159
  178
  198
  220
  243
  268
  294
  322
  299
  329
  361
  395
  430
  466
  504
  543
  584
  627
  671
  717
  765
  814
  866
  919
  975
  1,034
  1,094
  1,158
Funds from operations, $m
  252
  297
  347
  402
  461
  526
  595
  668
  746
  829
  901
  992
  1,087
  1,186
  1,289
  1,396
  1,508
  1,624
  1,745
  1,870
  2,000
  2,136
  2,277
  2,423
  2,575
  2,734
  2,899
  3,071
  3,251
  3,438
Change in working capital, $m
  65
  73
  81
  89
  97
  105
  113
  120
  127
  134
  141
  148
  155
  162
  169
  176
  183
  190
  198
  205
  213
  222
  231
  240
  249
  260
  270
  282
  294
  306
Cash from operations, $m
  187
  224
  266
  312
  364
  421
  482
  548
  619
  694
  760
  843
  931
  1,024
  1,120
  1,220
  1,325
  1,434
  1,547
  1,665
  1,787
  1,914
  2,046
  2,183
  2,326
  2,474
  2,629
  2,790
  2,957
  3,132
Maintenance CAPEX, $m
  -62
  -75
  -90
  -107
  -125
  -145
  -167
  -190
  -215
  -242
  -269
  -299
  -329
  -361
  -395
  -430
  -466
  -504
  -543
  -584
  -627
  -671
  -717
  -765
  -814
  -866
  -919
  -975
  -1,034
  -1,094
New CAPEX, $m
  -139
  -157
  -174
  -192
  -209
  -226
  -242
  -258
  -274
  -289
  -304
  -319
  -334
  -349
  -363
  -378
  -393
  -409
  -425
  -442
  -459
  -477
  -496
  -516
  -537
  -559
  -582
  -606
  -632
  -659
Cash from investing activities, $m
  -201
  -232
  -264
  -299
  -334
  -371
  -409
  -448
  -489
  -531
  -573
  -618
  -663
  -710
  -758
  -808
  -859
  -913
  -968
  -1,026
  -1,086
  -1,148
  -1,213
  -1,281
  -1,351
  -1,425
  -1,501
  -1,581
  -1,666
  -1,753
Free cash flow, $m
  -14
  -8
  1
  14
  30
  50
  73
  100
  130
  163
  186
  226
  268
  314
  362
  412
  465
  521
  578
  639
  701
  766
  833
  903
  975
  1,050
  1,127
  1,208
  1,291
  1,378
Issuance/(repayment) of debt, $m
  155
  176
  195
  214
  233
  252
  271
  289
  306
  323
  340
  357
  373
  389
  406
  423
  440
  457
  475
  494
  513
  533
  554
  576
  600
  624
  650
  677
  706
  737
Issuance/(repurchase) of shares, $m
  97
  94
  89
  80
  67
  51
  31
  8
  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  
  252
  270
  284
  294
  300
  303
  302
  297
  306
  323
  340
  357
  373
  389
  406
  423
  440
  457
  475
  494
  513
  533
  554
  576
  600
  624
  650
  677
  706
  737
Total cash flow (excl. dividends), $m
  237
  261
  285
  308
  330
  353
  375
  396
  436
  487
  526
  582
  641
  703
  768
  835
  905
  978
  1,053
  1,132
  1,214
  1,299
  1,387
  1,479
  1,575
  1,674
  1,778
  1,885
  1,998
  2,115
Retained Cash Flow (-), $m
  -221
  -248
  -276
  -303
  -330
  -357
  -383
  -408
  -433
  -457
  -481
  -505
  -528
  -551
  -575
  -598
  -622
  -647
  -672
  -699
  -726
  -755
  -785
  -816
  -849
  -884
  -920
  -959
  -1,000
  -1,043
Prev. year cash balance distribution, $m
  11
  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
  27
  13
  9
  4
  0
  -4
  -8
  -12
  3
  29
  45
  77
  113
  152
  193
  237
  283
  331
  381
  433
  488
  544
  603
  663
  726
  790
  857
  926
  998
  1,072
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
  26
  12
  8
  4
  0
  -3
  -6
  -8
  2
  15
  21
  33
  43
  51
  57
  60
  61
  61
  59
  55
  50
  45
  40
  34
  28
  23
  18
  14
  11
  8
Current shareholders' claim on cash, %
  95.7
  92.4
  89.9
  88.0
  86.7
  85.8
  85.4
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3
  85.3

II-VI Incorporated develops and manufactures engineered materials, optoelectronic components and products. The Company has three segments: II-VI Laser Solutions, II-VI Photonics and II-VI Performance Products. The II-VI Laser Solutions segment designs, manufactures and markets optical and electro-optical components and materials sold under the II-VI Infrared brand name and used in carbon dioxide (CO2) lasers, fiber-delivered beam delivery systems and processing tools and direct diode lasers for industrial lasers sold under the II-VI HIGHYAG and II-VI Laser Enterprise brand names. The II-VI Photonics segment manufactures crystal materials, optics, microchip lasers and opto-electronic modules for use in optical communication networks and other consumer and commercial applications. The II-VI Performance Products segment designs, manufactures and markets infrared optical components and high-precision optical assemblies for military, medical and commercial laser imaging applications.

FINANCIAL RATIOS  of  II-VI Incorporated (IIVI)

Valuation Ratios
P/E Ratio 22.9
Price to Sales 2.2
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 18.3
Price to Free Cash Flow -108.9
Growth Rates
Sales Growth Rate 17.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 139.7%
Cap. Spend. - 3 Yr. Gr. Rate 36.8%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 38.3%
Total Debt to Equity 40.5%
Interest Coverage 18
Management Effectiveness
Return On Assets 7.5%
Ret/ On Assets - 3 Yr. Avg. 6.6%
Return On Total Capital 8.3%
Ret/ On T. Cap. - 3 Yr. Avg. 7.4%
Return On Equity 11.3%
Return On Equity - 3 Yr. Avg. 9.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 39.9%
Gross Margin - 3 Yr. Avg. 38.1%
EBITDA Margin 19.5%
EBITDA Margin - 3 Yr. Avg. 18.6%
Operating Margin 13%
Oper. Margin - 3 Yr. Avg. 11.8%
Pre-Tax Margin 12.2%
Pre-Tax Margin - 3 Yr. Avg. 11.3%
Net Profit Margin 9.8%
Net Profit Margin - 3 Yr. Avg. 8.8%
Effective Tax Rate 20.2%
Eff/ Tax Rate - 3 Yr. Avg. 21.5%
Payout Ratio 0%

IIVI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IIVI stock intrinsic value calculation we used $1159 million for the last fiscal year's total revenue generated by II-VI Incorporated. The default revenue input number comes from 0001 income statement of II-VI Incorporated. 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 IIVI stock valuation model: a) initial revenue growth rate of 21.8% 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 IIVI is calculated based on our internal credit rating of II-VI Incorporated, 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 II-VI Incorporated.
    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 IIVI stock the variable cost ratio is equal to 87.1%.

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 IIVI 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 II-VI Incorporated.

Corporate tax rate of 27% is the nominal tax rate for II-VI Incorporated. 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 IIVI 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 IIVI are equal to 55.3%.

Life of production assets of 10.4 years is the average useful life of capital assets used in II-VI Incorporated 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 IIVI is equal to 25.7%. 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 - $1024.311 million for II-VI Incorporated - 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 63.336 million for II-VI Incorporated 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 II-VI Incorporated at the current share price and the inputted number of shares is $2.2 billion.

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