Intrinsic value of IPG Photonics Corporation - IPGP

Previous Close

$131.60

  Intrinsic Value

$122.16

stock screener

  Rating & Target

hold

-7%

Previous close

$131.60

 
Intrinsic value

$122.16

 
Up/down potential

-7%

 
Rating

hold

We calculate the intrinsic value of IPGP 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 7.0

 

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
  1,489
  1,523
  1,563
  1,607
  1,655
  1,709
  1,767
  1,830
  1,898
  1,971
  2,049
  2,132
  2,220
  2,314
  2,414
  2,520
  2,632
  2,750
  2,875
  3,008
  3,147
  3,294
  3,449
  3,612
  3,784
  3,965
  4,156
  4,356
  4,567
  4,789
Variable operating expenses, $m
  891
  910
  932
  957
  984
  1,014
  1,047
  1,082
  1,120
  1,161
  1,151
  1,198
  1,247
  1,300
  1,356
  1,416
  1,479
  1,545
  1,615
  1,690
  1,768
  1,851
  1,938
  2,029
  2,126
  2,228
  2,335
  2,447
  2,566
  2,691
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
  891
  910
  932
  957
  984
  1,014
  1,047
  1,082
  1,120
  1,161
  1,151
  1,198
  1,247
  1,300
  1,356
  1,416
  1,479
  1,545
  1,615
  1,690
  1,768
  1,851
  1,938
  2,029
  2,126
  2,228
  2,335
  2,447
  2,566
  2,691
Operating income, $m
  598
  613
  630
  650
  671
  694
  720
  748
  777
  809
  898
  934
  973
  1,014
  1,058
  1,104
  1,153
  1,205
  1,260
  1,318
  1,379
  1,443
  1,511
  1,583
  1,658
  1,738
  1,821
  1,909
  2,001
  2,099
EBITDA, $m
  725
  742
  761
  782
  806
  832
  860
  891
  924
  959
  997
  1,038
  1,081
  1,127
  1,175
  1,227
  1,281
  1,339
  1,400
  1,464
  1,532
  1,604
  1,679
  1,759
  1,842
  1,930
  2,023
  2,121
  2,224
  2,332
Interest expense (income), $m
  1
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  12
  13
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  34
  36
  39
  42
  44
Earnings before tax, $m
  596
  610
  627
  646
  667
  689
  714
  741
  770
  801
  888
  924
  961
  1,001
  1,044
  1,089
  1,137
  1,187
  1,240
  1,296
  1,356
  1,418
  1,484
  1,554
  1,627
  1,704
  1,785
  1,870
  1,960
  2,054
Tax expense, $m
  161
  165
  169
  174
  180
  186
  193
  200
  208
  216
  240
  249
  260
  270
  282
  294
  307
  320
  335
  350
  366
  383
  401
  419
  439
  460
  482
  505
  529
  555
Net income, $m
  435
  446
  458
  471
  487
  503
  521
  541
  562
  585
  648
  674
  702
  731
  762
  795
  830
  866
  905
  946
  990
  1,035
  1,083
  1,134
  1,187
  1,244
  1,303
  1,365
  1,431
  1,500

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
  1,807
  1,849
  1,896
  1,950
  2,009
  2,074
  2,144
  2,221
  2,303
  2,391
  2,486
  2,587
  2,694
  2,809
  2,930
  3,058
  3,194
  3,338
  3,490
  3,650
  3,819
  3,998
  4,186
  4,384
  4,592
  4,812
  5,043
  5,287
  5,543
  5,812
Adjusted assets (=assets-cash), $m
  1,807
  1,849
  1,896
  1,950
  2,009
  2,074
  2,144
  2,221
  2,303
  2,391
  2,486
  2,587
  2,694
  2,809
  2,930
  3,058
  3,194
  3,338
  3,490
  3,650
  3,819
  3,998
  4,186
  4,384
  4,592
  4,812
  5,043
  5,287
  5,543
  5,812
Revenue / Adjusted assets
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
Average production assets, $m
  587
  600
  616
  633
  652
  673
  696
  721
  748
  776
  807
  840
  875
  912
  951
  993
  1,037
  1,084
  1,133
  1,185
  1,240
  1,298
  1,359
  1,423
  1,491
  1,562
  1,637
  1,716
  1,800
  1,887
Working capital, $m
  529
  541
  555
  570
  588
  607
  627
  650
  674
  700
  727
  757
  788
  822
  857
  895
  934
  976
  1,021
  1,068
  1,117
  1,169
  1,224
  1,282
  1,343
  1,408
  1,475
  1,546
  1,621
  1,700
Total debt, $m
  52
  61
  71
  82
  94
  107
  122
  138
  155
  173
  192
  213
  235
  259
  284
  310
  338
  368
  399
  432
  467
  504
  542
  583
  626
  671
  719
  769
  822
  877
Total liabilities, $m
  372
  381
  391
  402
  414
  427
  442
  457
  474
  493
  512
  533
  555
  579
  604
  630
  658
  688
  719
  752
  787
  823
  862
  903
  946
  991
  1,039
  1,089
  1,142
  1,197
Total equity, $m
  1,435
  1,468
  1,506
  1,548
  1,595
  1,646
  1,703
  1,763
  1,829
  1,899
  1,974
  2,054
  2,139
  2,230
  2,326
  2,428
  2,536
  2,650
  2,771
  2,898
  3,032
  3,174
  3,323
  3,481
  3,646
  3,821
  4,004
  4,198
  4,401
  4,615
Total liabilities and equity, $m
  1,807
  1,849
  1,897
  1,950
  2,009
  2,073
  2,145
  2,220
  2,303
  2,392
  2,486
  2,587
  2,694
  2,809
  2,930
  3,058
  3,194
  3,338
  3,490
  3,650
  3,819
  3,997
  4,185
  4,384
  4,592
  4,812
  5,043
  5,287
  5,543
  5,812
Debt-to-equity ratio
  0.040
  0.040
  0.050
  0.050
  0.060
  0.070
  0.070
  0.080
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.170
  0.180
  0.180
  0.180
  0.190
  0.190
Adjusted equity ratio
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  435
  446
  458
  471
  487
  503
  521
  541
  562
  585
  648
  674
  702
  731
  762
  795
  830
  866
  905
  946
  990
  1,035
  1,083
  1,134
  1,187
  1,244
  1,303
  1,365
  1,431
  1,500
Depreciation, amort., depletion, $m
  127
  128
  130
  132
  135
  137
  140
  143
  147
  150
  100
  104
  108
  113
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  202
  212
  222
  233
Funds from operations, $m
  562
  574
  588
  604
  621
  641
  662
  684
  709
  735
  748
  778
  810
  844
  879
  917
  958
  1,000
  1,045
  1,093
  1,143
  1,195
  1,251
  1,310
  1,372
  1,437
  1,505
  1,577
  1,653
  1,733
Change in working capital, $m
  10
  12
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  31
  33
  35
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
Cash from operations, $m
  551
  562
  574
  588
  604
  622
  641
  662
  685
  709
  720
  748
  778
  810
  844
  880
  918
  958
  1,001
  1,046
  1,093
  1,143
  1,196
  1,252
  1,311
  1,372
  1,437
  1,506
  1,578
  1,654
Maintenance CAPEX, $m
  -71
  -72
  -74
  -76
  -78
  -81
  -83
  -86
  -89
  -92
  -96
  -100
  -104
  -108
  -113
  -117
  -123
  -128
  -134
  -140
  -146
  -153
  -160
  -168
  -176
  -184
  -193
  -202
  -212
  -222
New CAPEX, $m
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -87
Cash from investing activities, $m
  -82
  -85
  -89
  -93
  -97
  -102
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -145
  -152
  -159
  -167
  -175
  -183
  -192
  -201
  -211
  -221
  -232
  -244
  -255
  -268
  -281
  -295
  -309
Free cash flow, $m
  469
  476
  485
  495
  507
  520
  535
  551
  569
  588
  594
  616
  640
  665
  692
  721
  751
  783
  818
  854
  892
  932
  975
  1,020
  1,067
  1,117
  1,169
  1,225
  1,283
  1,344
Issuance/(repayment) of debt, $m
  7
  9
  10
  11
  12
  13
  15
  16
  17
  18
  19
  21
  22
  24
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
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  
  7
  9
  10
  11
  12
  13
  15
  16
  17
  18
  19
  21
  22
  24
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
Total cash flow (excl. dividends), $m
  476
  484
  494
  506
  519
  533
  549
  567
  586
  606
  613
  637
  662
  689
  717
  747
  779
  813
  849
  887
  927
  969
  1,014
  1,061
  1,110
  1,162
  1,217
  1,275
  1,336
  1,400
Retained Cash Flow (-), $m
  -28
  -33
  -38
  -42
  -47
  -51
  -56
  -61
  -65
  -70
  -75
  -80
  -85
  -91
  -96
  -102
  -108
  -114
  -121
  -127
  -134
  -142
  -149
  -157
  -166
  -174
  -184
  -193
  -203
  -214
Prev. year cash balance distribution, $m
  799
  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
  1,247
  451
  457
  464
  472
  482
  493
  506
  520
  536
  538
  557
  577
  598
  621
  645
  671
  699
  728
  760
  792
  827
  864
  903
  944
  988
  1,033
  1,082
  1,132
  1,186
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
  1,195
  413
  397
  382
  366
  350
  333
  316
  299
  281
  256
  238
  219
  201
  182
  164
  146
  129
  112
  97
  82
  69
  57
  46
  37
  29
  22
  17
  12
  9
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

IPG Photonics Corporation is a developer and manufacturer of a line of fiber lasers, fiber amplifiers, diode lasers, laser systems and optical accessories that are used for various applications. The Company offers a line of lasers and amplifiers, which are used in materials processing, communications and medical applications. The Company sells its products globally to original equipment manufacturers (OEMs), system integrators and end users. The Company's manufacturing facilities are located in the United States, Germany and Russia. The Company offers laser-based systems for certain markets and applications. Its products are designed to be used as general-purpose energy or light sources. Its product line includes High-Power Ytterbium CW (1,000-100,000 Watts), Mid-Power Ytterbium CW (100-999 Watts), Pulsed Ytterbium (0.1 to 200 Watts), Pulsed and CW, Quasi-CW Ytterbium (100-4,500 Watts), Erbium Amplifiers and Transceivers.

FINANCIAL RATIOS  of  IPG Photonics Corporation (IPGP)

Valuation Ratios
P/E Ratio 26.8
Price to Sales 7
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 24
Price to Free Cash Flow 42.5
Growth Rates
Sales Growth Rate 11.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 81.4%
Cap. Spend. - 3 Yr. Gr. Rate 12.3%
Financial Strength
Quick Ratio 277
Current Ratio 0
LT Debt to Equity 2.4%
Total Debt to Equity 2.6%
Interest Coverage 368
Management Effectiveness
Return On Assets 16.1%
Ret/ On Assets - 3 Yr. Avg. 17.3%
Return On Total Capital 18.1%
Ret/ On T. Cap. - 3 Yr. Avg. 19.4%
Return On Equity 18.5%
Return On Equity - 3 Yr. Avg. 19.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 54.9%
Gross Margin - 3 Yr. Avg. 54.5%
EBITDA Margin 41.7%
EBITDA Margin - 3 Yr. Avg. 42%
Operating Margin 36.2%
Oper. Margin - 3 Yr. Avg. 37%
Pre-Tax Margin 36.5%
Pre-Tax Margin - 3 Yr. Avg. 37.1%
Net Profit Margin 25.9%
Net Profit Margin - 3 Yr. Avg. 26.3%
Effective Tax Rate 28.9%
Eff/ Tax Rate - 3 Yr. Avg. 29.2%
Payout Ratio 0%

IPGP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IPGP stock intrinsic value calculation we used $1460 million for the last fiscal year's total revenue generated by IPG Photonics Corporation. The default revenue input number comes from 0001 income statement of IPG Photonics 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 IPGP 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 IPGP is calculated based on our internal credit rating of IPG Photonics 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 IPG Photonics 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 IPGP stock the variable cost ratio is equal to 59.9%.

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 IPGP 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 IPG Photonics Corporation.

Corporate tax rate of 27% is the nominal tax rate for IPG Photonics 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 IPGP 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 IPGP are equal to 39.4%.

Life of production assets of 8.1 years is the average useful life of capital assets used in IPG Photonics 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 IPGP is equal to 35.5%. 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 - $2205.548 million for IPG Photonics 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 52.991 million for IPG Photonics 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 IPG Photonics Corporation at the current share price and the inputted number of shares is $7.0 billion.

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