Intrinsic value of Kimball Electronics - KE

Previous Close

$19.65

  Intrinsic Value

$35.14

stock screener

  Rating & Target

str. buy

+79%

Previous close

$19.65

 
Intrinsic value

$35.14

 
Up/down potential

+79%

 
Rating

str. buy

We calculate the intrinsic value of KE 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 0.5

 

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, %
  10.60
  10.04
  9.54
  9.08
  8.67
  8.31
  7.98
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.33
  5.29
  5.26
Revenue, $m
  1,030
  1,133
  1,241
  1,354
  1,471
  1,593
  1,721
  1,853
  1,990
  2,133
  2,281
  2,435
  2,595
  2,762
  2,936
  3,116
  3,304
  3,500
  3,705
  3,918
  4,141
  4,373
  4,616
  4,870
  5,135
  5,412
  5,702
  6,006
  6,324
  6,657
Variable operating expenses, $m
  875
  963
  1,055
  1,150
  1,250
  1,354
  1,462
  1,574
  1,690
  1,811
  1,936
  2,067
  2,203
  2,344
  2,492
  2,645
  2,805
  2,971
  3,145
  3,326
  3,515
  3,712
  3,918
  4,133
  4,358
  4,594
  4,840
  5,098
  5,368
  5,650
Fixed operating expenses, $m
  100
  102
  105
  107
  109
  112
  114
  117
  119
  122
  125
  127
  130
  133
  136
  139
  142
  145
  148
  151
  155
  158
  162
  165
  169
  173
  176
  180
  184
  188
Total operating expenses, $m
  975
  1,065
  1,160
  1,257
  1,359
  1,466
  1,576
  1,691
  1,809
  1,933
  2,061
  2,194
  2,333
  2,477
  2,628
  2,784
  2,947
  3,116
  3,293
  3,477
  3,670
  3,870
  4,080
  4,298
  4,527
  4,767
  5,016
  5,278
  5,552
  5,838
Operating income, $m
  54
  68
  82
  97
  112
  128
  145
  162
  181
  199
  220
  241
  262
  285
  308
  332
  358
  384
  412
  441
  471
  503
  536
  571
  607
  646
  686
  728
  772
  818
EBITDA, $m
  71
  86
  102
  118
  135
  153
  172
  191
  211
  233
  255
  277
  301
  326
  352
  379
  407
  437
  467
  500
  533
  569
  605
  644
  684
  727
  771
  818
  867
  918
Interest expense (income), $m
  0
  1
  2
  3
  4
  6
  7
  9
  10
  12
  14
  15
  17
  19
  21
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
Earnings before tax, $m
  54
  66
  79
  92
  106
  121
  136
  152
  169
  186
  205
  224
  243
  264
  285
  307
  330
  354
  380
  406
  434
  463
  493
  525
  558
  593
  630
  668
  709
  751
Tax expense, $m
  15
  18
  21
  25
  29
  33
  37
  41
  46
  50
  55
  60
  66
  71
  77
  83
  89
  96
  103
  110
  117
  125
  133
  142
  151
  160
  170
  180
  191
  203
Net income, $m
  39
  48
  58
  67
  78
  88
  99
  111
  123
  136
  150
  163
  178
  192
  208
  224
  241
  259
  277
  297
  317
  338
  360
  383
  408
  433
  460
  488
  517
  548

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
  614
  676
  740
  807
  877
  950
  1,026
  1,105
  1,187
  1,272
  1,360
  1,452
  1,548
  1,647
  1,750
  1,858
  1,970
  2,087
  2,209
  2,336
  2,469
  2,608
  2,752
  2,904
  3,062
  3,227
  3,400
  3,581
  3,771
  3,969
Adjusted assets (=assets-cash), $m
  614
  676
  740
  807
  877
  950
  1,026
  1,105
  1,187
  1,272
  1,360
  1,452
  1,548
  1,647
  1,750
  1,858
  1,970
  2,087
  2,209
  2,336
  2,469
  2,608
  2,752
  2,904
  3,062
  3,227
  3,400
  3,581
  3,771
  3,969
Revenue / Adjusted assets
  1.678
  1.676
  1.677
  1.678
  1.677
  1.677
  1.677
  1.677
  1.676
  1.677
  1.677
  1.677
  1.676
  1.677
  1.678
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
  1.677
Average production assets, $m
  154
  170
  186
  203
  221
  239
  258
  278
  298
  320
  342
  365
  389
  414
  440
  467
  496
  525
  556
  588
  621
  656
  692
  730
  770
  812
  855
  901
  949
  999
Working capital, $m
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -56
  -60
  -63
  -66
  -70
  -73
Total debt, $m
  32
  56
  81
  106
  133
  161
  190
  220
  252
  284
  318
  353
  390
  428
  467
  509
  552
  596
  643
  692
  743
  796
  851
  909
  970
  1,033
  1,099
  1,169
  1,241
  1,317
Total liabilities, $m
  235
  259
  283
  309
  336
  364
  393
  423
  454
  487
  521
  556
  593
  631
  670
  712
  755
  799
  846
  895
  946
  999
  1,054
  1,112
  1,173
  1,236
  1,302
  1,372
  1,444
  1,520
Total equity, $m
  379
  417
  457
  498
  541
  586
  633
  682
  732
  785
  839
  896
  955
  1,016
  1,080
  1,146
  1,216
  1,288
  1,363
  1,442
  1,523
  1,609
  1,698
  1,792
  1,889
  1,991
  2,098
  2,210
  2,327
  2,449
Total liabilities and equity, $m
  614
  676
  740
  807
  877
  950
  1,026
  1,105
  1,186
  1,272
  1,360
  1,452
  1,548
  1,647
  1,750
  1,858
  1,971
  2,087
  2,209
  2,337
  2,469
  2,608
  2,752
  2,904
  3,062
  3,227
  3,400
  3,582
  3,771
  3,969
Debt-to-equity ratio
  0.090
  0.130
  0.180
  0.210
  0.250
  0.270
  0.300
  0.320
  0.340
  0.360
  0.380
  0.390
  0.410
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.510
  0.510
  0.520
  0.520
  0.530
  0.530
  0.540
Adjusted equity ratio
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  39
  48
  58
  67
  78
  88
  99
  111
  123
  136
  150
  163
  178
  192
  208
  224
  241
  259
  277
  297
  317
  338
  360
  383
  408
  433
  460
  488
  517
  548
Depreciation, amort., depletion, $m
  17
  18
  20
  21
  23
  25
  27
  29
  31
  33
  34
  37
  39
  41
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  86
  90
  95
  100
Funds from operations, $m
  56
  66
  77
  89
  101
  113
  126
  140
  154
  169
  184
  200
  217
  234
  252
  271
  291
  311
  333
  355
  379
  403
  429
  456
  485
  514
  545
  578
  612
  648
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Cash from operations, $m
  57
  67
  79
  90
  102
  115
  128
  141
  156
  170
  185
  202
  218
  236
  254
  273
  293
  313
  335
  358
  381
  406
  432
  459
  488
  517
  549
  581
  616
  652
Maintenance CAPEX, $m
  -14
  -15
  -17
  -19
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -86
  -90
  -95
New CAPEX, $m
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
Cash from investing activities, $m
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -46
  -49
  -51
  -54
  -57
  -61
  -64
  -67
  -71
  -75
  -79
  -84
  -88
  -92
  -97
  -102
  -107
  -113
  -119
  -125
  -132
  -138
  -145
Free cash flow, $m
  28
  37
  45
  55
  64
  74
  85
  96
  107
  119
  131
  144
  158
  172
  186
  202
  218
  234
  252
  270
  289
  309
  330
  352
  375
  399
  424
  450
  478
  507
Issuance/(repayment) of debt, $m
  22
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  61
  63
  66
  69
  73
  76
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  
  22
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  61
  63
  66
  69
  73
  76
Total cash flow (excl. dividends), $m
  51
  60
  70
  80
  91
  102
  114
  126
  139
  152
  165
  179
  194
  210
  226
  243
  261
  279
  299
  319
  340
  362
  385
  410
  435
  462
  490
  520
  551
  583
Retained Cash Flow (-), $m
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -52
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -89
  -93
  -98
  -102
  -107
  -112
  -117
  -122
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
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  17
  18
  19
  21
  22
  23
  24
  25
Cash available for distribution, $m
  14
  22
  30
  39
  48
  57
  67
  77
  88
  99
  111
  123
  135
  149
  162
  177
  191
  207
  223
  240
  258
  277
  296
  316
  338
  360
  383
  408
  434
  461
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
  13
  20
  26
  32
  37
  42
  45
  48
  51
  52
  53
  52
  51
  50
  48
  45
  42
  38
  34
  31
  27
  23
  19
  16
  13
  11
  8
  6
  5
  3
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

Kimball Electronics, Inc. (Kimball Electronics) is an electronics manufacturing services (EMS) company. The Company is engaged in producing electronics for the automotive, medical, industrial and public safety markets. It provides design, engineering, manufacturing, packaging and distribution of electronic assemblies and circuit boards on a contract basis to a range of industries. The Company offers various engineering, manufacturing and supply chain services, such as design services; production and testing of printed circuit board assemblies (PCBAS); industrialization and automation of manufacturing processes; product design and process validation and qualification; reliability testing, which include testing of products under a series of environmental conditions; assembly, production and packaging of other related non-electronic products, and product life cycle management. It is engaged in producing safety critical electronic assemblies for the automotive market.

FINANCIAL RATIOS  of  Kimball Electronics (KE)

Valuation Ratios
P/E Ratio 15.5
Price to Sales 0.6
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 11.2
Price to Free Cash Flow 40.6
Growth Rates
Sales Growth Rate 10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.9%
Cap. Spend. - 3 Yr. Gr. Rate 10.1%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 2.9%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 9.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 10.2%
Return On Equity - 3 Yr. Avg. 8.8%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 8.2%
Gross Margin - 3 Yr. Avg. 8.2%
EBITDA Margin 7.3%
EBITDA Margin - 3 Yr. Avg. 6.6%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 4.2%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 4.1%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 3.1%
Effective Tax Rate 22.7%
Eff/ Tax Rate - 3 Yr. Avg. 23.3%
Payout Ratio 0%

KE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KE stock intrinsic value calculation we used $931 million for the last fiscal year's total revenue generated by Kimball Electronics. The default revenue input number comes from 2017 income statement of Kimball Electronics. 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 KE stock valuation model: a) initial revenue growth rate of 10.6% 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 KE is calculated based on our internal credit rating of Kimball Electronics, 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 Kimball Electronics.
    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 KE stock the variable cost ratio is equal to 85%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $98 million in the base year in the intrinsic value calculation for KE 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 Kimball Electronics.

Corporate tax rate of 27% is the nominal tax rate for Kimball Electronics. 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 KE stock is equal to 0.4%.

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 KE are equal to 15%.

Life of production assets of 10 years is the average useful life of capital assets used in Kimball Electronics 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 KE is equal to -1.1%. 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 - $342 million for Kimball Electronics - 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 27 million for Kimball Electronics 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 Kimball Electronics at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Kimball Electronics: Fiscal 3Q Earnings Snapshot   [May-02-18 06:37PM  Associated Press]
▶ Kimball Electronics, Inc. to Host Earnings Call   [Feb-08-18 07:30AM  ACCESSWIRE]
▶ Kimball Electronics reports 2Q loss   [05:02AM  Associated Press]
▶ Kimball Electronics, Inc. to Host Earnings Call   [Nov-02-17 09:00AM  ACCESSWIRE]
▶ Kimball Electronics posts 1Q profit   [Nov-01-17 06:06PM  Associated Press]
▶ Kimball Electronics posts 4Q profit   [Aug-04-17 12:11AM  Associated Press]
▶ Kimball Electronics posts 3Q profit   [May-01-17 04:14PM  Associated Press]
▶ Kimball Electronics posts 2Q profit   [Feb-01-17 05:56PM  Associated Press]
▶ Here is What Hedge Funds Think About Kimball Electronics Inc (KE)   [Dec-12-16 11:07AM  at Insider Monkey]
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