Intrinsic value of Knowles Corporation - KN

Previous Close

$19.99

  Intrinsic Value

$15.64

stock screener

  Rating & Target

sell

-22%

Previous close

$19.99

 
Intrinsic value

$15.64

 
Up/down potential

-22%

 
Rating

sell

We calculate the intrinsic value of KN 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, %
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  859
  894
  930
  969
  1,011
  1,055
  1,102
  1,151
  1,203
  1,258
  1,316
  1,377
  1,442
  1,510
  1,582
  1,657
  1,737
  1,820
  1,908
  2,001
  2,098
  2,201
  2,308
  2,421
  2,540
  2,665
  2,797
  2,935
  3,080
  3,232
Variable operating expenses, $m
  461
  476
  492
  508
  526
  545
  565
  586
  608
  631
  562
  588
  615
  644
  675
  707
  741
  777
  814
  854
  895
  939
  985
  1,033
  1,084
  1,137
  1,193
  1,252
  1,314
  1,379
Fixed operating expenses, $m
  315
  322
  329
  336
  343
  351
  359
  367
  375
  383
  391
  400
  409
  418
  427
  436
  446
  456
  466
  476
  486
  497
  508
  519
  531
  542
  554
  566
  579
  592
Total operating expenses, $m
  776
  798
  821
  844
  869
  896
  924
  953
  983
  1,014
  953
  988
  1,024
  1,062
  1,102
  1,143
  1,187
  1,233
  1,280
  1,330
  1,381
  1,436
  1,493
  1,552
  1,615
  1,679
  1,747
  1,818
  1,893
  1,971
Operating income, $m
  83
  96
  110
  125
  142
  159
  178
  199
  220
  244
  363
  390
  418
  448
  480
  514
  550
  588
  628
  671
  716
  764
  815
  869
  926
  986
  1,049
  1,116
  1,187
  1,261
EBITDA, $m
  210
  224
  239
  256
  274
  293
  314
  336
  360
  385
  412
  441
  472
  504
  539
  575
  614
  656
  699
  746
  795
  846
  901
  959
  1,020
  1,085
  1,153
  1,225
  1,301
  1,382
Interest expense (income), $m
  12
  14
  16
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  58
  61
  65
  69
  73
  78
  82
  87
  92
  98
Earnings before tax, $m
  69
  81
  93
  107
  122
  138
  155
  174
  194
  215
  333
  357
  383
  411
  440
  471
  505
  540
  577
  617
  659
  703
  750
  800
  852
  908
  967
  1,029
  1,094
  1,164
Tax expense, $m
  19
  22
  25
  29
  33
  37
  42
  47
  52
  58
  90
  96
  103
  111
  119
  127
  136
  146
  156
  167
  178
  190
  202
  216
  230
  245
  261
  278
  295
  314
Net income, $m
  50
  59
  68
  78
  89
  101
  114
  127
  142
  157
  243
  261
  280
  300
  321
  344
  368
  394
  421
  450
  481
  513
  547
  584
  622
  663
  706
  751
  799
  849

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
  1,609
  1,674
  1,742
  1,816
  1,893
  1,976
  2,063
  2,155
  2,253
  2,356
  2,464
  2,579
  2,700
  2,828
  2,962
  3,103
  3,252
  3,409
  3,573
  3,747
  3,929
  4,121
  4,322
  4,534
  4,757
  4,991
  5,237
  5,496
  5,767
  6,053
Adjusted assets (=assets-cash), $m
  1,609
  1,674
  1,742
  1,816
  1,893
  1,976
  2,063
  2,155
  2,253
  2,356
  2,464
  2,579
  2,700
  2,828
  2,962
  3,103
  3,252
  3,409
  3,573
  3,747
  3,929
  4,121
  4,322
  4,534
  4,757
  4,991
  5,237
  5,496
  5,767
  6,053
Revenue / Adjusted assets
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
Average production assets, $m
  694
  722
  752
  783
  817
  852
  890
  930
  972
  1,016
  1,063
  1,113
  1,165
  1,220
  1,278
  1,339
  1,403
  1,471
  1,542
  1,617
  1,695
  1,778
  1,865
  1,956
  2,053
  2,154
  2,260
  2,371
  2,488
  2,612
Working capital, $m
  156
  162
  168
  175
  183
  191
  199
  208
  218
  228
  238
  249
  261
  273
  286
  300
  314
  329
  345
  362
  380
  398
  418
  438
  460
  482
  506
  531
  557
  585
Total debt, $m
  171
  185
  200
  216
  233
  250
  269
  289
  311
  333
  357
  381
  408
  435
  465
  495
  527
  561
  597
  635
  674
  716
  760
  806
  854
  905
  958
  1,014
  1,073
  1,135
Total liabilities, $m
  349
  363
  378
  394
  411
  429
  448
  468
  489
  511
  535
  560
  586
  614
  643
  673
  706
  740
  775
  813
  853
  894
  938
  984
  1,032
  1,083
  1,136
  1,193
  1,252
  1,313
Total equity, $m
  1,260
  1,310
  1,364
  1,422
  1,482
  1,547
  1,615
  1,687
  1,764
  1,844
  1,930
  2,019
  2,114
  2,214
  2,319
  2,430
  2,546
  2,669
  2,798
  2,934
  3,077
  3,227
  3,384
  3,550
  3,725
  3,908
  4,101
  4,303
  4,516
  4,739
Total liabilities and equity, $m
  1,609
  1,673
  1,742
  1,816
  1,893
  1,976
  2,063
  2,155
  2,253
  2,355
  2,465
  2,579
  2,700
  2,828
  2,962
  3,103
  3,252
  3,409
  3,573
  3,747
  3,930
  4,121
  4,322
  4,534
  4,757
  4,991
  5,237
  5,496
  5,768
  6,052
Debt-to-equity ratio
  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
  0.200
  0.200
  0.200
  0.210
  0.210
  0.210
  0.220
  0.220
  0.220
  0.220
  0.230
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
Adjusted equity ratio
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  50
  59
  68
  78
  89
  101
  114
  127
  142
  157
  243
  261
  280
  300
  321
  344
  368
  394
  421
  450
  481
  513
  547
  584
  622
  663
  706
  751
  799
  849
Depreciation, amort., depletion, $m
  126
  128
  129
  131
  132
  134
  136
  137
  139
  141
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  95
  99
  104
  109
  115
  120
Funds from operations, $m
  177
  187
  197
  209
  221
  235
  249
  264
  281
  299
  292
  312
  333
  356
  380
  406
  433
  462
  492
  525
  559
  595
  633
  674
  717
  762
  810
  860
  914
  970
Change in working capital, $m
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  19
  20
  22
  23
  24
  25
  26
  28
Cash from operations, $m
  171
  180
  191
  202
  214
  227
  241
  256
  272
  289
  281
  301
  322
  344
  367
  392
  419
  447
  476
  508
  541
  577
  614
  653
  695
  739
  786
  835
  887
  942
Maintenance CAPEX, $m
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -115
New CAPEX, $m
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -87
  -91
  -96
  -101
  -106
  -112
  -117
  -123
Cash from investing activities, $m
  -57
  -60
  -63
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -109
  -114
  -120
  -126
  -133
  -139
  -146
  -153
  -161
  -169
  -177
  -186
  -196
  -205
  -216
  -226
  -238
Free cash flow, $m
  114
  121
  128
  135
  144
  153
  164
  175
  187
  199
  188
  202
  218
  235
  253
  272
  293
  314
  338
  362
  388
  416
  445
  476
  509
  544
  581
  620
  661
  704
Issuance/(repayment) of debt, $m
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
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  
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
Total cash flow (excl. dividends), $m
  127
  135
  143
  151
  161
  171
  183
  195
  208
  222
  211
  227
  244
  263
  282
  303
  325
  348
  373
  400
  428
  457
  489
  522
  557
  595
  634
  676
  720
  766
Retained Cash Flow (-), $m
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -72
  -76
  -81
  -85
  -90
  -95
  -100
  -105
  -111
  -117
  -123
  -129
  -136
  -143
  -150
  -158
  -166
  -174
  -183
  -193
  -202
  -213
  -223
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
  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
  79
  84
  89
  94
  100
  107
  114
  122
  131
  141
  126
  138
  150
  163
  177
  192
  208
  226
  244
  264
  285
  307
  331
  356
  383
  411
  441
  473
  507
  543
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
  75
  77
  77
  77
  78
  78
  77
  77
  75
  74
  60
  59
  57
  55
  52
  49
  45
  42
  38
  34
  29
  25
  22
  18
  15
  12
  9
  7
  6
  4
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

Knowles Corporation is a global supplier of micro-acoustic, audio processing and specialty component solutions, serving the mobile consumer electronics, communications, medical, military, aerospace and industrial markets. The Company operates through two segments: Mobile Consumer Electronics (MCE) and Specialty Components (SC). MCE designs and manufactures acoustic products, including microphones and audio processing technologies used in mobile handsets, wearables and other consumer electronic devices. SC specializes in the design and manufacture of specialized electronic components used in medical and life science applications, as well as solutions and components used in communications infrastructure and a range of other markets. It has sales, support and engineering facilities in North America, Europe and Asia, and manufacturing facilities in Asia. It also offers acoustics components used in hearing aids, as well as high-end oscillators (timing devices) and capacitors.

FINANCIAL RATIOS  of  Knowles Corporation (KN)

Valuation Ratios
P/E Ratio -42.2
Price to Sales 2.1
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 16.4
Price to Free Cash Flow 25.7
Growth Rates
Sales Growth Rate 1.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -39.1%
Cap. Spend. - 3 Yr. Gr. Rate -19.3%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 29.8%
Total Debt to Equity 30.8%
Interest Coverage 4
Management Effectiveness
Return On Assets -2.2%
Ret/ On Assets - 3 Yr. Avg. -6.1%
Return On Total Capital -3%
Ret/ On T. Cap. - 3 Yr. Avg. -7.7%
Return On Equity -4.2%
Return On Equity - 3 Yr. Avg. -10.2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 38.4%
Gross Margin - 3 Yr. Avg. 38.4%
EBITDA Margin 13.6%
EBITDA Margin - 3 Yr. Avg. 21.8%
Operating Margin 5.5%
Oper. Margin - 3 Yr. Avg. 8.2%
Pre-Tax Margin 3.6%
Pre-Tax Margin - 3 Yr. Avg. 7%
Net Profit Margin -4.9%
Net Profit Margin - 3 Yr. Avg. -14%
Effective Tax Rate 38.7%
Eff/ Tax Rate - 3 Yr. Avg. 24.9%
Payout Ratio 0%

KN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KN stock intrinsic value calculation we used $827 million for the last fiscal year's total revenue generated by Knowles Corporation. The default revenue input number comes from 0001 income statement of Knowles 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 KN stock valuation model: a) initial revenue growth rate of 3.9% 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 KN is calculated based on our internal credit rating of Knowles 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 Knowles 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 KN stock the variable cost ratio is equal to 54.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $308 million in the base year in the intrinsic value calculation for KN 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 9.1% for Knowles Corporation.

Corporate tax rate of 27% is the nominal tax rate for Knowles 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 KN 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 KN are equal to 80.8%.

Life of production assets of 21.7 years is the average useful life of capital assets used in Knowles 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 KN is equal to 18.1%. 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 - $1211.6 million for Knowles 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 90.230 million for Knowles 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 Knowles Corporation at the current share price and the inputted number of shares is $1.8 billion.

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