Intrinsic value of Lumentum Holdings Inc. - LITE

Previous Close

$53.85

  Intrinsic Value

$24.72

stock screener

  Rating & Target

str. sell

-54%

Previous close

$53.85

 
Intrinsic value

$24.72

 
Up/down potential

-54%

 
Rating

str. sell

We calculate the intrinsic value of LITE 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 4.1

 

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
  1,273
  1,302
  1,336
  1,373
  1,415
  1,461
  1,510
  1,564
  1,622
  1,684
  1,751
  1,822
  1,898
  1,978
  2,064
  2,154
  2,250
  2,351
  2,458
  2,571
  2,690
  2,816
  2,948
  3,088
  3,235
  3,389
  3,552
  3,724
  3,904
  4,094
Variable operating expenses, $m
  794
  813
  833
  857
  883
  911
  942
  976
  1,012
  1,050
  1,090
  1,134
  1,181
  1,232
  1,285
  1,341
  1,401
  1,464
  1,530
  1,600
  1,675
  1,753
  1,835
  1,922
  2,014
  2,110
  2,212
  2,318
  2,431
  2,549
Fixed operating expenses, $m
  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
  605
  618
  632
  645
Total operating expenses, $m
  1,137
  1,164
  1,192
  1,224
  1,258
  1,294
  1,333
  1,376
  1,421
  1,468
  1,517
  1,570
  1,627
  1,688
  1,751
  1,817
  1,887
  1,961
  2,038
  2,119
  2,206
  2,295
  2,389
  2,488
  2,593
  2,702
  2,817
  2,936
  3,063
  3,194
Operating income, $m
  135
  139
  144
  150
  158
  167
  177
  189
  202
  216
  234
  251
  270
  291
  313
  337
  363
  390
  420
  451
  485
  520
  558
  599
  642
  688
  736
  788
  842
  900
EBITDA, $m
  198
  203
  210
  218
  228
  239
  252
  266
  282
  299
  318
  339
  362
  386
  413
  441
  471
  504
  538
  575
  614
  656
  701
  748
  798
  851
  907
  967
  1,030
  1,097
Interest expense (income), $m
  0
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  37
  39
  41
  44
  47
  49
  52
  56
  59
  63
  66
  70
  74
  79
  83
  88
  93
Earnings before tax, $m
  117
  120
  124
  129
  136
  144
  153
  163
  175
  188
  204
  219
  236
  254
  274
  296
  319
  344
  370
  399
  429
  461
  496
  533
  572
  613
  657
  704
  754
  806
Tax expense, $m
  32
  32
  33
  35
  37
  39
  41
  44
  47
  51
  55
  59
  64
  69
  74
  80
  86
  93
  100
  108
  116
  125
  134
  144
  154
  166
  177
  190
  203
  218
Net income, $m
  86
  88
  91
  94
  99
  105
  112
  119
  128
  137
  149
  160
  172
  186
  200
  216
  233
  251
  270
  291
  313
  337
  362
  389
  417
  448
  480
  514
  550
  589

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
  1,106
  1,131
  1,160
  1,193
  1,229
  1,269
  1,312
  1,359
  1,409
  1,463
  1,521
  1,583
  1,649
  1,719
  1,793
  1,871
  1,955
  2,043
  2,135
  2,234
  2,337
  2,446
  2,561
  2,683
  2,810
  2,945
  3,086
  3,235
  3,392
  3,557
Adjusted assets (=assets-cash), $m
  1,106
  1,131
  1,160
  1,193
  1,229
  1,269
  1,312
  1,359
  1,409
  1,463
  1,521
  1,583
  1,649
  1,719
  1,793
  1,871
  1,955
  2,043
  2,135
  2,234
  2,337
  2,446
  2,561
  2,683
  2,810
  2,945
  3,086
  3,235
  3,392
  3,557
Revenue / Adjusted assets
  1.151
  1.151
  1.152
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
  1.151
Average production assets, $m
  307
  314
  322
  331
  341
  352
  364
  377
  391
  406
  422
  439
  457
  477
  497
  519
  542
  567
  592
  620
  648
  679
  710
  744
  780
  817
  856
  897
  941
  987
Working capital, $m
  206
  211
  216
  222
  229
  237
  245
  253
  263
  273
  284
  295
  307
  320
  334
  349
  364
  381
  398
  416
  436
  456
  478
  500
  524
  549
  575
  603
  632
  663
Total debt, $m
  348
  363
  381
  401
  423
  447
  473
  501
  531
  564
  599
  637
  676
  719
  763
  811
  861
  915
  971
  1,030
  1,093
  1,159
  1,228
  1,302
  1,379
  1,460
  1,546
  1,636
  1,731
  1,831
Total liabilities, $m
  669
  684
  702
  722
  744
  768
  794
  822
  853
  885
  920
  958
  998
  1,040
  1,085
  1,132
  1,183
  1,236
  1,292
  1,351
  1,414
  1,480
  1,550
  1,623
  1,700
  1,782
  1,867
  1,957
  2,052
  2,152
Total equity, $m
  437
  447
  458
  471
  486
  501
  518
  537
  557
  578
  601
  625
  651
  679
  708
  739
  772
  807
  843
  882
  923
  966
  1,012
  1,060
  1,110
  1,163
  1,219
  1,278
  1,340
  1,405
Total liabilities and equity, $m
  1,106
  1,131
  1,160
  1,193
  1,230
  1,269
  1,312
  1,359
  1,410
  1,463
  1,521
  1,583
  1,649
  1,719
  1,793
  1,871
  1,955
  2,043
  2,135
  2,233
  2,337
  2,446
  2,562
  2,683
  2,810
  2,945
  3,086
  3,235
  3,392
  3,557
Debt-to-equity ratio
  0.800
  0.810
  0.830
  0.850
  0.870
  0.890
  0.910
  0.930
  0.950
  0.980
  1.000
  1.020
  1.040
  1.060
  1.080
  1.100
  1.120
  1.130
  1.150
  1.170
  1.180
  1.200
  1.210
  1.230
  1.240
  1.260
  1.270
  1.280
  1.290
  1.300
Adjusted equity ratio
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  86
  88
  91
  94
  99
  105
  112
  119
  128
  137
  149
  160
  172
  186
  200
  216
  233
  251
  270
  291
  313
  337
  362
  389
  417
  448
  480
  514
  550
  589
Depreciation, amort., depletion, $m
  63
  65
  66
  68
  70
  72
  75
  77
  80
  83
  84
  88
  91
  95
  99
  104
  108
  113
  118
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
Funds from operations, $m
  149
  152
  157
  162
  169
  177
  186
  196
  208
  220
  233
  248
  264
  281
  300
  320
  341
  364
  389
  415
  443
  473
  504
  538
  573
  611
  651
  693
  738
  786
Change in working capital, $m
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
Cash from operations, $m
  145
  147
  151
  156
  163
  170
  178
  188
  198
  210
  222
  236
  252
  268
  286
  305
  326
  348
  371
  397
  424
  452
  483
  515
  549
  586
  625
  666
  709
  755
Maintenance CAPEX, $m
  -60
  -61
  -63
  -64
  -66
  -68
  -70
  -73
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -104
  -108
  -113
  -118
  -124
  -130
  -136
  -142
  -149
  -156
  -163
  -171
  -179
  -188
New CAPEX, $m
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -46
Cash from investing activities, $m
  -67
  -68
  -71
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -97
  -101
  -106
  -110
  -116
  -121
  -127
  -132
  -139
  -145
  -153
  -160
  -168
  -176
  -184
  -193
  -202
  -212
  -222
  -234
Free cash flow, $m
  78
  79
  80
  83
  86
  91
  96
  102
  109
  117
  125
  135
  145
  157
  170
  184
  199
  215
  232
  251
  271
  292
  315
  339
  365
  393
  422
  453
  486
  521
Issuance/(repayment) of debt, $m
  14
  15
  18
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  48
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
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  
  14
  15
  18
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  48
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
Total cash flow (excl. dividends), $m
  92
  94
  98
  103
  108
  115
  122
  130
  139
  149
  160
  172
  185
  199
  215
  231
  249
  268
  289
  310
  334
  358
  385
  413
  442
  474
  508
  543
  581
  621
Retained Cash Flow (-), $m
  -8
  -10
  -11
  -13
  -14
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
Prev. year cash balance distribution, $m
  498
  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
  581
  84
  87
  90
  94
  99
  105
  112
  119
  128
  137
  148
  159
  172
  186
  200
  216
  233
  252
  272
  293
  315
  339
  365
  392
  421
  452
  484
  519
  556
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
  557
  77
  75
  74
  73
  72
  71
  70
  69
  67
  65
  63
  61
  58
  54
  51
  47
  43
  39
  35
  30
  26
  22
  19
  15
  12
  10
  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

Lumentum Holdings Inc. is a provider of optical and photonic products for a range of end market applications, including data communications (Datacom) and telecommunications (Telecom) networking and commercial lasers (commercial lasers) for manufacturing, inspection and life-science applications. The Company operates in two segments: Optical Communications (OpComms) and Commercial Lasers (Lasers). The Company's OpComms products include a range of components, modules and subsystems to support and maintain customers in its two primary markets: Telecom and Datacom. The Company's Lasers products serve customers in markets and applications, such as manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining, such as drilling in printed circuit boards, wafer singulation and solar cell scribing. The Company's customers include original equipment manufacturers (OEMs).

FINANCIAL RATIOS  of  Lumentum Holdings Inc. (LITE)

Valuation Ratios
P/E Ratio -32.1
Price to Sales 3.3
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 38.9
Price to Free Cash Flow -62.5
Growth Rates
Sales Growth Rate 11%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 68.3%
Cap. Spend. - 3 Yr. Gr. Rate 60.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 51.4%
Total Debt to Equity 51.4%
Interest Coverage 0
Management Effectiveness
Return On Assets -10.5%
Ret/ On Assets - 3 Yr. Avg. -3.2%
Return On Total Capital -14.4%
Ret/ On T. Cap. - 3 Yr. Avg. -4.4%
Return On Equity -18.5%
Return On Equity - 3 Yr. Avg. -5.7%
Asset Turnover 1
Profitability Ratios
Gross Margin 31.7%
Gross Margin - 3 Yr. Avg. 31.1%
EBITDA Margin 0.1%
EBITDA Margin - 3 Yr. Avg. 3.4%
Operating Margin 4.8%
Oper. Margin - 3 Yr. Avg. 1%
Pre-Tax Margin -6%
Pre-Tax Margin - 3 Yr. Avg. -2.6%
Net Profit Margin -10.3%
Net Profit Margin - 3 Yr. Avg. -3.2%
Effective Tax Rate -71.7%
Eff/ Tax Rate - 3 Yr. Avg. 8.8%
Payout Ratio -1%

LITE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LITE stock intrinsic value calculation we used $1248 million for the last fiscal year's total revenue generated by Lumentum Holdings Inc.. The default revenue input number comes from 0001 income statement of Lumentum Holdings Inc.. 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 LITE 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 LITE is calculated based on our internal credit rating of Lumentum Holdings Inc., 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 Lumentum Holdings Inc..
    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 LITE stock the variable cost ratio is equal to 62.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $336 million in the base year in the intrinsic value calculation for LITE 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 Lumentum Holdings Inc..

Corporate tax rate of 27% is the nominal tax rate for Lumentum Holdings Inc.. 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 LITE 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 LITE are equal to 24.1%.

Life of production assets of 4 years is the average useful life of capital assets used in Lumentum Holdings Inc. 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 LITE is equal to 16.2%. 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 - $926.1 million for Lumentum Holdings Inc. - 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 76.075 million for Lumentum Holdings Inc. 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 Lumentum Holdings Inc. at the current share price and the inputted number of shares is $4.1 billion.

RELATED COMPANIES Price Int.Val. Rating
VIAV Viavi Solution 14.58 40.77  str.buy
FNSR Finisar Corpor 23.21 16.48  sell
NPTN NeoPhotonics C 4.76 13.72  str.buy
AAOI Applied Optoel 9.97 4.02  str.sell
ACIA Acacia Communi 64.40 148.42  str.buy
IIVI II-VI Incorpor 36.73 7.71  str.sell
MKSI MKS Instrument 78.04 115.00  buy

CONTACT US      

About X-FIN       Privacy policy       Terms of use      

Copyright © X-FIN.com 2005-2019. All rigths reserved.