Intrinsic value of Methode Electronics - MEI

Previous Close

$39.15

  Intrinsic Value

$31.44

stock screener

  Rating & Target

hold

-20%

Previous close

$39.15

 
Intrinsic value

$31.44

 
Up/down potential

-20%

 
Rating

hold

We calculate the intrinsic value of MEI 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 1.4

 

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, %
  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
  833
  853
  874
  899
  926
  956
  989
  1,024
  1,062
  1,103
  1,146
  1,193
  1,242
  1,295
  1,351
  1,410
  1,473
  1,539
  1,609
  1,683
  1,761
  1,843
  1,930
  2,021
  2,118
  2,219
  2,326
  2,438
  2,556
  2,680
Variable operating expenses, $m
  713
  730
  748
  769
  793
  818
  846
  876
  909
  944
  980
  1,020
  1,062
  1,107
  1,155
  1,206
  1,259
  1,316
  1,376
  1,439
  1,506
  1,576
  1,650
  1,728
  1,811
  1,897
  1,988
  2,084
  2,185
  2,291
Fixed operating expenses, $m
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  13
Total operating expenses, $m
  720
  737
  755
  777
  801
  826
  854
  884
  918
  953
  989
  1,029
  1,071
  1,116
  1,165
  1,216
  1,269
  1,326
  1,387
  1,450
  1,517
  1,587
  1,662
  1,740
  1,823
  1,909
  2,001
  2,097
  2,198
  2,304
Operating income, $m
  113
  115
  118
  122
  126
  130
  134
  139
  145
  150
  157
  164
  171
  178
  186
  195
  203
  213
  223
  233
  244
  256
  268
  281
  295
  309
  325
  341
  357
  375
EBITDA, $m
  124
  127
  130
  134
  138
  143
  147
  153
  159
  165
  172
  179
  186
  194
  203
  212
  222
  232
  243
  254
  266
  279
  292
  306
  321
  337
  353
  371
  389
  408
Interest expense (income), $m
  0
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  17
  18
  19
  20
Earnings before tax, $m
  111
  114
  117
  120
  123
  127
  131
  136
  141
  146
  153
  159
  165
  172
  180
  187
  196
  204
  213
  223
  233
  244
  256
  268
  280
  294
  308
  323
  338
  355
Tax expense, $m
  30
  31
  31
  32
  33
  34
  35
  37
  38
  39
  41
  43
  45
  46
  48
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
Net income, $m
  81
  83
  85
  87
  90
  93
  96
  99
  103
  107
  112
  116
  121
  126
  131
  137
  143
  149
  156
  163
  170
  178
  187
  195
  205
  215
  225
  236
  247
  259

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
  545
  558
  572
  588
  606
  626
  647
  670
  695
  722
  750
  781
  813
  848
  884
  923
  964
  1,007
  1,053
  1,101
  1,152
  1,206
  1,263
  1,323
  1,386
  1,452
  1,522
  1,595
  1,673
  1,754
Adjusted assets (=assets-cash), $m
  545
  558
  572
  588
  606
  626
  647
  670
  695
  722
  750
  781
  813
  848
  884
  923
  964
  1,007
  1,053
  1,101
  1,152
  1,206
  1,263
  1,323
  1,386
  1,452
  1,522
  1,595
  1,673
  1,754
Revenue / Adjusted assets
  1.528
  1.529
  1.528
  1.529
  1.528
  1.527
  1.529
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.527
  1.528
  1.528
  1.528
  1.528
  1.528
  1.529
  1.529
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.529
  1.528
  1.528
Average production assets, $m
  103
  106
  108
  111
  115
  119
  123
  127
  132
  137
  142
  148
  154
  161
  168
  175
  183
  191
  200
  209
  218
  229
  239
  251
  263
  275
  288
  302
  317
  332
Working capital, $m
  -18
  -18
  -18
  -19
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -42
  -44
  -47
  -49
  -51
  -54
  -56
Total debt, $m
  30
  34
  39
  43
  49
  55
  61
  68
  76
  84
  93
  102
  112
  122
  134
  145
  158
  171
  185
  200
  216
  232
  249
  267
  287
  307
  328
  351
  374
  399
Total liabilities, $m
  166
  170
  175
  179
  185
  191
  197
  204
  212
  220
  229
  238
  248
  258
  270
  281
  294
  307
  321
  336
  352
  368
  385
  403
  423
  443
  464
  487
  510
  535
Total equity, $m
  379
  388
  398
  409
  421
  435
  450
  466
  483
  502
  521
  543
  565
  589
  614
  641
  670
  700
  732
  765
  801
  838
  878
  919
  963
  1,009
  1,058
  1,109
  1,162
  1,219
Total liabilities and equity, $m
  545
  558
  573
  588
  606
  626
  647
  670
  695
  722
  750
  781
  813
  847
  884
  922
  964
  1,007
  1,053
  1,101
  1,153
  1,206
  1,263
  1,322
  1,386
  1,452
  1,522
  1,596
  1,672
  1,754
Debt-to-equity ratio
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.240
  0.250
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.300
  0.310
  0.320
  0.320
  0.330
Adjusted equity ratio
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695
  0.695

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  81
  83
  85
  87
  90
  93
  96
  99
  103
  107
  112
  116
  121
  126
  131
  137
  143
  149
  156
  163
  170
  178
  187
  195
  205
  215
  225
  236
  247
  259
Depreciation, amort., depletion, $m
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
Funds from operations, $m
  92
  94
  97
  99
  102
  106
  109
  113
  117
  121
  126
  131
  136
  142
  148
  154
  161
  168
  176
  184
  192
  201
  211
  221
  231
  242
  254
  266
  279
  292
Change in working capital, $m
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
Cash from operations, $m
  93
  95
  97
  100
  103
  106
  110
  114
  118
  122
  127
  132
  137
  143
  149
  155
  162
  170
  177
  185
  194
  203
  212
  222
  233
  244
  256
  268
  281
  295
Maintenance CAPEX, $m
  -10
  -10
  -11
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
New CAPEX, $m
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
Cash from investing activities, $m
  -12
  -12
  -14
  -14
  -14
  -15
  -16
  -16
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
Free cash flow, $m
  81
  82
  84
  86
  88
  91
  94
  97
  100
  104
  108
  112
  116
  121
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  248
Issuance/(repayment) of debt, $m
  3
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
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  
  3
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
Total cash flow (excl. dividends), $m
  83
  86
  88
  91
  94
  97
  100
  104
  108
  112
  116
  121
  126
  131
  137
  143
  150
  156
  163
  171
  179
  187
  196
  205
  215
  226
  236
  248
  260
  273
Retained Cash Flow (-), $m
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -42
  -44
  -46
  -49
  -51
  -54
  -56
Prev. year cash balance distribution, $m
  170
  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
  12
  13
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  38
Cash available for distribution, $m
  246
  77
  78
  80
  81
  83
  85
  88
  91
  93
  96
  100
  104
  108
  112
  116
  121
  126
  132
  137
  143
  150
  157
  164
  171
  179
  188
  197
  206
  216
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
  236
  71
  68
  66
  63
  60
  58
  55
  52
  49
  46
  43
  39
  36
  33
  30
  26
  23
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  2
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
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Methode Electronics, Inc. (Methode) is a manufacturer of component and subsystem devices. The Company designs, manufactures and markets devices employing electrical, radio remote control, electronic, wireless and sensing technologies. The Company operates through segments, including Automotive, Interface, Power Products and Other. The Automotive segment supplies electronic and electro-mechanical devices and related products to automobile original equipment manufacturers (OEMs). The Interface segment provides a range of copper and fiber-optic interface and interface solutions. The Power Products segment manufactures braided flexible cables, current-carrying laminated bus devices, custom power-product assemblies, such as PowerRail solution, high-current low voltage flexible power cabling systems and powder coated bus bars. The Other segment includes medical devices, inverters and battery systems, and insulated gate bipolar transistor solutions.

FINANCIAL RATIOS  of  Methode Electronics (MEI)

Valuation Ratios
P/E Ratio 15.5
Price to Sales 1.8
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 9.9
Price to Free Cash Flow 11.7
Growth Rates
Sales Growth Rate 1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4.3%
Cap. Spend. - 3 Yr. Gr. Rate -5.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 5%
Total Debt to Equity 5%
Interest Coverage 0
Management Effectiveness
Return On Assets 13.7%
Ret/ On Assets - 3 Yr. Avg. 14.7%
Return On Total Capital 17%
Ret/ On T. Cap. - 3 Yr. Avg. 18.8%
Return On Equity 18.4%
Return On Equity - 3 Yr. Avg. 20.1%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 26.7%
Gross Margin - 3 Yr. Avg. 26%
EBITDA Margin 17.1%
EBITDA Margin - 3 Yr. Avg. 16.8%
Operating Margin 13.6%
Oper. Margin - 3 Yr. Avg. 13.6%
Pre-Tax Margin 14.2%
Pre-Tax Margin - 3 Yr. Avg. 13.9%
Net Profit Margin 11.4%
Net Profit Margin - 3 Yr. Avg. 11.1%
Effective Tax Rate 19.8%
Eff/ Tax Rate - 3 Yr. Avg. 19.9%
Payout Ratio 15.1%

MEI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MEI stock intrinsic value calculation we used $817 million for the last fiscal year's total revenue generated by Methode Electronics. The default revenue input number comes from 2017 income statement of Methode 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 MEI 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 MEI is calculated based on our internal credit rating of Methode 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 Methode 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 MEI stock the variable cost ratio is equal to 85.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7 million in the base year in the intrinsic value calculation for MEI 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 Methode Electronics.

Corporate tax rate of 27% is the nominal tax rate for Methode 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 MEI stock is equal to 1.5%.

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 MEI are equal to 12.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Methode 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 MEI is equal to -2.1%. 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 - $541 million for Methode 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 37 million for Methode 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 Methode Electronics at the current share price and the inputted number of shares is $1.4 billion.

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COMPANY NEWS

▶ Methode Electronics, Inc. to Host Earnings Call   [Jun-21-18 09:00AM  ACCESSWIRE]
▶ Methode: Fiscal 4Q Earnings Snapshot   [07:01AM  Associated Press]
▶ Methode Electronics Q4 Earnings Outlook   [Jun-20-18 02:17PM  Benzinga]
▶ Methode Electronics Board Approves Dividend   [Jun-14-18 04:31PM  GlobeNewswire]
▶ Should You Have Merit Invest SA.s (WSE:MEI) In Your Portfolio?   [Apr-24-18 03:50AM  Simply Wall St.]
▶ Methode Electronics Board Approves Dividend   [Mar-15-18 04:38PM  GlobeNewswire]
▶ Methode Electronics, Inc. Announces CFO Change   [Mar-12-18 08:26PM  GlobeNewswire]
▶ Methode reports 3Q loss   [06:43AM  Associated Press]
▶ Methode Electronics Board Approves Increased Dividend   [Dec-15-17 08:01AM  GlobeNewswire]
▶ Methode meets 2Q profit forecasts   [06:47AM  Associated Press]
▶ New Strong Buy Stocks for November 14th   [Nov-14-17 07:31AM  Zacks]
▶ New Strong Buy Stocks for November 6th   [Nov-06-17 08:51AM  Zacks]
▶ Methode Acquires Pacific Insight   [07:00AM  Marketwired]
▶ Methode Electronics' Board Approves Dividend   [Sep-14-17 04:30PM  Marketwired]
▶ Methode tops 1Q revenue forecasts   [Aug-31-17 09:29PM  Associated Press]
▶ Methode Agrees to Acquire Pacific Insight   [05:27PM  Marketwired]
▶ Methode beats Street 4Q forecasts   [Jun-22-17 08:51PM  Associated Press]
▶ Methode Electronics' Board Approves Dividend   [Jun-15-17 04:05PM  Marketwired]
▶ Methode Electronics' Board Approves Dividend   [Mar-16-17 04:30PM  Marketwired]
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