Intrinsic value of Methode Electronics, Inc. - MEI

Previous Close

$28.07

  Intrinsic Value

$35.16

stock screener

  Rating & Target

buy

+25%

Previous close

$28.07

 
Intrinsic value

$35.16

 
Up/down potential

+25%

 
Rating

buy

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 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 1.0

 

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, %
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  983
  1,062
  1,143
  1,228
  1,316
  1,407
  1,502
  1,601
  1,704
  1,811
  1,922
  2,038
  2,159
  2,285
  2,417
  2,554
  2,697
  2,847
  3,004
  3,167
  3,338
  3,517
  3,705
  3,901
  4,106
  4,321
  4,546
  4,782
  5,030
  5,289
Variable operating expenses, $m
  850
  916
  986
  1,058
  1,133
  1,211
  1,292
  1,376
  1,463
  1,555
  1,637
  1,736
  1,839
  1,947
  2,059
  2,176
  2,298
  2,425
  2,558
  2,698
  2,843
  2,996
  3,155
  3,322
  3,497
  3,680
  3,872
  4,073
  4,284
  4,505
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
  850
  916
  986
  1,058
  1,133
  1,211
  1,292
  1,376
  1,463
  1,555
  1,637
  1,736
  1,839
  1,947
  2,059
  2,176
  2,298
  2,425
  2,558
  2,698
  2,843
  2,996
  3,155
  3,322
  3,497
  3,680
  3,872
  4,073
  4,284
  4,505
Operating income, $m
  134
  145
  157
  170
  183
  197
  211
  225
  241
  256
  285
  302
  320
  339
  358
  379
  400
  422
  445
  469
  495
  521
  549
  578
  609
  640
  674
  709
  745
  784
EBITDA, $m
  171
  185
  199
  214
  229
  245
  261
  279
  296
  315
  334
  355
  376
  398
  420
  444
  469
  495
  522
  551
  581
  612
  644
  679
  714
  752
  791
  832
  875
  920
Interest expense (income), $m
  0
  3
  4
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  22
  24
  26
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
Earnings before tax, $m
  131
  141
  152
  163
  175
  187
  199
  212
  226
  240
  267
  282
  298
  315
  332
  350
  369
  389
  410
  431
  454
  478
  502
  528
  555
  584
  614
  645
  678
  712
Tax expense, $m
  35
  38
  41
  44
  47
  50
  54
  57
  61
  65
  72
  76
  80
  85
  90
  95
  100
  105
  111
  116
  123
  129
  136
  143
  150
  158
  166
  174
  183
  192
Net income, $m
  95
  103
  111
  119
  127
  136
  145
  155
  165
  175
  195
  206
  218
  230
  242
  256
  269
  284
  299
  315
  331
  349
  367
  386
  405
  426
  448
  471
  495
  520

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
  891
  962
  1,036
  1,112
  1,192
  1,275
  1,361
  1,450
  1,543
  1,640
  1,741
  1,846
  1,956
  2,070
  2,189
  2,314
  2,443
  2,579
  2,721
  2,869
  3,024
  3,186
  3,356
  3,533
  3,719
  3,914
  4,118
  4,332
  4,556
  4,791
Adjusted assets (=assets-cash), $m
  891
  962
  1,036
  1,112
  1,192
  1,275
  1,361
  1,450
  1,543
  1,640
  1,741
  1,846
  1,956
  2,070
  2,189
  2,314
  2,443
  2,579
  2,721
  2,869
  3,024
  3,186
  3,356
  3,533
  3,719
  3,914
  4,118
  4,332
  4,556
  4,791
Revenue / Adjusted assets
  1.103
  1.104
  1.103
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
  1.104
Average production assets, $m
  172
  186
  200
  215
  230
  246
  263
  280
  298
  317
  336
  357
  378
  400
  423
  447
  472
  498
  526
  554
  584
  616
  648
  683
  719
  756
  796
  837
  880
  926
Working capital, $m
  164
  177
  191
  205
  220
  235
  251
  267
  285
  302
  321
  340
  361
  382
  404
  427
  450
  475
  502
  529
  557
  587
  619
  651
  686
  722
  759
  799
  840
  883
Total debt, $m
  81
  105
  130
  157
  184
  212
  242
  272
  304
  337
  372
  408
  445
  484
  525
  568
  612
  658
  707
  757
  810
  866
  924
  985
  1,048
  1,115
  1,185
  1,258
  1,334
  1,415
Total liabilities, $m
  305
  329
  354
  380
  408
  436
  465
  496
  528
  561
  596
  631
  669
  708
  749
  791
  836
  882
  930
  981
  1,034
  1,090
  1,148
  1,208
  1,272
  1,339
  1,408
  1,481
  1,558
  1,638
Total equity, $m
  586
  633
  681
  732
  784
  839
  895
  954
  1,016
  1,079
  1,146
  1,215
  1,287
  1,362
  1,440
  1,522
  1,608
  1,697
  1,790
  1,888
  1,990
  2,096
  2,208
  2,325
  2,447
  2,575
  2,710
  2,850
  2,998
  3,152
Total liabilities and equity, $m
  891
  962
  1,035
  1,112
  1,192
  1,275
  1,360
  1,450
  1,544
  1,640
  1,742
  1,846
  1,956
  2,070
  2,189
  2,313
  2,444
  2,579
  2,720
  2,869
  3,024
  3,186
  3,356
  3,533
  3,719
  3,914
  4,118
  4,331
  4,556
  4,790
Debt-to-equity ratio
  0.140
  0.170
  0.190
  0.210
  0.230
  0.250
  0.270
  0.290
  0.300
  0.310
  0.320
  0.340
  0.350
  0.360
  0.360
  0.370
  0.380
  0.390
  0.390
  0.400
  0.410
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
  0.440
  0.450
  0.450
Adjusted equity ratio
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658
  0.658

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  95
  103
  111
  119
  127
  136
  145
  155
  165
  175
  195
  206
  218
  230
  242
  256
  269
  284
  299
  315
  331
  349
  367
  386
  405
  426
  448
  471
  495
  520
Depreciation, amort., depletion, $m
  37
  39
  41
  44
  46
  48
  51
  53
  56
  59
  49
  52
  56
  59
  62
  66
  69
  73
  77
  82
  86
  91
  95
  100
  106
  111
  117
  123
  129
  136
Funds from operations, $m
  133
  142
  152
  163
  173
  184
  196
  208
  221
  234
  244
  258
  273
  289
  305
  321
  339
  357
  376
  396
  417
  439
  462
  486
  511
  537
  565
  594
  624
  656
Change in working capital, $m
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
Cash from operations, $m
  120
  129
  139
  148
  159
  169
  180
  192
  204
  216
  226
  239
  253
  267
  283
  298
  315
  332
  350
  369
  389
  409
  431
  453
  477
  501
  527
  554
  583
  612
Maintenance CAPEX, $m
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -39
  -41
  -44
  -47
  -49
  -52
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -82
  -86
  -91
  -95
  -100
  -106
  -111
  -117
  -123
  -129
New CAPEX, $m
  -14
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
Cash from investing activities, $m
  -37
  -39
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -69
  -73
  -78
  -82
  -86
  -91
  -95
  -100
  -106
  -112
  -117
  -124
  -129
  -136
  -144
  -150
  -158
  -166
  -174
Free cash flow, $m
  83
  90
  97
  104
  112
  119
  127
  136
  144
  153
  159
  169
  179
  190
  201
  212
  224
  237
  250
  263
  277
  292
  307
  324
  341
  358
  377
  396
  416
  438
Issuance/(repayment) of debt, $m
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  37
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  64
  67
  70
  73
  77
  80
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  
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  37
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  64
  67
  70
  73
  77
  80
Total cash flow (excl. dividends), $m
  106
  114
  122
  130
  139
  148
  157
  166
  176
  186
  194
  205
  217
  229
  242
  255
  269
  283
  298
  314
  330
  347
  365
  384
  404
  425
  446
  469
  493
  518
Retained Cash Flow (-), $m
  -45
  -47
  -49
  -50
  -52
  -54
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -97
  -102
  -107
  -112
  -117
  -122
  -128
  -134
  -141
  -147
  -155
Prev. year cash balance distribution, $m
  89
  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
  150
  68
  74
  80
  86
  93
  100
  107
  115
  123
  128
  136
  145
  154
  163
  173
  183
  194
  205
  216
  228
  241
  254
  267
  282
  297
  312
  329
  346
  363
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
  144
  62
  64
  66
  67
  68
  68
  67
  66
  64
  61
  58
  55
  52
  48
  44
  40
  36
  32
  27
  24
  20
  17
  14
  11
  9
  7
  5
  4
  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

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, Inc. (MEI)

Valuation Ratios
P/E Ratio 11.1
Price to Sales 1.3
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 7.1
Price to Free Cash Flow 8.4
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 $908 million for the last fiscal year's total revenue generated by Methode Electronics, Inc.. The default revenue input number comes from 0001 income statement of Methode Electronics, 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 MEI stock valuation model: a) initial revenue growth rate of 8.3% 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, 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 Methode Electronics, 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 MEI stock the variable cost ratio is equal to 86.5%.

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 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, Inc..

Corporate tax rate of 27% is the nominal tax rate for Methode Electronics, 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 MEI 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 MEI are equal to 17.5%.

Life of production assets of 6.8 years is the average useful life of capital assets used in Methode Electronics, 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 MEI is equal to 16.7%. 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 - $630 million for Methode Electronics, 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 37.111 million for Methode Electronics, 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 Methode Electronics, Inc. at the current share price and the inputted number of shares is $1.0 billion.

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