Intrinsic value of Methode Electronics - MEI

Previous Close

$42.65

  Intrinsic Value

$42.38

stock screener

  Rating & Target

hold

-1%

Previous close

$42.65

 
Intrinsic value

$42.38

 
Up/down potential

-1%

 
Rating

hold

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  0.99
  10.00
  9.50
  9.05
  8.64
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
  6.74
  6.57
  6.41
  6.27
  6.14
  6.03
  5.93
  5.83
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
Revenue, $m
  817
  899
  984
  1,073
  1,166
  1,262
  1,363
  1,467
  1,576
  1,688
  1,805
  1,927
  2,054
  2,186
  2,323
  2,465
  2,614
  2,769
  2,930
  3,099
  3,275
  3,458
  3,650
  3,851
  4,060
  4,279
  4,509
  4,749
  5,000
  5,263
  5,539
Variable operating expenses, $m
 
  776
  850
  927
  1,007
  1,091
  1,177
  1,268
  1,361
  1,459
  1,560
  1,665
  1,774
  1,888
  2,006
  2,129
  2,258
  2,392
  2,531
  2,677
  2,829
  2,987
  3,153
  3,326
  3,507
  3,696
  3,895
  4,102
  4,319
  4,546
  4,784
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
  706
  776
  850
  927
  1,007
  1,091
  1,177
  1,268
  1,361
  1,459
  1,560
  1,665
  1,774
  1,888
  2,006
  2,129
  2,258
  2,392
  2,531
  2,677
  2,829
  2,987
  3,153
  3,326
  3,507
  3,696
  3,895
  4,102
  4,319
  4,546
  4,784
Operating income, $m
  111
  122
  134
  146
  159
  172
  185
  200
  214
  230
  246
  263
  280
  298
  316
  336
  356
  377
  399
  422
  446
  471
  497
  525
  553
  583
  614
  647
  681
  717
  755
EBITDA, $m
  135
  144
  158
  172
  187
  203
  219
  236
  253
  271
  290
  310
  330
  351
  373
  396
  420
  445
  471
  498
  526
  556
  586
  619
  652
  687
  724
  763
  803
  846
  890
Interest expense (income), $m
  0
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  11
  12
  14
  15
  16
  17
  18
  19
  21
  22
  24
  25
  27
  28
  30
  32
Earnings before tax, $m
  116
  121
  132
  144
  156
  168
  181
  195
  209
  224
  239
  255
  271
  288
  306
  324
  344
  364
  385
  406
  429
  453
  478
  504
  531
  559
  589
  620
  653
  687
  723
Tax expense, $m
  23
  33
  36
  39
  42
  45
  49
  53
  56
  60
  64
  69
  73
  78
  83
  88
  93
  98
  104
  110
  116
  122
  129
  136
  143
  151
  159
  167
  176
  185
  195
Net income, $m
  93
  89
  97
  105
  114
  123
  132
  142
  153
  163
  174
  186
  198
  210
  223
  237
  251
  266
  281
  297
  313
  331
  349
  368
  388
  408
  430
  453
  477
  501
  527

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  294
  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
  704
  451
  494
  538
  585
  633
  684
  736
  791
  847
  906
  967
  1,031
  1,097
  1,165
  1,237
  1,312
  1,389
  1,470
  1,555
  1,643
  1,735
  1,832
  1,932
  2,037
  2,147
  2,262
  2,383
  2,509
  2,641
  2,779
Adjusted assets (=assets-cash), $m
  410
  451
  494
  538
  585
  633
  684
  736
  791
  847
  906
  967
  1,031
  1,097
  1,165
  1,237
  1,312
  1,389
  1,470
  1,555
  1,643
  1,735
  1,832
  1,932
  2,037
  2,147
  2,262
  2,383
  2,509
  2,641
  2,779
Revenue / Adjusted assets
  1.993
  1.993
  1.992
  1.994
  1.993
  1.994
  1.993
  1.993
  1.992
  1.993
  1.992
  1.993
  1.992
  1.993
  1.994
  1.993
  1.992
  1.994
  1.993
  1.993
  1.993
  1.993
  1.992
  1.993
  1.993
  1.993
  1.993
  1.993
  1.993
  1.993
  1.993
Average production assets, $m
  100
  110
  120
  131
  142
  154
  166
  179
  192
  206
  220
  235
  251
  267
  283
  301
  319
  338
  358
  378
  400
  422
  445
  470
  495
  522
  550
  579
  610
  642
  676
Working capital, $m
  406
  123
  135
  147
  160
  173
  187
  201
  216
  231
  247
  264
  281
  299
  318
  338
  358
  379
  401
  425
  449
  474
  500
  528
  556
  586
  618
  651
  685
  721
  759
Total debt, $m
  27
  43
  61
  78
  97
  116
  136
  157
  179
  201
  225
  249
  274
  300
  328
  356
  386
  417
  449
  483
  518
  555
  593
  633
  675
  719
  764
  812
  863
  915
  970
Total liabilities, $m
  163
  179
  197
  214
  233
  252
  272
  293
  315
  337
  361
  385
  410
  436
  464
  492
  522
  553
  585
  619
  654
  691
  729
  769
  811
  855
  900
  948
  999
  1,051
  1,106
Total equity, $m
  541
  271
  297
  324
  352
  381
  412
  443
  476
  510
  545
  582
  620
  660
  702
  745
  790
  836
  885
  936
  989
  1,045
  1,103
  1,163
  1,226
  1,293
  1,362
  1,434
  1,510
  1,590
  1,673
Total liabilities and equity, $m
  704
  450
  494
  538
  585
  633
  684
  736
  791
  847
  906
  967
  1,030
  1,096
  1,166
  1,237
  1,312
  1,389
  1,470
  1,555
  1,643
  1,736
  1,832
  1,932
  2,037
  2,148
  2,262
  2,382
  2,509
  2,641
  2,779
Debt-to-equity ratio
  0.050
  0.160
  0.200
  0.240
  0.270
  0.300
  0.330
  0.350
  0.380
  0.390
  0.410
  0.430
  0.440
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.540
  0.550
  0.560
  0.560
  0.570
  0.570
  0.580
  0.580
Adjusted equity ratio
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  93
  89
  97
  105
  114
  123
  132
  142
  153
  163
  174
  186
  198
  210
  223
  237
  251
  266
  281
  297
  313
  331
  349
  368
  388
  408
  430
  453
  477
  501
  527
Depreciation, amort., depletion, $m
  24
  22
  24
  26
  29
  31
  33
  36
  39
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  84
  89
  94
  99
  104
  110
  116
  122
  128
  135
Funds from operations, $m
  164
  111
  121
  131
  142
  154
  166
  178
  191
  205
  219
  233
  248
  264
  280
  297
  315
  333
  352
  372
  393
  415
  438
  462
  487
  513
  540
  569
  599
  630
  663
Change in working capital, $m
  19
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
Cash from operations, $m
  145
  99
  109
  119
  130
  141
  152
  164
  176
  189
  202
  216
  231
  246
  261
  277
  294
  312
  330
  349
  369
  390
  412
  434
  458
  483
  509
  536
  564
  594
  625
Maintenance CAPEX, $m
  0
  -20
  -22
  -24
  -26
  -28
  -31
  -33
  -36
  -38
  -41
  -44
  -47
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -76
  -80
  -84
  -89
  -94
  -99
  -104
  -110
  -116
  -122
  -128
New CAPEX, $m
  -22
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
Cash from investing activities, $m
  -22
  -30
  -32
  -35
  -37
  -40
  -43
  -46
  -49
  -52
  -55
  -59
  -62
  -66
  -70
  -74
  -78
  -83
  -88
  -93
  -97
  -102
  -107
  -113
  -120
  -126
  -132
  -139
  -147
  -154
  -162
Free cash flow, $m
  123
  70
  77
  84
  92
  100
  109
  118
  127
  137
  147
  157
  168
  179
  191
  203
  216
  229
  243
  257
  272
  288
  304
  321
  338
  357
  376
  396
  418
  440
  463
Issuance/(repayment) of debt, $m
  -30
  16
  17
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
Issuance/(repurchase) of shares, $m
  -7
  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  
  -33
  16
  17
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
Total cash flow (excl. dividends), $m
  80
  86
  94
  102
  111
  120
  129
  139
  149
  159
  170
  182
  193
  206
  219
  232
  246
  260
  275
  291
  307
  324
  342
  361
  380
  401
  422
  444
  468
  492
  518
Retained Cash Flow (-), $m
  -71
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -61
  -63
  -66
  -69
  -72
  -76
  -79
  -83
Prev. year cash balance distribution, $m
 
  294
  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
 
  356
  68
  75
  83
  91
  99
  107
  116
  125
  135
  145
  155
  166
  177
  189
  201
  213
  226
  240
  254
  269
  284
  300
  317
  335
  353
  372
  392
  413
  435
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
 
  341
  62
  65
  68
  70
  72
  73
  73
  72
  71
  69
  66
  63
  59
  55
  51
  46
  42
  37
  32
  28
  24
  20
  16
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Current shareholders' claim on cash, %
  100
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  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
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  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 (MEI)

Valuation Ratios
P/E Ratio 16.9
Price to Sales 1.9
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 12.8
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 10% 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 86.4%.

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 3.5% 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 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 12.2%.

Life of production assets of 4.3 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 13.7%. 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 - $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 38.404 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 $1.6 billion.

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COMPANY NEWS

▶ 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]
▶ Methode beats Street 3Q forecasts   [06:39AM  Associated Press]
▶ Methode Electronics' Board Approves Dividend   [Dec-15-16 06:17PM  Marketwired]
Financial statements of MEI
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