Intrinsic value of Methode Electronics - MEI

Previous Close

$40.45

  Intrinsic Value

$37.59

stock screener

  Rating & Target

hold

-7%

Previous close

$40.45

 
Intrinsic value

$37.59

 
Up/down potential

-7%

 
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

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 1.5

 

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
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
Revenue, $m
  817
  855
  896
  938
  983
  1,031
  1,080
  1,133
  1,188
  1,245
  1,306
  1,370
  1,437
  1,508
  1,582
  1,660
  1,742
  1,828
  1,919
  2,014
  2,114
  2,219
  2,329
  2,445
  2,566
  2,694
  2,828
  2,969
  3,117
  3,272
  3,436
Variable operating expenses, $m
 
  739
  774
  811
  850
  890
  933
  978
  1,026
  1,076
  1,128
  1,184
  1,242
  1,303
  1,367
  1,434
  1,505
  1,579
  1,658
  1,740
  1,826
  1,917
  2,012
  2,112
  2,217
  2,327
  2,443
  2,565
  2,692
  2,827
  2,968
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
  739
  774
  811
  850
  890
  933
  978
  1,026
  1,076
  1,128
  1,184
  1,242
  1,303
  1,367
  1,434
  1,505
  1,579
  1,658
  1,740
  1,826
  1,917
  2,012
  2,112
  2,217
  2,327
  2,443
  2,565
  2,692
  2,827
  2,968
Operating income, $m
  111
  116
  122
  128
  134
  140
  147
  154
  162
  169
  178
  187
  196
  205
  216
  226
  237
  249
  261
  274
  288
  302
  317
  333
  350
  367
  385
  405
  425
  446
  468
EBITDA, $m
  135
  137
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
  231
  242
  254
  267
  280
  294
  308
  324
  340
  356
  374
  393
  412
  433
  454
  477
  501
  526
  552
Interest expense (income), $m
  0
  1
  1
  2
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  116
  115
  121
  126
  132
  138
  145
  151
  158
  166
  174
  182
  191
  200
  210
  220
  231
  242
  253
  266
  279
  292
  307
  322
  337
  354
  371
  390
  409
  429
  450
Tax expense, $m
  23
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  96
  100
  105
  110
  116
  121
Net income, $m
  93
  84
  88
  92
  96
  101
  106
  110
  116
  121
  127
  133
  139
  146
  153
  161
  168
  176
  185
  194
  203
  213
  224
  235
  246
  258
  271
  284
  298
  313
  328

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
  429
  450
  471
  493
  517
  542
  568
  596
  625
  655
  688
  721
  757
  794
  833
  874
  917
  963
  1,011
  1,061
  1,113
  1,169
  1,227
  1,288
  1,352
  1,419
  1,490
  1,564
  1,642
  1,724
Adjusted assets (=assets-cash), $m
  410
  429
  450
  471
  493
  517
  542
  568
  596
  625
  655
  688
  721
  757
  794
  833
  874
  917
  963
  1,011
  1,061
  1,113
  1,169
  1,227
  1,288
  1,352
  1,419
  1,490
  1,564
  1,642
  1,724
Revenue / Adjusted assets
  1.993
  1.993
  1.991
  1.992
  1.994
  1.994
  1.993
  1.995
  1.993
  1.992
  1.994
  1.991
  1.993
  1.992
  1.992
  1.993
  1.993
  1.993
  1.993
  1.992
  1.992
  1.994
  1.992
  1.993
  1.992
  1.993
  1.993
  1.993
  1.993
  1.993
  1.993
Average production assets, $m
  100
  104
  109
  114
  120
  126
  132
  138
  145
  152
  159
  167
  175
  184
  193
  203
  213
  223
  234
  246
  258
  271
  284
  298
  313
  329
  345
  362
  380
  399
  419
Working capital, $m
  406
  117
  123
  129
  135
  141
  148
  155
  163
  171
  179
  188
  197
  207
  217
  227
  239
  251
  263
  276
  290
  304
  319
  335
  352
  369
  387
  407
  427
  448
  471
Total debt, $m
  27
  35
  43
  51
  60
  70
  80
  90
  101
  113
  125
  138
  151
  165
  180
  196
  212
  229
  247
  266
  286
  307
  329
  352
  377
  402
  429
  457
  486
  518
  550
Total liabilities, $m
  163
  171
  179
  187
  196
  206
  216
  226
  237
  249
  261
  274
  287
  301
  316
  332
  348
  365
  383
  402
  422
  443
  465
  488
  513
  538
  565
  593
  622
  654
  686
Total equity, $m
  541
  258
  271
  283
  297
  311
  326
  342
  359
  376
  395
  414
  434
  456
  478
  502
  526
  552
  580
  608
  639
  670
  704
  738
  775
  814
  854
  897
  942
  988
  1,038
Total liabilities and equity, $m
  704
  429
  450
  470
  493
  517
  542
  568
  596
  625
  656
  688
  721
  757
  794
  834
  874
  917
  963
  1,010
  1,061
  1,113
  1,169
  1,226
  1,288
  1,352
  1,419
  1,490
  1,564
  1,642
  1,724
Debt-to-equity ratio
  0.050
  0.130
  0.160
  0.180
  0.200
  0.220
  0.240
  0.260
  0.280
  0.300
  0.320
  0.330
  0.350
  0.360
  0.380
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
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
  84
  88
  92
  96
  101
  106
  110
  116
  121
  127
  133
  139
  146
  153
  161
  168
  176
  185
  194
  203
  213
  224
  235
  246
  258
  271
  284
  298
  313
  328
Depreciation, amort., depletion, $m
  24
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  33
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  84
Funds from operations, $m
  164
  105
  110
  115
  121
  126
  132
  138
  145
  152
  159
  167
  175
  183
  192
  201
  211
  221
  232
  243
  255
  268
  281
  294
  309
  324
  340
  357
  374
  393
  412
Change in working capital, $m
  19
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  145
  100
  105
  109
  114
  120
  125
  131
  137
  144
  151
  158
  165
  173
  182
  190
  200
  209
  219
  230
  241
  253
  266
  279
  292
  307
  322
  338
  354
  372
  390
Maintenance CAPEX, $m
  0
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -80
New CAPEX, $m
  -22
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  -22
  -24
  -26
  -27
  -28
  -30
  -31
  -32
  -35
  -36
  -37
  -40
  -41
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -61
  -65
  -67
  -71
  -75
  -79
  -82
  -86
  -90
  -95
  -100
Free cash flow, $m
  123
  76
  79
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  228
  240
  251
  264
  277
  290
Issuance/(repayment) of debt, $m
  -30
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
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
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
Total cash flow (excl. dividends), $m
  80
  84
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  165
  173
  182
  191
  200
  210
  220
  231
  242
  254
  266
  279
  293
  308
  323
Retained Cash Flow (-), $m
  -71
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
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
 
  366
  75
  78
  81
  85
  89
  93
  97
  102
  107
  112
  117
  122
  128
  134
  141
  147
  155
  162
  170
  178
  187
  196
  205
  215
  226
  237
  249
  261
  274
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
 
  351
  68
  68
  67
  66
  65
  63
  61
  59
  56
  53
  50
  47
  43
  39
  36
  32
  28
  25
  22
  18
  15
  13
  10
  8
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  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 (MEI)

Valuation Ratios
P/E Ratio 16
Price to Sales 1.8
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 10.3
Price to Free Cash Flow 12.1
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 4.7% 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 36.916 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 $1.5 billion.

RELATED COMPANIES Price Int.Val. Rating
APH Amphenol Cl A 89.13 70.62  hold
SRI Stoneridge 23.73 66.28  str.buy
RFIL RF Industries 2.45 0.71  str.sell
TEL TE Connectivit 96.22 77.26  hold
DLPH Delphi Automot 50.95 75.78  sell
AAOI Applied Optoel 38.99 2.94  str.sell

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]
▶ Methode Electronics' Board Approves Dividend   [Sep-19-16 04:30PM  Marketwired]
Financial statements of MEI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.