Intrinsic value of MKS Instruments, Inc. - MKSI

Previous Close

$76.57

  Intrinsic Value

$112.29

stock screener

  Rating & Target

buy

+47%

Previous close

$76.57

 
Intrinsic value

$112.29

 
Up/down potential

+47%

 
Rating

buy

We calculate the intrinsic value of MKSI 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 4.2

 

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
  2,117
  2,165
  2,221
  2,283
  2,353
  2,428
  2,511
  2,601
  2,697
  2,801
  2,911
  3,030
  3,155
  3,289
  3,431
  3,581
  3,740
  3,909
  4,087
  4,274
  4,473
  4,681
  4,902
  5,134
  5,378
  5,635
  5,906
  6,191
  6,491
  6,807
Variable operating expenses, $m
  953
  973
  995
  1,021
  1,049
  1,080
  1,113
  1,150
  1,189
  1,231
  1,186
  1,234
  1,285
  1,340
  1,397
  1,459
  1,523
  1,592
  1,664
  1,741
  1,822
  1,907
  1,996
  2,091
  2,190
  2,295
  2,406
  2,522
  2,644
  2,772
Fixed operating expenses, $m
  673
  688
  703
  719
  735
  751
  767
  784
  802
  819
  837
  856
  874
  894
  913
  933
  954
  975
  996
  1,018
  1,041
  1,064
  1,087
  1,111
  1,135
  1,160
  1,186
  1,212
  1,239
  1,266
Total operating expenses, $m
  1,626
  1,661
  1,698
  1,740
  1,784
  1,831
  1,880
  1,934
  1,991
  2,050
  2,023
  2,090
  2,159
  2,234
  2,310
  2,392
  2,477
  2,567
  2,660
  2,759
  2,863
  2,971
  3,083
  3,202
  3,325
  3,455
  3,592
  3,734
  3,883
  4,038
Operating income, $m
  490
  504
  522
  544
  569
  598
  630
  666
  706
  750
  888
  940
  996
  1,056
  1,120
  1,189
  1,263
  1,342
  1,426
  1,515
  1,610
  1,711
  1,818
  1,932
  2,052
  2,180
  2,315
  2,458
  2,609
  2,768
EBITDA, $m
  628
  643
  663
  685
  712
  743
  777
  815
  857
  903
  953
  1,008
  1,066
  1,129
  1,197
  1,269
  1,347
  1,429
  1,517
  1,611
  1,710
  1,816
  1,928
  2,047
  2,173
  2,306
  2,447
  2,596
  2,754
  2,921
Interest expense (income), $m
  21
  19
  20
  21
  22
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  45
  48
  51
  54
  57
  61
  65
  69
  73
  77
  82
  87
  92
  98
  103
Earnings before tax, $m
  471
  485
  502
  522
  546
  574
  605
  639
  678
  719
  856
  905
  959
  1,016
  1,078
  1,144
  1,215
  1,291
  1,372
  1,458
  1,549
  1,646
  1,749
  1,859
  1,975
  2,098
  2,228
  2,365
  2,511
  2,665
Tax expense, $m
  127
  131
  135
  141
  147
  155
  163
  173
  183
  194
  231
  244
  259
  274
  291
  309
  328
  349
  370
  394
  418
  445
  472
  502
  533
  566
  601
  639
  678
  720
Net income, $m
  344
  354
  366
  381
  399
  419
  441
  467
  495
  525
  625
  661
  700
  742
  787
  835
  887
  942
  1,001
  1,064
  1,131
  1,202
  1,277
  1,357
  1,442
  1,531
  1,626
  1,727
  1,833
  1,945

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
  2,198
  2,248
  2,306
  2,371
  2,443
  2,522
  2,608
  2,701
  2,801
  2,908
  3,023
  3,146
  3,277
  3,415
  3,563
  3,719
  3,884
  4,059
  4,244
  4,439
  4,644
  4,861
  5,090
  5,331
  5,585
  5,852
  6,133
  6,429
  6,741
  7,068
Adjusted assets (=assets-cash), $m
  2,198
  2,248
  2,306
  2,371
  2,443
  2,522
  2,608
  2,701
  2,801
  2,908
  3,023
  3,146
  3,277
  3,415
  3,563
  3,719
  3,884
  4,059
  4,244
  4,439
  4,644
  4,861
  5,090
  5,331
  5,585
  5,852
  6,133
  6,429
  6,741
  7,068
Revenue / Adjusted assets
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
Average production assets, $m
  662
  678
  695
  715
  736
  760
  786
  814
  844
  877
  911
  948
  988
  1,029
  1,074
  1,121
  1,171
  1,223
  1,279
  1,338
  1,400
  1,465
  1,534
  1,607
  1,683
  1,764
  1,849
  1,938
  2,032
  2,130
Working capital, $m
  497
  509
  522
  537
  553
  571
  590
  611
  634
  658
  684
  712
  742
  773
  806
  842
  879
  919
  960
  1,004
  1,051
  1,100
  1,152
  1,206
  1,264
  1,324
  1,388
  1,455
  1,525
  1,600
Total debt, $m
  362
  380
  399
  422
  446
  473
  503
  534
  569
  605
  645
  687
  731
  779
  829
  883
  939
  999
  1,062
  1,129
  1,199
  1,273
  1,352
  1,434
  1,521
  1,612
  1,708
  1,810
  1,916
  2,028
Total liabilities, $m
  752
  769
  789
  811
  835
  862
  892
  924
  958
  995
  1,034
  1,076
  1,121
  1,168
  1,218
  1,272
  1,328
  1,388
  1,451
  1,518
  1,588
  1,663
  1,741
  1,823
  1,910
  2,001
  2,098
  2,199
  2,305
  2,417
Total equity, $m
  1,446
  1,479
  1,517
  1,560
  1,607
  1,659
  1,716
  1,777
  1,843
  1,914
  1,989
  2,070
  2,156
  2,247
  2,344
  2,447
  2,556
  2,671
  2,792
  2,921
  3,056
  3,199
  3,349
  3,508
  3,675
  3,851
  4,036
  4,230
  4,435
  4,651
Total liabilities and equity, $m
  2,198
  2,248
  2,306
  2,371
  2,442
  2,521
  2,608
  2,701
  2,801
  2,909
  3,023
  3,146
  3,277
  3,415
  3,562
  3,719
  3,884
  4,059
  4,243
  4,439
  4,644
  4,862
  5,090
  5,331
  5,585
  5,852
  6,134
  6,429
  6,740
  7,068
Debt-to-equity ratio
  0.250
  0.260
  0.260
  0.270
  0.280
  0.290
  0.290
  0.300
  0.310
  0.320
  0.320
  0.330
  0.340
  0.350
  0.350
  0.360
  0.370
  0.370
  0.380
  0.390
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
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
  344
  354
  366
  381
  399
  419
  441
  467
  495
  525
  625
  661
  700
  742
  787
  835
  887
  942
  1,001
  1,064
  1,131
  1,202
  1,277
  1,357
  1,442
  1,531
  1,626
  1,727
  1,833
  1,945
Depreciation, amort., depletion, $m
  138
  139
  140
  142
  143
  145
  147
  149
  151
  153
  65
  68
  71
  74
  77
  80
  84
  87
  91
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  152
Funds from operations, $m
  482
  493
  507
  523
  542
  564
  588
  616
  646
  678
  690
  729
  770
  815
  864
  916
  971
  1,030
  1,093
  1,160
  1,231
  1,306
  1,387
  1,472
  1,562
  1,657
  1,758
  1,865
  1,978
  2,098
Change in working capital, $m
  10
  11
  13
  15
  16
  18
  19
  21
  23
  24
  26
  28
  30
  31
  33
  35
  37
  40
  42
  44
  47
  49
  52
  55
  57
  60
  64
  67
  70
  74
Cash from operations, $m
  472
  482
  493
  508
  526
  546
  569
  594
  623
  654
  664
  701
  741
  784
  830
  880
  933
  990
  1,051
  1,116
  1,184
  1,257
  1,335
  1,417
  1,504
  1,597
  1,695
  1,798
  1,908
  2,023
Maintenance CAPEX, $m
  -46
  -47
  -48
  -50
  -51
  -53
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -91
  -96
  -100
  -105
  -110
  -115
  -120
  -126
  -132
  -138
  -145
New CAPEX, $m
  -13
  -15
  -17
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -35
  -37
  -39
  -42
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -76
  -81
  -85
  -89
  -94
  -99
Cash from investing activities, $m
  -59
  -62
  -65
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -98
  -102
  -107
  -113
  -118
  -124
  -130
  -137
  -143
  -150
  -158
  -165
  -174
  -183
  -191
  -201
  -211
  -221
  -232
  -244
Free cash flow, $m
  413
  419
  428
  439
  453
  470
  489
  510
  535
  561
  566
  599
  634
  672
  712
  756
  804
  854
  908
  965
  1,027
  1,092
  1,161
  1,235
  1,313
  1,396
  1,484
  1,577
  1,675
  1,780
Issuance/(repayment) of debt, $m
  15
  17
  20
  22
  25
  27
  29
  32
  34
  37
  39
  42
  45
  47
  50
  53
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
  112
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  
  15
  17
  20
  22
  25
  27
  29
  32
  34
  37
  39
  42
  45
  47
  50
  53
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
  112
Total cash flow (excl. dividends), $m
  427
  436
  447
  461
  478
  497
  518
  542
  569
  598
  606
  641
  678
  719
  763
  810
  860
  914
  971
  1,032
  1,097
  1,166
  1,240
  1,317
  1,400
  1,487
  1,580
  1,678
  1,782
  1,892
Retained Cash Flow (-), $m
  -28
  -33
  -38
  -43
  -47
  -52
  -57
  -61
  -66
  -71
  -76
  -81
  -86
  -91
  -97
  -103
  -109
  -115
  -122
  -128
  -135
  -143
  -150
  -159
  -167
  -176
  -185
  -195
  -205
  -215
Prev. year cash balance distribution, $m
  455
  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
  854
  403
  409
  419
  430
  445
  462
  481
  503
  527
  530
  560
  592
  628
  666
  707
  751
  799
  850
  904
  962
  1,023
  1,089
  1,159
  1,233
  1,312
  1,395
  1,483
  1,577
  1,676
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
  819
  369
  356
  345
  334
  323
  312
  301
  289
  277
  252
  239
  225
  211
  195
  180
  163
  147
  131
  115
  99
  85
  71
  59
  48
  38
  30
  23
  17
  13
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

MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measures, controls, powers, delivers, monitors and analyzes critical parameters of advanced manufacturing processes. The Company operates through two segments, including the Vacuum & Analysis segment and the Light & Motion segment. The Vacuum & Analysis segment provides a range of instruments, components, subsystems and software, which are derived from its core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control and information technology, ozone generation and delivery, radio frequency (RF) and direct current (DC) power, reactive gas generation and vacuum technology. The Light & Motion segment provides a range of instruments, components and subsystems, which are derived from its core competencies in lasers, photonics and optics.

FINANCIAL RATIOS  of  MKS Instruments, Inc. (MKSI)

Valuation Ratios
P/E Ratio 39.1
Price to Sales 3.2
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 22.8
Price to Free Cash Flow 25.5
Growth Rates
Sales Growth Rate 59.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 58.3%
Cap. Spend. - 3 Yr. Gr. Rate 9.6%
Financial Strength
Quick Ratio 38
Current Ratio 0.2
LT Debt to Equity 48.4%
Total Debt to Equity 49.3%
Interest Coverage 7
Management Effectiveness
Return On Assets 7%
Ret/ On Assets - 3 Yr. Avg. 8.8%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 9.6%
Return On Equity 8.7%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 43.7%
Gross Margin - 3 Yr. Avg. 43.9%
EBITDA Margin 16.6%
EBITDA Margin - 3 Yr. Avg. 19.6%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 16.2%
Pre-Tax Margin 9.9%
Pre-Tax Margin - 3 Yr. Avg. 15.6%
Net Profit Margin 8.1%
Net Profit Margin - 3 Yr. Avg. 12.6%
Effective Tax Rate 18%
Eff/ Tax Rate - 3 Yr. Avg. 18.6%
Payout Ratio 34.3%

MKSI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MKSI stock intrinsic value calculation we used $2075 million for the last fiscal year's total revenue generated by MKS Instruments, Inc.. The default revenue input number comes from 0001 income statement of MKS Instruments, 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 MKSI 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 MKSI is calculated based on our internal credit rating of MKS Instruments, 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 MKS Instruments, 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 MKSI stock the variable cost ratio is equal to 45.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $659 million in the base year in the intrinsic value calculation for MKSI 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 MKS Instruments, Inc..

Corporate tax rate of 27% is the nominal tax rate for MKS Instruments, 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 MKSI 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 MKSI are equal to 31.3%.

Life of production assets of 14 years is the average useful life of capital assets used in MKS Instruments, 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 MKSI is equal to 23.5%. 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 - $1873.187 million for MKS Instruments, 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 54.251 million for MKS Instruments, 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 MKS Instruments, Inc. at the current share price and the inputted number of shares is $4.2 billion.

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