Intrinsic value of Mellanox Technologies, Ltd. - MLNX

Previous Close

$111.55

  Intrinsic Value

$213.64

stock screener

  Rating & Target

str. buy

+92%

Previous close

$111.55

 
Intrinsic value

$213.64

 
Up/down potential

+92%

 
Rating

str. buy

We calculate the intrinsic value of MLNX 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 6.1

 

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, %
  22.10
  20.39
  18.85
  17.47
  16.22
  15.10
  14.09
  13.18
  12.36
  11.62
  10.96
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.68
  6.52
  6.36
  6.23
  6.10
  5.99
  5.89
  5.81
Revenue, $m
  1,330
  1,601
  1,903
  2,235
  2,597
  2,989
  3,411
  3,860
  4,337
  4,841
  5,372
  5,929
  6,512
  7,120
  7,755
  8,416
  9,103
  9,818
  10,561
  11,333
  12,135
  12,969
  13,836
  14,737
  15,675
  16,651
  17,668
  18,727
  19,831
  20,982
Variable operating expenses, $m
  551
  650
  760
  881
  1,013
  1,157
  1,310
  1,474
  1,649
  1,833
  1,961
  2,164
  2,377
  2,599
  2,831
  3,072
  3,323
  3,584
  3,855
  4,137
  4,430
  4,734
  5,051
  5,380
  5,722
  6,078
  6,449
  6,836
  7,239
  7,659
Fixed operating expenses, $m
  537
  548
  560
  573
  585
  598
  611
  625
  639
  653
  667
  682
  697
  712
  728
  744
  760
  777
  794
  811
  829
  847
  866
  885
  905
  924
  945
  966
  987
  1,009
Total operating expenses, $m
  1,088
  1,198
  1,320
  1,454
  1,598
  1,755
  1,921
  2,099
  2,288
  2,486
  2,628
  2,846
  3,074
  3,311
  3,559
  3,816
  4,083
  4,361
  4,649
  4,948
  5,259
  5,581
  5,917
  6,265
  6,627
  7,002
  7,394
  7,802
  8,226
  8,668
Operating income, $m
  242
  403
  582
  781
  999
  1,235
  1,489
  1,761
  2,050
  2,356
  2,744
  3,083
  3,438
  3,809
  4,197
  4,600
  5,020
  5,457
  5,912
  6,385
  6,876
  7,387
  7,919
  8,473
  9,049
  9,649
  10,274
  10,925
  11,605
  12,314
EBITDA, $m
  379
  553
  749
  965
  1,202
  1,459
  1,736
  2,032
  2,346
  2,679
  3,030
  3,399
  3,785
  4,188
  4,609
  5,048
  5,505
  5,980
  6,474
  6,988
  7,522
  8,078
  8,656
  9,257
  9,883
  10,535
  11,215
  11,923
  12,661
  13,432
Interest expense (income), $m
  5
  0
  3
  7
  12
  16
  21
  27
  33
  39
  46
  53
  61
  69
  77
  86
  95
  104
  114
  124
  134
  145
  157
  168
  181
  193
  207
  221
  235
  250
  266
Earnings before tax, $m
  242
  399
  575
  769
  982
  1,213
  1,462
  1,728
  2,011
  2,310
  2,691
  3,022
  3,369
  3,732
  4,111
  4,506
  4,916
  5,344
  5,788
  6,250
  6,731
  7,231
  7,751
  8,292
  8,855
  9,442
  10,053
  10,690
  11,355
  12,049
Tax expense, $m
  65
  108
  155
  208
  265
  328
  395
  467
  543
  624
  727
  816
  910
  1,008
  1,110
  1,217
  1,327
  1,443
  1,563
  1,688
  1,817
  1,952
  2,093
  2,239
  2,391
  2,549
  2,714
  2,886
  3,066
  3,253
Net income, $m
  177
  292
  420
  562
  717
  886
  1,067
  1,261
  1,468
  1,686
  1,964
  2,206
  2,460
  2,725
  3,001
  3,289
  3,589
  3,901
  4,225
  4,563
  4,914
  5,279
  5,658
  6,053
  6,464
  6,893
  7,339
  7,804
  8,289
  8,796

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
  1,662
  2,001
  2,378
  2,794
  3,247
  3,737
  4,263
  4,825
  5,422
  6,052
  6,715
  7,411
  8,140
  8,901
  9,694
  10,520
  11,379
  12,273
  13,201
  14,166
  15,169
  16,211
  17,295
  18,422
  19,594
  20,814
  22,085
  23,409
  24,789
  26,228
Adjusted assets (=assets-cash), $m
  1,662
  2,001
  2,378
  2,794
  3,247
  3,737
  4,263
  4,825
  5,422
  6,052
  6,715
  7,411
  8,140
  8,901
  9,694
  10,520
  11,379
  12,273
  13,201
  14,166
  15,169
  16,211
  17,295
  18,422
  19,594
  20,814
  22,085
  23,409
  24,789
  26,228
Revenue / Adjusted assets
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
Average production assets, $m
  545
  656
  780
  916
  1,065
  1,226
  1,398
  1,583
  1,778
  1,985
  2,203
  2,431
  2,670
  2,919
  3,180
  3,450
  3,732
  4,025
  4,330
  4,647
  4,975
  5,317
  5,673
  6,042
  6,427
  6,827
  7,244
  7,678
  8,131
  8,603
Working capital, $m
  72
  86
  103
  121
  140
  161
  184
  208
  234
  261
  290
  320
  352
  385
  419
  454
  492
  530
  570
  612
  655
  700
  747
  796
  846
  899
  954
  1,011
  1,071
  1,133
Total debt, $m
  63
  135
  214
  301
  396
  499
  610
  728
  853
  985
  1,125
  1,271
  1,424
  1,584
  1,750
  1,924
  2,104
  2,292
  2,487
  2,689
  2,900
  3,119
  3,346
  3,583
  3,829
  4,085
  4,352
  4,630
  4,920
  5,222
Total liabilities, $m
  349
  420
  499
  587
  682
  785
  895
  1,013
  1,139
  1,271
  1,410
  1,556
  1,709
  1,869
  2,036
  2,209
  2,390
  2,577
  2,772
  2,975
  3,185
  3,404
  3,632
  3,869
  4,115
  4,371
  4,638
  4,916
  5,206
  5,508
Total equity, $m
  1,313
  1,581
  1,879
  2,207
  2,565
  2,952
  3,368
  3,812
  4,283
  4,781
  5,305
  5,855
  6,430
  7,031
  7,658
  8,311
  8,990
  9,695
  10,429
  11,191
  11,984
  12,807
  13,663
  14,553
  15,479
  16,443
  17,447
  18,493
  19,583
  20,720
Total liabilities and equity, $m
  1,662
  2,001
  2,378
  2,794
  3,247
  3,737
  4,263
  4,825
  5,422
  6,052
  6,715
  7,411
  8,139
  8,900
  9,694
  10,520
  11,380
  12,272
  13,201
  14,166
  15,169
  16,211
  17,295
  18,422
  19,594
  20,814
  22,085
  23,409
  24,789
  26,228
Debt-to-equity ratio
  0.050
  0.090
  0.110
  0.140
  0.150
  0.170
  0.180
  0.190
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
Adjusted equity ratio
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  177
  292
  420
  562
  717
  886
  1,067
  1,261
  1,468
  1,686
  1,964
  2,206
  2,460
  2,725
  3,001
  3,289
  3,589
  3,901
  4,225
  4,563
  4,914
  5,279
  5,658
  6,053
  6,464
  6,893
  7,339
  7,804
  8,289
  8,796
Depreciation, amort., depletion, $m
  136
  151
  167
  184
  204
  224
  247
  271
  296
  323
  286
  316
  347
  379
  413
  448
  485
  523
  562
  603
  646
  691
  737
  785
  835
  887
  941
  997
  1,056
  1,117
Funds from operations, $m
  313
  442
  586
  746
  921
  1,110
  1,314
  1,532
  1,764
  2,009
  2,250
  2,522
  2,806
  3,104
  3,414
  3,737
  4,074
  4,424
  4,788
  5,166
  5,560
  5,969
  6,395
  6,838
  7,299
  7,779
  8,280
  8,801
  9,345
  9,913
Change in working capital, $m
  13
  15
  16
  18
  20
  21
  23
  24
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
Cash from operations, $m
  300
  427
  570
  728
  901
  1,089
  1,291
  1,508
  1,738
  1,982
  2,222
  2,492
  2,775
  3,071
  3,380
  3,702
  4,037
  4,385
  4,748
  5,125
  5,517
  5,924
  6,348
  6,789
  7,248
  7,726
  8,225
  8,744
  9,286
  9,851
Maintenance CAPEX, $m
  -58
  -71
  -85
  -101
  -119
  -138
  -159
  -182
  -206
  -231
  -258
  -286
  -316
  -347
  -379
  -413
  -448
  -485
  -523
  -562
  -603
  -646
  -691
  -737
  -785
  -835
  -887
  -941
  -997
  -1,056
New CAPEX, $m
  -99
  -111
  -124
  -136
  -149
  -161
  -173
  -184
  -196
  -207
  -218
  -228
  -239
  -250
  -260
  -271
  -282
  -293
  -305
  -317
  -329
  -342
  -355
  -370
  -385
  -400
  -417
  -434
  -453
  -472
Cash from investing activities, $m
  -157
  -182
  -209
  -237
  -268
  -299
  -332
  -366
  -402
  -438
  -476
  -514
  -555
  -597
  -639
  -684
  -730
  -778
  -828
  -879
  -932
  -988
  -1,046
  -1,107
  -1,170
  -1,235
  -1,304
  -1,375
  -1,450
  -1,528
Free cash flow, $m
  143
  245
  361
  491
  633
  790
  960
  1,142
  1,337
  1,545
  1,746
  1,978
  2,220
  2,475
  2,740
  3,018
  3,307
  3,607
  3,920
  4,246
  4,584
  4,936
  5,302
  5,683
  6,079
  6,492
  6,921
  7,369
  7,836
  8,323
Issuance/(repayment) of debt, $m
  63
  71
  79
  87
  95
  103
  111
  118
  125
  132
  139
  146
  153
  160
  167
  173
  180
  188
  195
  203
  211
  219
  228
  237
  246
  256
  267
  278
  290
  302
Issuance/(repurchase) of shares, $m
  60
  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  
  123
  71
  79
  87
  95
  103
  111
  118
  125
  132
  139
  146
  153
  160
  167
  173
  180
  188
  195
  203
  211
  219
  228
  237
  246
  256
  267
  278
  290
  302
Total cash flow (excl. dividends), $m
  266
  317
  440
  578
  729
  893
  1,070
  1,260
  1,462
  1,677
  1,886
  2,124
  2,373
  2,634
  2,907
  3,191
  3,487
  3,795
  4,115
  4,448
  4,795
  5,155
  5,530
  5,919
  6,325
  6,748
  7,188
  7,647
  8,126
  8,625
Retained Cash Flow (-), $m
  -237
  -268
  -298
  -328
  -358
  -387
  -416
  -444
  -471
  -498
  -524
  -550
  -576
  -601
  -627
  -653
  -679
  -706
  -734
  -762
  -792
  -823
  -856
  -890
  -926
  -964
  -1,004
  -1,046
  -1,090
  -1,137
Prev. year cash balance distribution, $m
  226
  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
  255
  49
  142
  250
  371
  506
  654
  816
  991
  1,179
  1,362
  1,574
  1,798
  2,033
  2,280
  2,539
  2,808
  3,089
  3,382
  3,686
  4,003
  4,332
  4,674
  5,029
  5,399
  5,784
  6,184
  6,601
  7,035
  7,488
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
  245
  45
  124
  206
  287
  367
  442
  510
  569
  618
  647
  672
  684
  683
  669
  645
  611
  569
  521
  468
  414
  359
  306
  256
  210
  169
  133
  102
  77
  56
Current shareholders' claim on cash, %
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8
  98.8

Mellanox Technologies, Ltd. is a fabless semiconductor company. The Company is an integrated supplier of interconnect products and solutions based on the InfiniBand and Ethernet standards. The Company operates in the development, manufacturing, marketing and sales of interconnect products segment. Its products facilitate data transmission between servers, storage systems, communications infrastructure equipment and other embedded systems. It operates its business globally and offers products to customers at various levels of integration. The products it offers include integrated circuits (ICs), adapter cards, switch systems, multi-core and network processors, cables, modules, software, services and accessories. Together these products form a networking solution, focused on computing, storage and communication applications used in multiple markets, including high-performance computing (HPC), cloud, Web 2.0, storage, financial services, and enterprise data center (EDC).

FINANCIAL RATIOS  of  Mellanox Technologies, Ltd. (MLNX)

Valuation Ratios
P/E Ratio 288.2
Price to Sales 6.4
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 27.9
Price to Free Cash Flow 37.8
Growth Rates
Sales Growth Rate 30.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.1%
Cap. Spend. - 3 Yr. Gr. Rate 6.1%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 22.3%
Total Debt to Equity 24.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 1.8%
Ret/ On Assets - 3 Yr. Avg. 2.9%
Return On Total Capital 1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 3.4%
Return On Equity 2.1%
Return On Equity - 3 Yr. Avg. 3.5%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 64.8%
Gross Margin - 3 Yr. Avg. 68%
EBITDA Margin 14.8%
EBITDA Margin - 3 Yr. Avg. 13.2%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 4.5%
Pre-Tax Margin 2.8%
Pre-Tax Margin - 3 Yr. Avg. 4.3%
Net Profit Margin 2.2%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 20.8%
Eff/ Tax Rate - 3 Yr. Avg. -101.1%
Payout Ratio 0%

MLNX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MLNX stock intrinsic value calculation we used $1089 million for the last fiscal year's total revenue generated by Mellanox Technologies, Ltd.. The default revenue input number comes from 0001 income statement of Mellanox Technologies, Ltd.. 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 MLNX stock valuation model: a) initial revenue growth rate of 22.1% 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 MLNX is calculated based on our internal credit rating of Mellanox Technologies, Ltd., 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 Mellanox Technologies, Ltd..
    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 MLNX stock the variable cost ratio is equal to 42.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $525 million in the base year in the intrinsic value calculation for MLNX 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 Mellanox Technologies, Ltd..

Corporate tax rate of 27% is the nominal tax rate for Mellanox Technologies, Ltd.. 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 MLNX 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 MLNX are equal to 41%.

Life of production assets of 7.7 years is the average useful life of capital assets used in Mellanox Technologies, Ltd. 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 MLNX is equal to 5.4%. 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 - $1301.648 million for Mellanox Technologies, Ltd. - 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 54.505 million for Mellanox Technologies, Ltd. 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 Mellanox Technologies, Ltd. at the current share price and the inputted number of shares is $6.1 billion.

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