Intrinsic value of Microsemi - MSCC

Previous Close

$68.74

  Intrinsic Value

$13.23

stock screener

  Rating & Target

str. sell

-81%

Previous close

$68.74

 
Intrinsic value

$13.23

 
Up/down potential

-81%

 
Rating

str. sell

We calculate the intrinsic value of MSCC 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 7.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  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
  5.21
Revenue, $m
  1,984
  2,164
  2,351
  2,545
  2,748
  2,958
  3,177
  3,404
  3,640
  3,886
  4,141
  4,407
  4,683
  4,971
  5,270
  5,583
  5,908
  6,248
  6,603
  6,973
  7,360
  7,764
  8,187
  8,629
  9,091
  9,575
  10,081
  10,612
  11,167
  11,749
Variable operating expenses, $m
  1,890
  2,031
  2,179
  2,332
  2,492
  2,658
  2,830
  3,010
  3,196
  3,389
  3,266
  3,475
  3,693
  3,920
  4,156
  4,403
  4,660
  4,927
  5,207
  5,499
  5,804
  6,123
  6,456
  6,805
  7,169
  7,551
  7,951
  8,369
  8,807
  9,266
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
  1,890
  2,031
  2,179
  2,332
  2,492
  2,658
  2,830
  3,010
  3,196
  3,389
  3,266
  3,475
  3,693
  3,920
  4,156
  4,403
  4,660
  4,927
  5,207
  5,499
  5,804
  6,123
  6,456
  6,805
  7,169
  7,551
  7,951
  8,369
  8,807
  9,266
Operating income, $m
  94
  132
  172
  213
  256
  300
  346
  394
  444
  496
  875
  931
  990
  1,051
  1,114
  1,180
  1,249
  1,321
  1,396
  1,474
  1,556
  1,641
  1,730
  1,824
  1,921
  2,024
  2,131
  2,243
  2,360
  2,483
EBITDA, $m
  805
  878
  953
  1,032
  1,114
  1,200
  1,288
  1,381
  1,476
  1,576
  1,679
  1,787
  1,899
  2,016
  2,137
  2,264
  2,396
  2,534
  2,678
  2,828
  2,985
  3,149
  3,320
  3,499
  3,687
  3,883
  4,089
  4,304
  4,529
  4,765
Interest expense (income), $m
  105
  97
  109
  122
  135
  148
  162
  177
  192
  208
  224
  241
  259
  277
  297
  317
  337
  359
  382
  405
  430
  456
  482
  511
  540
  571
  603
  636
  672
  708
  747
Earnings before tax, $m
  -3
  23
  50
  78
  108
  138
  170
  203
  237
  272
  634
  672
  712
  754
  797
  843
  890
  939
  990
  1,044
  1,100
  1,158
  1,220
  1,284
  1,351
  1,421
  1,494
  1,571
  1,652
  1,736
Tax expense, $m
  0
  6
  14
  21
  29
  37
  46
  55
  64
  73
  171
  182
  192
  204
  215
  227
  240
  254
  267
  282
  297
  313
  329
  347
  365
  384
  403
  424
  446
  469
Net income, $m
  -3
  17
  37
  57
  79
  101
  124
  148
  173
  199
  463
  491
  520
  550
  582
  615
  650
  685
  723
  762
  803
  846
  890
  937
  986
  1,037
  1,091
  1,147
  1,206
  1,268

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
  4,735
  5,164
  5,610
  6,075
  6,558
  7,060
  7,582
  8,124
  8,688
  9,274
  9,883
  10,517
  11,176
  11,863
  12,578
  13,324
  14,101
  14,912
  15,758
  16,642
  17,565
  18,530
  19,538
  20,593
  21,697
  22,852
  24,061
  25,327
  26,653
  28,042
Adjusted assets (=assets-cash), $m
  4,735
  5,164
  5,610
  6,075
  6,558
  7,060
  7,582
  8,124
  8,688
  9,274
  9,883
  10,517
  11,176
  11,863
  12,578
  13,324
  14,101
  14,912
  15,758
  16,642
  17,565
  18,530
  19,538
  20,593
  21,697
  22,852
  24,061
  25,327
  26,653
  28,042
Revenue / Adjusted assets
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
Average production assets, $m
  3,853
  4,202
  4,565
  4,943
  5,336
  5,745
  6,170
  6,611
  7,069
  7,546
  8,042
  8,557
  9,094
  9,653
  10,235
  10,841
  11,474
  12,134
  12,822
  13,541
  14,293
  15,078
  15,898
  16,757
  17,655
  18,594
  19,578
  20,608
  21,687
  22,818
Working capital, $m
  81
  89
  96
  104
  113
  121
  130
  140
  149
  159
  170
  181
  192
  204
  216
  229
  242
  256
  271
  286
  302
  318
  336
  354
  373
  393
  413
  435
  458
  482
Total debt, $m
  2,020
  2,251
  2,492
  2,742
  3,002
  3,273
  3,554
  3,847
  4,150
  4,466
  4,795
  5,136
  5,492
  5,862
  6,247
  6,649
  7,068
  7,505
  7,961
  8,438
  8,935
  9,455
  9,999
  10,567
  11,162
  11,785
  12,436
  13,119
  13,833
  14,582
Total liabilities, $m
  2,552
  2,783
  3,024
  3,274
  3,535
  3,805
  4,087
  4,379
  4,683
  4,999
  5,327
  5,669
  6,024
  6,394
  6,780
  7,181
  7,600
  8,037
  8,494
  8,970
  9,468
  9,987
  10,531
  11,100
  11,695
  12,317
  12,969
  13,651
  14,366
  15,114
Total equity, $m
  2,183
  2,381
  2,586
  2,801
  3,023
  3,255
  3,495
  3,745
  4,005
  4,275
  4,556
  4,848
  5,152
  5,469
  5,799
  6,142
  6,501
  6,874
  7,264
  7,672
  8,097
  8,542
  9,007
  9,493
  10,002
  10,535
  11,092
  11,676
  12,287
  12,927
Total liabilities and equity, $m
  4,735
  5,164
  5,610
  6,075
  6,558
  7,060
  7,582
  8,124
  8,688
  9,274
  9,883
  10,517
  11,176
  11,863
  12,579
  13,323
  14,101
  14,911
  15,758
  16,642
  17,565
  18,529
  19,538
  20,593
  21,697
  22,852
  24,061
  25,327
  26,653
  28,041
Debt-to-equity ratio
  0.930
  0.950
  0.960
  0.980
  0.990
  1.010
  1.020
  1.030
  1.040
  1.040
  1.050
  1.060
  1.070
  1.070
  1.080
  1.080
  1.090
  1.090
  1.100
  1.100
  1.100
  1.110
  1.110
  1.110
  1.120
  1.120
  1.120
  1.120
  1.130
  1.130
Adjusted equity ratio
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3
  17
  37
  57
  79
  101
  124
  148
  173
  199
  463
  491
  520
  550
  582
  615
  650
  685
  723
  762
  803
  846
  890
  937
  986
  1,037
  1,091
  1,147
  1,206
  1,268
Depreciation, amort., depletion, $m
  710
  745
  782
  819
  859
  899
  942
  986
  1,032
  1,080
  804
  856
  909
  965
  1,023
  1,084
  1,147
  1,213
  1,282
  1,354
  1,429
  1,508
  1,590
  1,676
  1,765
  1,859
  1,958
  2,061
  2,169
  2,282
Funds from operations, $m
  708
  762
  818
  877
  937
  1,000
  1,066
  1,134
  1,205
  1,278
  1,267
  1,347
  1,429
  1,516
  1,606
  1,699
  1,797
  1,899
  2,005
  2,116
  2,232
  2,353
  2,480
  2,613
  2,752
  2,897
  3,049
  3,208
  3,375
  3,549
Change in working capital, $m
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
Cash from operations, $m
  701
  755
  811
  869
  929
  992
  1,057
  1,125
  1,195
  1,268
  1,257
  1,336
  1,418
  1,504
  1,593
  1,686
  1,784
  1,885
  1,991
  2,101
  2,216
  2,337
  2,463
  2,595
  2,733
  2,877
  3,028
  3,186
  3,352
  3,525
Maintenance CAPEX, $m
  -352
  -385
  -420
  -457
  -494
  -534
  -574
  -617
  -661
  -707
  -755
  -804
  -856
  -909
  -965
  -1,023
  -1,084
  -1,147
  -1,213
  -1,282
  -1,354
  -1,429
  -1,508
  -1,590
  -1,676
  -1,765
  -1,859
  -1,958
  -2,061
  -2,169
New CAPEX, $m
  -335
  -349
  -363
  -378
  -393
  -409
  -425
  -441
  -459
  -477
  -496
  -516
  -537
  -559
  -582
  -607
  -632
  -660
  -689
  -719
  -751
  -785
  -821
  -858
  -898
  -940
  -984
  -1,030
  -1,079
  -1,130
Cash from investing activities, $m
  -687
  -734
  -783
  -835
  -887
  -943
  -999
  -1,058
  -1,120
  -1,184
  -1,251
  -1,320
  -1,393
  -1,468
  -1,547
  -1,630
  -1,716
  -1,807
  -1,902
  -2,001
  -2,105
  -2,214
  -2,329
  -2,448
  -2,574
  -2,705
  -2,843
  -2,988
  -3,140
  -3,299
Free cash flow, $m
  14
  21
  27
  34
  42
  49
  58
  66
  75
  85
  6
  16
  26
  36
  46
  56
  67
  78
  89
  100
  111
  123
  134
  147
  159
  172
  185
  198
  212
  226
Issuance/(repayment) of debt, $m
  223
  231
  241
  250
  260
  271
  281
  292
  304
  316
  328
  342
  355
  370
  386
  402
  419
  437
  456
  476
  498
  520
  544
  569
  595
  623
  652
  682
  715
  749
Issuance/(repurchase) of shares, $m
  192
  181
  169
  157
  144
  131
  117
  102
  87
  71
  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  
  415
  412
  410
  407
  404
  402
  398
  394
  391
  387
  328
  342
  355
  370
  386
  402
  419
  437
  456
  476
  498
  520
  544
  569
  595
  623
  652
  682
  715
  749
Total cash flow (excl. dividends), $m
  429
  432
  437
  441
  446
  451
  456
  461
  466
  472
  335
  357
  381
  406
  432
  458
  486
  515
  545
  576
  609
  643
  678
  715
  754
  794
  836
  881
  927
  975
Retained Cash Flow (-), $m
  -192
  -198
  -206
  -214
  -223
  -231
  -241
  -250
  -260
  -270
  -281
  -292
  -304
  -317
  -330
  -344
  -358
  -374
  -390
  -407
  -426
  -445
  -465
  -486
  -509
  -532
  -557
  -584
  -611
  -640
Prev. year cash balance distribution, $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 flow adjustment, $m
  89
  97
  106
  115
  125
  135
  145
  156
  167
  178
  190
  203
  216
  229
  244
  258
  274
  290
  306
  324
  342
  361
  380
  401
  423
  445
  469
  494
  520
  547
Cash available for distribution, $m
  237
  235
  231
  227
  223
  219
  215
  211
  206
  202
  54
  65
  77
  89
  102
  115
  128
  141
  155
  169
  183
  198
  213
  229
  245
  262
  279
  297
  316
  335
Discount rate, %
  6.40
  6.72
  7.06
  7.41
  7.78
  8.17
  8.58
  9.01
  9.46
  9.93
  10.42
  10.95
  11.49
  12.07
  12.67
  13.31
  13.97
  14.67
  15.40
  16.17
  16.98
  17.83
  18.72
  19.66
  20.64
  21.67
  22.76
  23.89
  25.09
  26.34
PV of cash for distribution, $m
  223
  206
  188
  171
  154
  137
  121
  106
  92
  78
  18
  19
  19
  18
  17
  16
  14
  12
  10
  8
  7
  5
  4
  3
  2
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  97.6
  95.6
  94.0
  92.5
  91.4
  90.4
  89.6
  88.9
  88.4
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0
  88.0

Microsemi Corporation is a designer, manufacturer and marketer of analog and mixed-signal semiconductor solutions differentiated by power, security, reliability and performance. The Company offers a portfolio of semiconductor and system solutions for aerospace and defense, communications, data center and industrial markets. Its products include high-performance and radiation-hardened analog mixed-signal integrated circuits (ICs), field programmable gate arrays (FPGAs), system on chip solutions (SoCs) and application-specific integrated circuits (ASICs) and power management products. The Company's marketed products include Switchtec PFX PCIe switch, Flashtec NVM Express (NVMe)2032 and NVMe2016 controllers, Flashtec NVM Express (NVMe)2108 eight channel and NVMe2104 four channel controllers, PDS-EM-8100 PoE 2.5 gigabits per second (Gbps) Multiplexer, Chip Scale Atomic Clock (CSAC) components and miTimePLL.

FINANCIAL RATIOS  of  Microsemi (MSCC)

Valuation Ratios
P/E Ratio 45.4
Price to Sales 4.4
Price to Book 4
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 19
Growth Rates
Sales Growth Rate 9.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 12.2%
Cap. Spend. - 3 Yr. Gr. Rate 7.1%
Financial Strength
Quick Ratio 2
Current Ratio 0.2
LT Debt to Equity 87.1%
Total Debt to Equity 90.1%
Interest Coverage 2
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 4.6%
Ret/ On T. Cap. - 3 Yr. Avg. 2.6%
Return On Equity 9.5%
Return On Equity - 3 Yr. Avg. 4.8%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 63.9%
Gross Margin - 3 Yr. Avg. 58.5%
EBITDA Margin 26.6%
EBITDA Margin - 3 Yr. Avg. 21.2%
Operating Margin 14.9%
Oper. Margin - 3 Yr. Avg. 9.3%
Pre-Tax Margin 7.5%
Pre-Tax Margin - 3 Yr. Avg. 4.6%
Net Profit Margin 9.7%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate -29.4%
Eff/ Tax Rate - 3 Yr. Avg. -16.3%
Payout Ratio 0%

MSCC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MSCC stock intrinsic value calculation we used $1812 million for the last fiscal year's total revenue generated by Microsemi. The default revenue input number comes from 2017 income statement of Microsemi. 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 MSCC stock valuation model: a) initial revenue growth rate of 9.5% 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 6.4%, whose default value for MSCC is calculated based on our internal credit rating of Microsemi, 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 Microsemi.
    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 MSCC stock the variable cost ratio is equal to 96.8%.

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 MSCC 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 Microsemi.

Corporate tax rate of 27% is the nominal tax rate for Microsemi. 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 MSCC stock is equal to 4.9%.

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 MSCC are equal to 194.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Microsemi 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 MSCC is equal to 4.1%. 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 - $1994 million for Microsemi - 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 115 million for Microsemi 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 Microsemi at the current share price and the inputted number of shares is $7.9 billion.

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