Intrinsic value of MTS Systems Corporation - MTSC

Previous Close

$55.24

  Intrinsic Value

$37.07

stock screener

  Rating & Target

sell

-33%

Previous close

$55.24

 
Intrinsic value

$37.07

 
Up/down potential

-33%

 
Rating

sell

We calculate the intrinsic value of MTSC 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 1.0

 

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, %
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.85
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
Revenue, $m
  814
  852
  891
  933
  978
  1,024
  1,073
  1,125
  1,179
  1,236
  1,296
  1,359
  1,426
  1,496
  1,569
  1,646
  1,727
  1,813
  1,902
  1,996
  2,095
  2,199
  2,308
  2,423
  2,543
  2,669
  2,802
  2,942
  3,088
  3,242
Variable operating expenses, $m
  755
  787
  821
  857
  894
  934
  976
  1,020
  1,066
  1,115
  1,104
  1,158
  1,215
  1,274
  1,337
  1,403
  1,472
  1,544
  1,621
  1,701
  1,785
  1,873
  1,966
  2,064
  2,166
  2,274
  2,387
  2,506
  2,631
  2,762
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
  755
  787
  821
  857
  894
  934
  976
  1,020
  1,066
  1,115
  1,104
  1,158
  1,215
  1,274
  1,337
  1,403
  1,472
  1,544
  1,621
  1,701
  1,785
  1,873
  1,966
  2,064
  2,166
  2,274
  2,387
  2,506
  2,631
  2,762
Operating income, $m
  59
  65
  70
  77
  83
  90
  97
  105
  113
  122
  192
  201
  211
  221
  232
  244
  256
  268
  282
  296
  310
  326
  342
  359
  376
  395
  415
  436
  457
  480
EBITDA, $m
  141
  148
  154
  162
  169
  177
  186
  195
  204
  214
  225
  235
  247
  259
  272
  285
  299
  314
  329
  346
  363
  381
  400
  420
  440
  462
  485
  510
  535
  562
Interest expense (income), $m
  30
  24
  26
  28
  30
  32
  34
  36
  39
  42
  45
  47
  51
  54
  57
  61
  65
  69
  73
  77
  82
  87
  92
  97
  103
  109
  115
  122
  129
  136
  144
Earnings before tax, $m
  35
  39
  43
  47
  51
  56
  61
  66
  71
  77
  144
  151
  157
  164
  171
  179
  187
  195
  204
  213
  223
  233
  244
  256
  267
  280
  293
  307
  321
  336
Tax expense, $m
  10
  11
  12
  13
  14
  15
  16
  18
  19
  21
  39
  41
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
Net income, $m
  26
  28
  31
  34
  38
  41
  44
  48
  52
  56
  105
  110
  115
  120
  125
  131
  136
  143
  149
  156
  163
  170
  178
  187
  195
  204
  214
  224
  234
  246

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
  1,191
  1,247
  1,305
  1,367
  1,431
  1,499
  1,571
  1,647
  1,726
  1,810
  1,898
  1,990
  2,088
  2,190
  2,297
  2,410
  2,529
  2,654
  2,785
  2,923
  3,067
  3,220
  3,379
  3,547
  3,723
  3,908
  4,103
  4,307
  4,521
  4,747
Adjusted assets (=assets-cash), $m
  1,191
  1,247
  1,305
  1,367
  1,431
  1,499
  1,571
  1,647
  1,726
  1,810
  1,898
  1,990
  2,088
  2,190
  2,297
  2,410
  2,529
  2,654
  2,785
  2,923
  3,067
  3,220
  3,379
  3,547
  3,723
  3,908
  4,103
  4,307
  4,521
  4,747
Revenue / Adjusted assets
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
Average production assets, $m
  424
  444
  464
  486
  509
  534
  559
  586
  614
  644
  675
  708
  743
  779
  818
  858
  900
  944
  991
  1,040
  1,092
  1,146
  1,202
  1,262
  1,325
  1,391
  1,460
  1,533
  1,609
  1,689
Working capital, $m
  157
  164
  172
  180
  189
  198
  207
  217
  228
  239
  250
  262
  275
  289
  303
  318
  333
  350
  367
  385
  404
  424
  445
  468
  491
  515
  541
  568
  596
  626
Total debt, $m
  419
  451
  485
  521
  558
  598
  640
  684
  730
  778
  830
  883
  940
  999
  1,062
  1,127
  1,196
  1,269
  1,345
  1,425
  1,509
  1,597
  1,690
  1,788
  1,890
  1,998
  2,111
  2,229
  2,354
  2,485
Total liabilities, $m
  692
  724
  758
  794
  832
  871
  913
  957
  1,003
  1,052
  1,103
  1,156
  1,213
  1,272
  1,335
  1,400
  1,469
  1,542
  1,618
  1,698
  1,782
  1,871
  1,963
  2,061
  2,163
  2,271
  2,384
  2,502
  2,627
  2,758
Total equity, $m
  499
  522
  547
  573
  600
  628
  658
  690
  723
  758
  795
  834
  875
  918
  963
  1,010
  1,060
  1,112
  1,167
  1,225
  1,285
  1,349
  1,416
  1,486
  1,560
  1,638
  1,719
  1,805
  1,894
  1,989
Total liabilities and equity, $m
  1,191
  1,246
  1,305
  1,367
  1,432
  1,499
  1,571
  1,647
  1,726
  1,810
  1,898
  1,990
  2,088
  2,190
  2,298
  2,410
  2,529
  2,654
  2,785
  2,923
  3,067
  3,220
  3,379
  3,547
  3,723
  3,909
  4,103
  4,307
  4,521
  4,747
Debt-to-equity ratio
  0.840
  0.860
  0.890
  0.910
  0.930
  0.950
  0.970
  0.990
  1.010
  1.030
  1.040
  1.060
  1.070
  1.090
  1.100
  1.120
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
  1.200
  1.210
  1.220
  1.230
  1.240
  1.240
  1.250
Adjusted equity ratio
  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

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  26
  28
  31
  34
  38
  41
  44
  48
  52
  56
  105
  110
  115
  120
  125
  131
  136
  143
  149
  156
  163
  170
  178
  187
  195
  204
  214
  224
  234
  246
Depreciation, amort., depletion, $m
  82
  83
  84
  85
  86
  87
  89
  90
  91
  93
  33
  34
  36
  38
  39
  41
  43
  46
  48
  50
  53
  55
  58
  61
  64
  67
  71
  74
  78
  82
Funds from operations, $m
  108
  111
  115
  119
  124
  128
  133
  138
  143
  149
  138
  144
  151
  157
  165
  172
  180
  188
  197
  206
  216
  226
  236
  248
  259
  272
  284
  298
  312
  327
Change in working capital, $m
  7
  7
  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
Cash from operations, $m
  101
  104
  108
  111
  115
  119
  124
  128
  133
  138
  126
  132
  138
  144
  150
  157
  164
  172
  180
  188
  197
  206
  215
  225
  236
  247
  259
  271
  284
  297
Maintenance CAPEX, $m
  -20
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
New CAPEX, $m
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
Cash from investing activities, $m
  -39
  -40
  -42
  -44
  -46
  -49
  -52
  -54
  -56
  -60
  -62
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -93
  -97
  -101
  -107
  -112
  -118
  -124
  -130
  -136
  -144
  -150
  -158
Free cash flow, $m
  62
  64
  65
  67
  69
  70
  72
  74
  76
  78
  64
  66
  69
  72
  75
  77
  81
  84
  87
  91
  95
  99
  103
  108
  112
  117
  122
  128
  134
  140
Issuance/(repayment) of debt, $m
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  59
  62
  66
  69
  72
  76
  80
  84
  88
  93
  97
  102
  108
  113
  119
  125
  131
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  
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  59
  62
  66
  69
  72
  76
  80
  84
  88
  93
  97
  102
  108
  113
  119
  125
  131
Total cash flow (excl. dividends), $m
  93
  96
  99
  103
  106
  110
  114
  118
  122
  127
  115
  120
  126
  131
  137
  143
  150
  156
  164
  171
  179
  187
  196
  205
  215
  225
  235
  246
  258
  270
Retained Cash Flow (-), $m
  -21
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -81
  -86
  -90
  -94
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
  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
  72
  73
  75
  77
  79
  81
  84
  86
  89
  92
  78
  81
  85
  88
  92
  96
  100
  104
  109
  113
  118
  124
  129
  135
  141
  147
  154
  161
  168
  176
Discount rate, %
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
  67
  64
  60
  57
  53
  50
  46
  42
  38
  34
  25
  22
  19
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
  2
  1
  1
  0
  0
  0
  0
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

MTS Systems Corporation is a supplier of test systems and position sensors. The Company operates through two segments: Test and Sensors. The Test segment provides testing solutions, including hardware, software and services to ground vehicles, materials and structures markets. The Sensors segment provides position sensors for a range of industrial and mobile hydraulic applications. The Sensors segment products are used by industrial machinery and mobile equipment manufacturers to automate the operation of their products for safety and end-user productivity. The Sensors segment manufactures products utilizing magnetostriction technology. Its technology, Temposonics, offers non-contact position sensing. Its Temposonics sensors provide position feedback for motion control systems. It also provides various service offerings, including calibration, maintenance, training and consulting. The Company has its manufacturing facilities in North America, Europe and Asia.

FINANCIAL RATIOS  of  MTS Systems Corporation (MTSC)

Valuation Ratios
P/E Ratio 39.2
Price to Sales 1.2
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 13.6
Price to Free Cash Flow 18.2
Growth Rates
Sales Growth Rate 21.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.3%
Cap. Spend. - 3 Yr. Gr. Rate -2.1%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 97.7%
Total Debt to Equity 106.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.8%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 2.8%
Ret/ On T. Cap. - 3 Yr. Avg. 7.5%
Return On Equity 6%
Return On Equity - 3 Yr. Avg. 10.5%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 38.3%
Gross Margin - 3 Yr. Avg. 37.6%
EBITDA Margin 11.3%
EBITDA Margin - 3 Yr. Avg. 11.6%
Operating Margin 7%
Oper. Margin - 3 Yr. Avg. 8.1%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 6.2%
Net Profit Margin 3.2%
Net Profit Margin - 3 Yr. Avg. 5.1%
Effective Tax Rate -8.7%
Eff/ Tax Rate - 3 Yr. Avg. 11.9%
Payout Ratio 80%

MTSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MTSC stock intrinsic value calculation we used $778 million for the last fiscal year's total revenue generated by MTS Systems Corporation. The default revenue input number comes from 0001 income statement of MTS Systems Corporation. 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 MTSC stock valuation model: a) initial revenue growth rate of 4.6% 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 6.7%, whose default value for MTSC is calculated based on our internal credit rating of MTS Systems Corporation, 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 MTS Systems Corporation.
    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 MTSC stock the variable cost ratio is equal to 93.1%.

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 MTSC 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 6.1% for MTS Systems Corporation.

Corporate tax rate of 27% is the nominal tax rate for MTS Systems Corporation. 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 MTSC 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 MTSC are equal to 52.1%.

Life of production assets of 20.7 years is the average useful life of capital assets used in MTS Systems Corporation 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 MTSC is equal to 19.3%. 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 - $477.932 million for MTS Systems Corporation - 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 17.902 million for MTS Systems Corporation 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 MTS Systems Corporation at the current share price and the inputted number of shares is $1.0 billion.

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