Intrinsic value of NETGEAR, Inc. - NTGR

Previous Close

$36.15

  Intrinsic Value

$9.54

stock screener

  Rating & Target

str. sell

-74%

Previous close

$36.15

 
Intrinsic value

$9.54

 
Up/down potential

-74%

 
Rating

str. sell

We calculate the intrinsic value of NTGR 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 1.1

 

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, %
  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
  1,080
  1,105
  1,133
  1,165
  1,201
  1,239
  1,282
  1,327
  1,377
  1,429
  1,486
  1,546
  1,610
  1,679
  1,751
  1,828
  1,909
  1,995
  2,086
  2,181
  2,283
  2,389
  2,502
  2,620
  2,745
  2,876
  3,014
  3,160
  3,313
  3,474
Variable operating expenses, $m
  1,036
  1,059
  1,086
  1,117
  1,150
  1,187
  1,227
  1,270
  1,317
  1,367
  1,411
  1,468
  1,529
  1,594
  1,663
  1,736
  1,813
  1,895
  1,981
  2,072
  2,168
  2,269
  2,376
  2,488
  2,607
  2,732
  2,863
  3,001
  3,146
  3,299
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
  1,036
  1,059
  1,086
  1,117
  1,150
  1,187
  1,227
  1,270
  1,317
  1,367
  1,411
  1,468
  1,529
  1,594
  1,663
  1,736
  1,813
  1,895
  1,981
  2,072
  2,168
  2,269
  2,376
  2,488
  2,607
  2,732
  2,863
  3,001
  3,146
  3,299
Operating income, $m
  44
  46
  47
  49
  51
  52
  55
  57
  59
  62
  75
  78
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  151
  159
  166
  175
EBITDA, $m
  66
  67
  69
  71
  73
  75
  78
  81
  84
  87
  90
  94
  98
  102
  106
  111
  116
  121
  127
  133
  139
  145
  152
  159
  167
  175
  183
  192
  201
  211
Interest expense (income), $m
  0
  0
  0
  1
  2
  2
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  31
  33
  36
  39
  42
  45
  48
Earnings before tax, $m
  44
  45
  46
  47
  48
  49
  51
  52
  54
  55
  67
  69
  71
  73
  75
  77
  80
  82
  85
  88
  91
  94
  97
  101
  105
  109
  113
  117
  122
  127
Tax expense, $m
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  18
  19
  19
  20
  20
  21
  21
  22
  23
  24
  25
  25
  26
  27
  28
  29
  30
  32
  33
  34
Net income, $m
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
  49
  50
  52
  53
  55
  56
  58
  60
  62
  64
  66
  69
  71
  74
  76
  79
  82
  86
  89
  92

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
  1,064
  1,089
  1,117
  1,148
  1,183
  1,221
  1,263
  1,308
  1,356
  1,408
  1,464
  1,523
  1,587
  1,654
  1,725
  1,801
  1,881
  1,965
  2,055
  2,149
  2,249
  2,354
  2,465
  2,581
  2,704
  2,834
  2,970
  3,113
  3,264
  3,422
Adjusted assets (=assets-cash), $m
  1,064
  1,089
  1,117
  1,148
  1,183
  1,221
  1,263
  1,308
  1,356
  1,408
  1,464
  1,523
  1,587
  1,654
  1,725
  1,801
  1,881
  1,965
  2,055
  2,149
  2,249
  2,354
  2,465
  2,581
  2,704
  2,834
  2,970
  3,113
  3,264
  3,422
Revenue / Adjusted assets
  1.015
  1.015
  1.014
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.014
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
Average production assets, $m
  66
  67
  69
  71
  73
  76
  78
  81
  84
  87
  91
  94
  98
  102
  107
  111
  116
  122
  127
  133
  139
  146
  153
  160
  167
  175
  184
  193
  202
  212
Working capital, $m
  203
  208
  213
  219
  226
  233
  241
  250
  259
  269
  279
  291
  303
  316
  329
  344
  359
  375
  392
  410
  429
  449
  470
  493
  516
  541
  567
  594
  623
  653
Total debt, $m
  9
  19
  30
  42
  56
  71
  88
  106
  125
  146
  168
  192
  217
  244
  273
  303
  335
  368
  404
  442
  481
  523
  568
  614
  663
  715
  769
  826
  886
  950
Total liabilities, $m
  425
  434
  446
  458
  472
  487
  504
  522
  541
  562
  584
  608
  633
  660
  688
  719
  750
  784
  820
  858
  897
  939
  983
  1,030
  1,079
  1,131
  1,185
  1,242
  1,302
  1,366
Total equity, $m
  640
  654
  671
  690
  711
  734
  759
  786
  815
  846
  880
  916
  954
  994
  1,037
  1,082
  1,130
  1,181
  1,235
  1,292
  1,352
  1,415
  1,481
  1,551
  1,625
  1,703
  1,785
  1,871
  1,962
  2,057
Total liabilities and equity, $m
  1,065
  1,088
  1,117
  1,148
  1,183
  1,221
  1,263
  1,308
  1,356
  1,408
  1,464
  1,524
  1,587
  1,654
  1,725
  1,801
  1,880
  1,965
  2,055
  2,150
  2,249
  2,354
  2,464
  2,581
  2,704
  2,834
  2,970
  3,113
  3,264
  3,423
Debt-to-equity ratio
  0.010
  0.030
  0.040
  0.060
  0.080
  0.100
  0.120
  0.130
  0.150
  0.170
  0.190
  0.210
  0.230
  0.250
  0.260
  0.280
  0.300
  0.310
  0.330
  0.340
  0.360
  0.370
  0.380
  0.400
  0.410
  0.420
  0.430
  0.440
  0.450
  0.460
Adjusted equity ratio
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
  49
  50
  52
  53
  55
  56
  58
  60
  62
  64
  66
  69
  71
  74
  76
  79
  82
  86
  89
  92
Depreciation, amort., depletion, $m
  21
  21
  22
  22
  22
  23
  23
  24
  24
  25
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
Funds from operations, $m
  54
  54
  55
  56
  58
  59
  60
  62
  63
  65
  64
  66
  68
  71
  73
  76
  78
  81
  84
  87
  90
  94
  97
  101
  105
  110
  114
  119
  124
  129
Change in working capital, $m
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
Cash from operations, $m
  50
  50
  50
  50
  51
  52
  52
  53
  54
  55
  54
  55
  56
  58
  59
  61
  63
  65
  67
  69
  71
  74
  76
  79
  82
  85
  88
  91
  95
  99
Maintenance CAPEX, $m
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
New CAPEX, $m
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from investing activities, $m
  -12
  -13
  -14
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -33
  -36
  -37
  -38
  -41
  -42
  -45
Free cash flow, $m
  37
  37
  37
  37
  37
  37
  37
  37
  37
  38
  35
  36
  36
  37
  37
  38
  39
  40
  40
  41
  42
  43
  44
  46
  47
  48
  49
  51
  52
  54
Issuance/(repayment) of debt, $m
  9
  10
  11
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
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
  1
  2
  3
Cash from financing (excl. dividends), $m  
  9
  10
  11
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  58
  62
  66
Total cash flow (excl. dividends), $m
  46
  47
  48
  49
  50
  52
  53
  55
  57
  58
  57
  59
  61
  64
  66
  68
  71
  73
  76
  79
  82
  85
  89
  92
  96
  100
  104
  109
  114
  120
Retained Cash Flow (-), $m
  -12
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -86
  -91
  -95
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
  34
  32
  31
  30
  30
  29
  28
  28
  27
  27
  24
  24
  23
  23
  23
  23
  23
  22
  22
  22
  22
  22
  22
  22
  22
  22
  22
  22
  24
  25
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
  32
  29
  27
  25
  23
  21
  19
  17
  16
  14
  11
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  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
  99.9
  99.9

NETGEAR, Inc. designs, develops and markets networking solutions and smart connected products for consumers, businesses and service providers. The Company's product line consists of devices, such as network attached storage, Internet protocol (IP) security cameras, and home automation devices and services. The Company's segments include retail, commercial and service provider. The retail business unit is focused on individual consumers and consists of whole home wireless fidelity (WiFi) networking solutions and Smart connected products. The commercial business unit is focused on small and medium-sized businesses and consists of business networking, storage and security solutions. The service provider business unit is focused on the service provider market and consists of made-to-order and retail-proven whole home networking hardware and software solutions, including fourth-generation (4G) long term evolution (LTE) hotspots sold to service providers for sale to their subscribers.

FINANCIAL RATIOS  of  NETGEAR, Inc. (NTGR)

Valuation Ratios
P/E Ratio 15.7
Price to Sales 0.9
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 10.4
Price to Free Cash Flow 11.5
Growth Rates
Sales Growth Rate 2.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.4%
Cap. Spend. - 3 Yr. Gr. Rate -9.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 6%
Return On Equity 10.1%
Return On Equity - 3 Yr. Avg. 6%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 31%
Gross Margin - 3 Yr. Avg. 29.3%
EBITDA Margin 11.1%
EBITDA Margin - 3 Yr. Avg. 8.4%
Operating Margin 8.6%
Oper. Margin - 3 Yr. Avg. 5.8%
Pre-Tax Margin 8.7%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 5.7%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 33.9%
Eff/ Tax Rate - 3 Yr. Avg. 49.3%
Payout Ratio 0%

NTGR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NTGR stock intrinsic value calculation we used $1059 million for the last fiscal year's total revenue generated by NETGEAR, Inc.. The default revenue input number comes from 0001 income statement of NETGEAR, 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 NTGR 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 NTGR is calculated based on our internal credit rating of NETGEAR, 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 NETGEAR, 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 NTGR stock the variable cost ratio is equal to 95.9%.

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 NTGR 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 NETGEAR, Inc..

Corporate tax rate of 27% is the nominal tax rate for NETGEAR, 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 NTGR 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 NTGR are equal to 6.1%.

Life of production assets of 5.8 years is the average useful life of capital assets used in NETGEAR, 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 NTGR is equal to 18.8%. 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 - $627.552 million for NETGEAR, 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 31.448 million for NETGEAR, 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 NETGEAR, Inc. at the current share price and the inputted number of shares is $1.1 billion.

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