Intrinsic value of Oclaro - OCLR

Previous Close

$7.75

  Intrinsic Value

$6.82

stock screener

  Rating & Target

hold

-12%

Previous close

$7.75

 
Intrinsic value

$6.82

 
Up/down potential

-12%

 
Rating

hold

We calculate the intrinsic value of OCLR 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 1.3

 

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
  613
  627
  643
  661
  681
  703
  727
  753
  781
  811
  843
  877
  914
  953
  994
  1,037
  1,083
  1,132
  1,184
  1,238
  1,295
  1,356
  1,420
  1,487
  1,558
  1,632
  1,711
  1,793
  1,880
  1,971
Variable operating expenses, $m
  286
  292
  300
  308
  317
  328
  339
  351
  364
  378
  393
  409
  426
  444
  463
  483
  505
  527
  551
  577
  603
  632
  661
  693
  726
  760
  797
  835
  876
  918
Fixed operating expenses, $m
  211
  215
  220
  225
  230
  235
  240
  245
  251
  256
  262
  267
  273
  279
  286
  292
  298
  305
  311
  318
  325
  332
  340
  347
  355
  363
  371
  379
  387
  396
Total operating expenses, $m
  497
  507
  520
  533
  547
  563
  579
  596
  615
  634
  655
  676
  699
  723
  749
  775
  803
  832
  862
  895
  928
  964
  1,001
  1,040
  1,081
  1,123
  1,168
  1,214
  1,263
  1,314
Operating income, $m
  117
  120
  124
  128
  134
  141
  148
  157
  167
  177
  189
  201
  215
  229
  245
  262
  280
  300
  321
  343
  367
  392
  418
  447
  477
  509
  543
  579
  617
  657
EBITDA, $m
  135
  139
  143
  148
  155
  162
  170
  180
  190
  201
  214
  228
  242
  258
  275
  293
  313
  334
  356
  380
  405
  432
  461
  491
  524
  558
  594
  633
  673
  716
Interest expense (income), $m
  13
  1
  3
  4
  5
  7
  9
  11
  13
  15
  18
  21
  24
  27
  30
  34
  38
  42
  46
  50
  55
  60
  66
  71
  77
  83
  90
  97
  104
  111
  120
Earnings before tax, $m
  115
  117
  120
  123
  127
  132
  138
  144
  151
  159
  168
  177
  188
  199
  211
  225
  239
  254
  270
  288
  306
  326
  347
  370
  394
  419
  446
  475
  505
  538
Tax expense, $m
  31
  32
  32
  33
  34
  36
  37
  39
  41
  43
  45
  48
  51
  54
  57
  61
  64
  69
  73
  78
  83
  88
  94
  100
  106
  113
  121
  128
  136
  145
Net income, $m
  84
  86
  87
  90
  93
  96
  100
  105
  110
  116
  123
  129
  137
  145
  154
  164
  174
  185
  197
  210
  224
  238
  254
  270
  287
  306
  326
  347
  369
  393

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
  549
  562
  576
  593
  611
  630
  652
  675
  700
  727
  756
  786
  819
  854
  890
  929
  971
  1,014
  1,061
  1,109
  1,161
  1,215
  1,272
  1,332
  1,396
  1,463
  1,533
  1,607
  1,685
  1,766
Adjusted assets (=assets-cash), $m
  549
  562
  576
  593
  611
  630
  652
  675
  700
  727
  756
  786
  819
  854
  890
  929
  971
  1,014
  1,061
  1,109
  1,161
  1,215
  1,272
  1,332
  1,396
  1,463
  1,533
  1,607
  1,685
  1,766
Revenue / Adjusted assets
  1.117
  1.116
  1.116
  1.115
  1.115
  1.116
  1.115
  1.116
  1.116
  1.116
  1.115
  1.116
  1.116
  1.116
  1.117
  1.116
  1.115
  1.116
  1.116
  1.116
  1.115
  1.116
  1.116
  1.116
  1.116
  1.116
  1.116
  1.116
  1.116
  1.116
Average production assets, $m
  92
  94
  96
  99
  102
  106
  109
  113
  117
  122
  126
  132
  137
  143
  149
  156
  162
  170
  178
  186
  194
  203
  213
  223
  234
  245
  257
  269
  282
  296
Working capital, $m
  136
  139
  143
  147
  151
  156
  161
  167
  173
  180
  187
  195
  203
  211
  221
  230
  240
  251
  263
  275
  288
  301
  315
  330
  346
  362
  380
  398
  417
  438
Total debt, $m
  7
  10
  14
  19
  24
  29
  35
  42
  49
  56
  64
  72
  81
  91
  101
  112
  124
  136
  148
  162
  176
  191
  207
  224
  241
  260
  279
  300
  321
  344
Total liabilities, $m
  152
  156
  160
  164
  169
  175
  181
  187
  194
  201
  209
  218
  227
  236
  247
  257
  269
  281
  294
  307
  322
  337
  352
  369
  387
  405
  425
  445
  467
  489
Total equity, $m
  397
  406
  417
  428
  441
  456
  471
  488
  506
  525
  546
  568
  592
  617
  644
  672
  702
  733
  767
  802
  839
  878
  920
  963
  1,009
  1,057
  1,108
  1,162
  1,218
  1,277
Total liabilities and equity, $m
  549
  562
  577
  592
  610
  631
  652
  675
  700
  726
  755
  786
  819
  853
  891
  929
  971
  1,014
  1,061
  1,109
  1,161
  1,215
  1,272
  1,332
  1,396
  1,462
  1,533
  1,607
  1,685
  1,766
Debt-to-equity ratio
  0.020
  0.030
  0.030
  0.040
  0.050
  0.060
  0.070
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
Adjusted equity ratio
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  84
  86
  87
  90
  93
  96
  100
  105
  110
  116
  123
  129
  137
  145
  154
  164
  174
  185
  197
  210
  224
  238
  254
  270
  287
  306
  326
  347
  369
  393
Depreciation, amort., depletion, $m
  18
  19
  19
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  29
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
Funds from operations, $m
  103
  104
  107
  110
  113
  118
  122
  128
  134
  141
  148
  156
  165
  174
  184
  195
  207
  219
  233
  247
  262
  279
  296
  315
  334
  355
  377
  401
  425
  452
Change in working capital, $m
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
Cash from operations, $m
  100
  101
  103
  106
  109
  113
  117
  122
  128
  134
  141
  148
  156
  165
  175
  185
  197
  209
  221
  235
  250
  265
  282
  300
  319
  338
  360
  382
  406
  431
Maintenance CAPEX, $m
  -18
  -18
  -19
  -19
  -20
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
New CAPEX, $m
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
Cash from investing activities, $m
  -20
  -20
  -21
  -22
  -23
  -23
  -25
  -26
  -27
  -27
  -29
  -30
  -31
  -33
  -35
  -37
  -38
  -39
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -63
  -67
  -70
Free cash flow, $m
  80
  81
  82
  84
  86
  89
  92
  96
  101
  106
  112
  118
  125
  132
  140
  149
  158
  169
  180
  191
  204
  217
  232
  247
  263
  281
  299
  319
  339
  361
Issuance/(repayment) of debt, $m
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  22
  23
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  
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  22
  23
Total cash flow (excl. dividends), $m
  84
  84
  86
  88
  91
  94
  98
  103
  108
  113
  120
  126
  134
  142
  150
  160
  170
  181
  192
  205
  218
  232
  248
  264
  281
  299
  318
  339
  361
  384
Retained Cash Flow (-), $m
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -53
  -56
  -59
Prev. year cash balance distribution, $m
  124
  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
  200
  75
  76
  77
  78
  80
  83
  86
  90
  94
  99
  104
  110
  117
  124
  132
  140
  149
  159
  170
  181
  193
  206
  220
  235
  251
  268
  286
  305
  325
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
  192
  69
  66
  63
  60
  58
  56
  54
  52
  49
  47
  44
  42
  39
  36
  33
  30
  27
  24
  22
  19
  16
  14
  11
  9
  7
  6
  4
  3
  2
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

Oclaro, Inc. is a provider of optical components, modules and subsystems for the core optical transport, service provider, enterprise and data center markets. The Company provides various solutions for optical networks and interconnects driving the next wave of streaming video, cloud computing, application virtualization and other bandwidth-intensive and high-speed applications. The Company's product offerings include client side transceivers, line side transceivers, tunable laser transmitters, lithium niobate modulators, transponder modules, and discrete lasers and receivers. It designs, manufactures and markets optical components, modules and subsystems that generate, detect, combine and separate light signals in optical communications networks. The Company supplies transmission products at the component level and the module level into 10 gigabits per second (Gb/s), 40 Gb/s and 100 Gb/s communications solutions.

FINANCIAL RATIOS  of  Oclaro (OCLR)

Valuation Ratios
P/E Ratio 10.2
Price to Sales 2.2
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 52
Growth Rates
Sales Growth Rate 47.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 121.4%
Cap. Spend. - 3 Yr. Gr. Rate 47.1%
Financial Strength
Quick Ratio 129
Current Ratio 0
LT Debt to Equity 0.4%
Total Debt to Equity 0.8%
Interest Coverage 9
Management Effectiveness
Return On Assets 28.2%
Ret/ On Assets - 3 Yr. Avg. 5.2%
Return On Total Capital 34%
Ret/ On T. Cap. - 3 Yr. Avg. 4%
Return On Equity 37.6%
Return On Equity - 3 Yr. Avg. 3.9%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 39.1%
Gross Margin - 3 Yr. Avg. 28.1%
EBITDA Margin 23%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 19.8%
Oper. Margin - 3 Yr. Avg. 3.4%
Pre-Tax Margin 17.1%
Pre-Tax Margin - 3 Yr. Avg. 1.8%
Net Profit Margin 21.3%
Net Profit Margin - 3 Yr. Avg. 2.3%
Effective Tax Rate -24.3%
Eff/ Tax Rate - 3 Yr. Avg. -8.1%
Payout Ratio 0%

OCLR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OCLR stock intrinsic value calculation we used $600.968 million for the last fiscal year's total revenue generated by Oclaro. The default revenue input number comes from 0001 income statement of Oclaro. 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 OCLR 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 OCLR is calculated based on our internal credit rating of Oclaro, 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 Oclaro.
    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 OCLR stock the variable cost ratio is equal to 46.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $206 million in the base year in the intrinsic value calculation for OCLR 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 37.2% for Oclaro.

Corporate tax rate of 27% is the nominal tax rate for Oclaro. 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 OCLR 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 OCLR are equal to 15%.

Life of production assets of 4.2 years is the average useful life of capital assets used in Oclaro 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 OCLR is equal to 22.2%. 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 - $513.673 million for Oclaro - 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 170.214 million for Oclaro 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 Oclaro at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ Oclaro (OCLR) Misses Q1 Earnings Estimates   [Nov-08-18 06:30PM  Zacks]
▶ Oclaro: Fiscal 1Q Earnings Snapshot   [05:25PM  Associated Press]
▶ Oclaro: Fiscal 4Q Earnings Snapshot   [08:53AM  Associated Press]
▶ Acacia, Lumentum, Finisar Rise As Trump Nears ZTE Deal With China   [May-25-18 01:06PM  Investor's Business Daily]
▶ Tech companies climb as Trump lobbies for China's ZTE   [May-14-18 04:55PM  Associated Press]
▶ Why Oclaro, Inc. Stock Dropped 17.2% in April   [May-11-18 11:45AM  Motley Fool]
▶ Estimating The Intrinsic Value Of Oclaro Inc (NASDAQ:OCLR)   [May-08-18 12:43PM  Simply Wall St.]
▶ Oclaro: Fiscal 3Q Earnings Snapshot   [09:14AM  Associated Press]
▶ What Is Oclaro Incs (NASDAQ:OCLR) Share Price Doing?   [Apr-28-18 07:46AM  Simply Wall St.]
▶ Boycotts 'China's ultimate weapon' in trade war   [Apr-19-18 07:11PM  CNBC Videos]
▶ Ciena Might Gain From U.S. Sales Ban On Chinese Gear Maker ZTE   [Apr-17-18 04:10PM  Investor's Business Daily]
▶ Here's The Upshot On Possible Mergers In The Optical Industry   [Mar-15-18 04:16PM  Investor's Business Daily]
▶ Company News For Mar 13, 2018   [10:20AM  Zacks]
▶ Lumentum Buying Oclaro for $1.8 Billion   [09:29AM  Investopedia]
▶ Why Oclaro Inc. Stock Popped Today   [Mar-12-18 08:25PM  Motley Fool]
▶ Lumentum To Buy Oclaro; Is Industry Consolidation On Horizon?   [04:43PM  Investor's Business Daily]
▶ Closing Bell: LIVE MARKETS BLOG   [04:05PM  TheStreet.com]

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