Intrinsic value of OSI Systems, Inc. - OSIS

Previous Close

$102.99

  Intrinsic Value

$81.53

stock screener

  Rating & Target

sell

-21%

Previous close

$102.99

 
Intrinsic value

$81.53

 
Up/down potential

-21%

 
Rating

sell

We calculate the intrinsic value of OSIS 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 1.9

 

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, %
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
Revenue, $m
  1,190
  1,296
  1,406
  1,520
  1,639
  1,763
  1,891
  2,024
  2,163
  2,307
  2,457
  2,613
  2,776
  2,945
  3,121
  3,305
  3,496
  3,696
  3,905
  4,123
  4,350
  4,588
  4,837
  5,098
  5,370
  5,655
  5,954
  6,266
  6,594
  6,937
Variable operating expenses, $m
  979
  1,062
  1,149
  1,238
  1,332
  1,429
  1,530
  1,635
  1,744
  1,857
  1,932
  2,054
  2,182
  2,315
  2,454
  2,598
  2,749
  2,906
  3,070
  3,241
  3,420
  3,607
  3,803
  4,007
  4,222
  4,446
  4,680
  4,926
  5,183
  5,453
Fixed operating expenses, $m
  141
  144
  147
  151
  154
  157
  161
  164
  168
  172
  175
  179
  183
  187
  191
  195
  200
  204
  209
  213
  218
  223
  228
  233
  238
  243
  248
  254
  259
  265
Total operating expenses, $m
  1,120
  1,206
  1,296
  1,389
  1,486
  1,586
  1,691
  1,799
  1,912
  2,029
  2,107
  2,233
  2,365
  2,502
  2,645
  2,793
  2,949
  3,110
  3,279
  3,454
  3,638
  3,830
  4,031
  4,240
  4,460
  4,689
  4,928
  5,180
  5,442
  5,718
Operating income, $m
  70
  90
  110
  131
  153
  176
  200
  225
  251
  278
  350
  380
  410
  443
  476
  511
  548
  586
  626
  668
  712
  759
  807
  857
  911
  966
  1,025
  1,086
  1,151
  1,218
EBITDA, $m
  161
  185
  210
  235
  262
  290
  319
  350
  381
  414
  448
  484
  522
  560
  601
  643
  688
  734
  783
  833
  886
  942
  1,000
  1,061
  1,125
  1,193
  1,263
  1,337
  1,414
  1,496
Interest expense (income), $m
  5
  20
  24
  28
  32
  36
  41
  45
  50
  55
  60
  66
  72
  78
  84
  90
  97
  104
  111
  119
  127
  135
  144
  153
  162
  172
  182
  193
  204
  216
  229
Earnings before tax, $m
  50
  66
  82
  99
  117
  136
  155
  175
  196
  218
  284
  308
  333
  359
  386
  414
  444
  475
  508
  542
  577
  615
  654
  695
  739
  784
  832
  882
  934
  990
Tax expense, $m
  14
  18
  22
  27
  32
  37
  42
  47
  53
  59
  77
  83
  90
  97
  104
  112
  120
  128
  137
  146
  156
  166
  177
  188
  199
  212
  225
  238
  252
  267
Net income, $m
  37
  48
  60
  73
  86
  99
  113
  128
  143
  159
  207
  225
  243
  262
  282
  303
  324
  347
  371
  395
  422
  449
  478
  508
  539
  572
  607
  644
  682
  722

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
  1,373
  1,495
  1,621
  1,753
  1,890
  2,033
  2,181
  2,335
  2,495
  2,661
  2,834
  3,014
  3,202
  3,397
  3,600
  3,812
  4,033
  4,263
  4,504
  4,755
  5,018
  5,292
  5,579
  5,880
  6,194
  6,523
  6,867
  7,227
  7,605
  8,001
Adjusted assets (=assets-cash), $m
  1,373
  1,495
  1,621
  1,753
  1,890
  2,033
  2,181
  2,335
  2,495
  2,661
  2,834
  3,014
  3,202
  3,397
  3,600
  3,812
  4,033
  4,263
  4,504
  4,755
  5,018
  5,292
  5,579
  5,880
  6,194
  6,523
  6,867
  7,227
  7,605
  8,001
Revenue / Adjusted assets
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
Average production assets, $m
  357
  389
  422
  456
  492
  529
  567
  607
  649
  692
  737
  784
  833
  883
  936
  991
  1,049
  1,109
  1,171
  1,237
  1,305
  1,377
  1,451
  1,529
  1,611
  1,697
  1,786
  1,880
  1,978
  2,081
Working capital, $m
  259
  282
  306
  331
  357
  384
  412
  441
  472
  503
  536
  570
  605
  642
  680
  720
  762
  806
  851
  899
  948
  1,000
  1,055
  1,111
  1,171
  1,233
  1,298
  1,366
  1,437
  1,512
Total debt, $m
  435
  510
  587
  668
  751
  838
  928
  1,022
  1,120
  1,221
  1,327
  1,437
  1,551
  1,670
  1,794
  1,923
  2,058
  2,199
  2,345
  2,499
  2,659
  2,826
  3,001
  3,185
  3,376
  3,577
  3,787
  4,007
  4,237
  4,478
Total liabilities, $m
  837
  912
  989
  1,070
  1,153
  1,240
  1,330
  1,424
  1,522
  1,623
  1,729
  1,839
  1,953
  2,072
  2,196
  2,325
  2,460
  2,601
  2,747
  2,901
  3,061
  3,228
  3,403
  3,587
  3,778
  3,979
  4,189
  4,409
  4,639
  4,880
Total equity, $m
  535
  583
  632
  684
  737
  793
  851
  911
  973
  1,038
  1,105
  1,176
  1,249
  1,325
  1,404
  1,487
  1,573
  1,663
  1,757
  1,855
  1,957
  2,064
  2,176
  2,293
  2,416
  2,544
  2,678
  2,819
  2,966
  3,120
Total liabilities and equity, $m
  1,372
  1,495
  1,621
  1,754
  1,890
  2,033
  2,181
  2,335
  2,495
  2,661
  2,834
  3,015
  3,202
  3,397
  3,600
  3,812
  4,033
  4,264
  4,504
  4,756
  5,018
  5,292
  5,579
  5,880
  6,194
  6,523
  6,867
  7,228
  7,605
  8,000
Debt-to-equity ratio
  0.810
  0.870
  0.930
  0.980
  1.020
  1.060
  1.090
  1.120
  1.150
  1.180
  1.200
  1.220
  1.240
  1.260
  1.280
  1.290
  1.310
  1.320
  1.340
  1.350
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.410
  1.420
  1.430
  1.440
Adjusted equity ratio
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  37
  48
  60
  73
  86
  99
  113
  128
  143
  159
  207
  225
  243
  262
  282
  303
  324
  347
  371
  395
  422
  449
  478
  508
  539
  572
  607
  644
  682
  722
Depreciation, amort., depletion, $m
  91
  95
  100
  104
  109
  114
  119
  124
  130
  136
  98
  105
  111
  118
  125
  132
  140
  148
  156
  165
  174
  184
  193
  204
  215
  226
  238
  251
  264
  277
Funds from operations, $m
  128
  143
  160
  177
  195
  213
  232
  252
  273
  295
  306
  329
  354
  380
  407
  435
  464
  495
  527
  560
  596
  632
  671
  712
  754
  799
  845
  894
  946
  1,000
Change in working capital, $m
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  45
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  75
Cash from operations, $m
  106
  120
  136
  152
  169
  186
  204
  223
  243
  263
  273
  295
  319
  343
  368
  395
  422
  451
  481
  513
  546
  581
  617
  655
  695
  736
  780
  826
  874
  925
Maintenance CAPEX, $m
  -44
  -48
  -52
  -56
  -61
  -66
  -71
  -76
  -81
  -87
  -92
  -98
  -105
  -111
  -118
  -125
  -132
  -140
  -148
  -156
  -165
  -174
  -184
  -193
  -204
  -215
  -226
  -238
  -251
  -264
New CAPEX, $m
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -63
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -98
  -103
Cash from investing activities, $m
  -74
  -80
  -85
  -90
  -97
  -103
  -110
  -116
  -123
  -130
  -137
  -145
  -154
  -162
  -171
  -180
  -189
  -200
  -211
  -221
  -233
  -245
  -259
  -271
  -286
  -301
  -316
  -332
  -349
  -367
Free cash flow, $m
  32
  41
  51
  61
  72
  83
  95
  107
  120
  134
  136
  150
  165
  181
  198
  215
  233
  251
  271
  291
  313
  335
  359
  383
  409
  436
  464
  494
  526
  558
Issuance/(repayment) of debt, $m
  71
  74
  77
  80
  84
  87
  90
  94
  98
  101
  106
  110
  114
  119
  124
  129
  135
  141
  147
  153
  160
  167
  175
  183
  192
  201
  210
  220
  230
  241
Issuance/(repurchase) of shares, $m
  9
  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  
  80
  74
  77
  80
  84
  87
  90
  94
  98
  101
  106
  110
  114
  119
  124
  129
  135
  141
  147
  153
  160
  167
  175
  183
  192
  201
  210
  220
  230
  241
Total cash flow (excl. dividends), $m
  113
  115
  128
  142
  156
  170
  186
  201
  218
  235
  241
  260
  280
  300
  322
  344
  367
  392
  418
  445
  473
  503
  534
  566
  601
  637
  674
  714
  756
  800
Retained Cash Flow (-), $m
  -46
  -47
  -49
  -51
  -53
  -56
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -102
  -107
  -112
  -117
  -123
  -128
  -134
  -141
  -147
  -154
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
  67
  68
  79
  90
  102
  115
  128
  141
  155
  170
  174
  190
  207
  224
  242
  261
  281
  302
  324
  347
  371
  396
  422
  449
  478
  508
  540
  574
  609
  645
Discount rate, %
  4.80
  5.04
  5.29
  5.56
  5.83
  6.13
  6.43
  6.75
  7.09
  7.45
  7.82
  8.21
  8.62
  9.05
  9.50
  9.98
  10.48
  11.00
  11.55
  12.13
  12.74
  13.37
  14.04
  14.74
  15.48
  16.25
  17.07
  17.92
  18.82
  19.76
PV of cash for distribution, $m
  64
  62
  68
  73
  77
  80
  83
  84
  84
  83
  76
  74
  71
  67
  62
  57
  52
  46
  41
  35
  30
  25
  21
  17
  13
  10
  8
  6
  4
  3
Current shareholders' claim on cash, %
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5

OSI Systems, Inc., through its subsidiaries, is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. The Company sells its products and provides related services in diversified markets, including homeland security, healthcare, defense and aerospace. The Company operates in three segments, which include Security, which provides security and inspection systems, turnkey security screening solutions and related services; Healthcare, which provides patient monitoring, diagnostic cardiology, anesthesia delivery and ventilation systems and defibrillators, and Optoelectronics and Manufacturing, which provides electronic components and electronic manufacturing services for the Security and Healthcare divisions, as well as to external original equipment manufacturer (OEM) customers and end users for applications in the defense, aerospace, medical and industrial markets, among others.

FINANCIAL RATIOS  of  OSI Systems, Inc. (OSIS)

Valuation Ratios
P/E Ratio 91.7
Price to Sales 2
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 30.6
Price to Free Cash Flow 46.9
Growth Rates
Sales Growth Rate 15.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -8.3%
Cap. Spend. - 3 Yr. Gr. Rate -18.2%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 42.5%
Total Debt to Equity 61%
Interest Coverage 6
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 4%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6%
Return On Equity 3.8%
Return On Equity - 3 Yr. Avg. 6.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 33.7%
Gross Margin - 3 Yr. Avg. 33.7%
EBITDA Margin 10.3%
EBITDA Margin - 3 Yr. Avg. 12.5%
Operating Margin 3.4%
Oper. Margin - 3 Yr. Avg. 5.9%
Pre-Tax Margin 2.7%
Pre-Tax Margin - 3 Yr. Avg. 5.4%
Net Profit Margin 2.2%
Net Profit Margin - 3 Yr. Avg. 4%
Effective Tax Rate 19.2%
Eff/ Tax Rate - 3 Yr. Avg. 24%
Payout Ratio 0%

OSIS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OSIS stock intrinsic value calculation we used $1089 million for the last fiscal year's total revenue generated by OSI Systems, Inc.. The default revenue input number comes from 0001 income statement of OSI Systems, 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 OSIS stock valuation model: a) initial revenue growth rate of 9.3% 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 4.8%, whose default value for OSIS is calculated based on our internal credit rating of OSI Systems, 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 OSI Systems, 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 OSIS stock the variable cost ratio is equal to 82.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $138 million in the base year in the intrinsic value calculation for OSIS 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 OSI Systems, Inc..

Corporate tax rate of 27% is the nominal tax rate for OSI Systems, 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 OSIS 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 OSIS are equal to 30%.

Life of production assets of 7.5 years is the average useful life of capital assets used in OSI Systems, 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 OSIS is equal to 21.8%. 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 - $489.436 million for OSI Systems, 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 18.021 million for OSI Systems, 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 OSI Systems, Inc. at the current share price and the inputted number of shares is $1.9 billion.

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