Intrinsic value of OSI Systems - OSIS

Previous Close

$71.67

  Intrinsic Value

$27.76

stock screener

  Rating & Target

str. sell

-61%

Previous close

$71.67

 
Intrinsic value

$27.76

 
Up/down potential

-61%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  15.78
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.59
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
Revenue, $m
  961
  1,118
  1,287
  1,469
  1,664
  1,870
  2,089
  2,319
  2,560
  2,812
  3,076
  3,351
  3,638
  3,935
  4,245
  4,567
  4,902
  5,250
  5,611
  5,987
  6,378
  6,784
  7,207
  7,648
  8,107
  8,585
  9,084
  9,604
  10,148
  10,715
  11,308
Variable operating expenses, $m
 
  1,061
  1,218
  1,388
  1,568
  1,760
  1,962
  2,175
  2,399
  2,634
  2,878
  3,109
  3,375
  3,651
  3,939
  4,238
  4,548
  4,871
  5,206
  5,555
  5,917
  6,294
  6,687
  7,096
  7,522
  7,965
  8,428
  8,911
  9,415
  9,942
  10,492
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
  928
  1,061
  1,218
  1,388
  1,568
  1,760
  1,962
  2,175
  2,399
  2,634
  2,878
  3,109
  3,375
  3,651
  3,939
  4,238
  4,548
  4,871
  5,206
  5,555
  5,917
  6,294
  6,687
  7,096
  7,522
  7,965
  8,428
  8,911
  9,415
  9,942
  10,492
Operating income, $m
  33
  56
  69
  82
  96
  111
  127
  143
  161
  179
  198
  242
  263
  284
  306
  330
  354
  379
  405
  432
  460
  490
  520
  552
  585
  620
  656
  693
  732
  773
  816
EBITDA, $m
  101
  126
  145
  166
  188
  211
  236
  262
  289
  317
  347
  378
  410
  444
  479
  515
  553
  592
  633
  675
  719
  765
  813
  863
  914
  968
  1,025
  1,083
  1,145
  1,209
  1,276
Interest expense (income), $m
  5
  8
  12
  15
  19
  23
  27
  31
  36
  41
  46
  51
  57
  63
  69
  75
  82
  88
  95
  103
  110
  118
  126
  135
  144
  153
  163
  173
  184
  195
  206
Earnings before tax, $m
  26
  48
  57
  67
  77
  88
  100
  112
  125
  138
  152
  191
  206
  221
  238
  255
  272
  291
  310
  329
  350
  371
  394
  417
  441
  466
  493
  520
  549
  579
  610
Tax expense, $m
  5
  13
  15
  18
  21
  24
  27
  30
  34
  37
  41
  51
  56
  60
  64
  69
  74
  78
  84
  89
  95
  100
  106
  113
  119
  126
  133
  140
  148
  156
  165
Net income, $m
  21
  35
  42
  49
  56
  64
  73
  82
  91
  101
  111
  139
  150
  162
  174
  186
  199
  212
  226
  241
  256
  271
  287
  304
  322
  341
  360
  380
  401
  423
  445

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  170
  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
  1,230
  1,232
  1,419
  1,620
  1,834
  2,062
  2,303
  2,556
  2,822
  3,101
  3,392
  3,695
  4,011
  4,339
  4,681
  5,036
  5,405
  5,788
  6,186
  6,601
  7,031
  7,480
  7,946
  8,432
  8,938
  9,465
  10,015
  10,589
  11,188
  11,814
  12,467
Adjusted assets (=assets-cash), $m
  1,060
  1,232
  1,419
  1,620
  1,834
  2,062
  2,303
  2,556
  2,822
  3,101
  3,392
  3,695
  4,011
  4,339
  4,681
  5,036
  5,405
  5,788
  6,186
  6,601
  7,031
  7,480
  7,946
  8,432
  8,938
  9,465
  10,015
  10,589
  11,188
  11,814
  12,467
Revenue / Adjusted assets
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
  0.907
Average production assets, $m
  250
  291
  335
  382
  433
  486
  543
  603
  666
  731
  800
  871
  946
  1,023
  1,104
  1,188
  1,275
  1,365
  1,459
  1,557
  1,658
  1,764
  1,874
  1,988
  2,108
  2,232
  2,362
  2,497
  2,638
  2,786
  2,940
Working capital, $m
  307
  282
  324
  370
  419
  471
  526
  584
  645
  709
  775
  844
  917
  992
  1,070
  1,151
  1,235
  1,323
  1,414
  1,509
  1,607
  1,710
  1,816
  1,927
  2,043
  2,163
  2,289
  2,420
  2,557
  2,700
  2,850
Total debt, $m
  347
  333
  431
  537
  649
  769
  895
  1,028
  1,168
  1,314
  1,467
  1,626
  1,792
  1,964
  2,143
  2,330
  2,523
  2,725
  2,934
  3,151
  3,378
  3,613
  3,858
  4,113
  4,378
  4,655
  4,944
  5,245
  5,560
  5,888
  6,231
Total liabilities, $m
  661
  647
  745
  851
  963
  1,083
  1,209
  1,342
  1,482
  1,628
  1,781
  1,940
  2,106
  2,278
  2,457
  2,644
  2,837
  3,039
  3,248
  3,465
  3,692
  3,927
  4,172
  4,427
  4,692
  4,969
  5,258
  5,559
  5,874
  6,202
  6,545
Total equity, $m
  569
  585
  674
  770
  871
  980
  1,094
  1,214
  1,341
  1,473
  1,611
  1,755
  1,905
  2,061
  2,223
  2,392
  2,567
  2,749
  2,939
  3,135
  3,340
  3,553
  3,774
  4,005
  4,245
  4,496
  4,757
  5,030
  5,314
  5,612
  5,922
Total liabilities and equity, $m
  1,230
  1,232
  1,419
  1,621
  1,834
  2,063
  2,303
  2,556
  2,823
  3,101
  3,392
  3,695
  4,011
  4,339
  4,680
  5,036
  5,404
  5,788
  6,187
  6,600
  7,032
  7,480
  7,946
  8,432
  8,937
  9,465
  10,015
  10,589
  11,188
  11,814
  12,467
Debt-to-equity ratio
  0.610
  0.570
  0.640
  0.700
  0.740
  0.780
  0.820
  0.850
  0.870
  0.890
  0.910
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.990
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.030
  1.040
  1.040
  1.040
  1.050
  1.050
  1.050
Adjusted equity ratio
  0.474
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  21
  35
  42
  49
  56
  64
  73
  82
  91
  101
  111
  139
  150
  162
  174
  186
  199
  212
  226
  241
  256
  271
  287
  304
  322
  341
  360
  380
  401
  423
  445
Depreciation, amort., depletion, $m
  68
  70
  76
  84
  92
  100
  109
  118
  128
  138
  149
  136
  148
  160
  172
  186
  199
  213
  228
  243
  259
  276
  293
  311
  329
  349
  369
  390
  412
  435
  459
Funds from operations, $m
  6
  105
  118
  133
  148
  164
  182
  200
  219
  239
  260
  275
  298
  321
  346
  371
  398
  425
  454
  484
  515
  547
  580
  615
  651
  689
  729
  770
  813
  858
  905
Change in working capital, $m
  -57
  39
  43
  46
  49
  52
  55
  58
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
  98
  102
  107
  111
  116
  121
  126
  131
  137
  143
  149
Cash from operations, $m
  63
  65
  75
  87
  99
  112
  127
  142
  158
  176
  194
  206
  226
  246
  268
  290
  314
  338
  363
  389
  416
  444
  474
  504
  536
  569
  603
  639
  676
  715
  755
Maintenance CAPEX, $m
  0
  -39
  -45
  -52
  -60
  -68
  -76
  -85
  -94
  -104
  -114
  -125
  -136
  -148
  -160
  -172
  -186
  -199
  -213
  -228
  -243
  -259
  -276
  -293
  -311
  -329
  -349
  -369
  -390
  -412
  -435
New CAPEX, $m
  -22
  -41
  -44
  -47
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -74
  -77
  -81
  -84
  -87
  -90
  -94
  -98
  -102
  -106
  -110
  -115
  -119
  -124
  -130
  -135
  -141
  -148
  -154
Cash from investing activities, $m
  -201
  -80
  -89
  -99
  -111
  -122
  -133
  -145
  -157
  -170
  -183
  -197
  -210
  -225
  -241
  -256
  -273
  -289
  -307
  -326
  -345
  -365
  -386
  -408
  -430
  -453
  -479
  -504
  -531
  -560
  -589
Free cash flow, $m
  -138
  -15
  -14
  -13
  -11
  -9
  -6
  -3
  1
  6
  11
  9
  15
  21
  27
  34
  41
  48
  56
  63
  71
  80
  88
  97
  106
  115
  125
  134
  145
  155
  166
Issuance/(repayment) of debt, $m
  254
  91
  98
  105
  113
  120
  126
  133
  140
  146
  153
  159
  166
  172
  179
  186
  194
  201
  209
  217
  226
  235
  245
  255
  266
  277
  289
  301
  314
  328
  343
Issuance/(repurchase) of shares, $m
  -41
  46
  47
  47
  46
  44
  42
  39
  35
  32
  27
  5
  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  
  204
  137
  145
  152
  159
  164
  168
  172
  175
  178
  180
  164
  166
  172
  179
  186
  194
  201
  209
  217
  226
  235
  245
  255
  266
  277
  289
  301
  314
  328
  343
Total cash flow (excl. dividends), $m
  65
  122
  131
  139
  147
  155
  162
  169
  176
  184
  191
  174
  181
  194
  207
  221
  235
  250
  265
  281
  298
  315
  333
  352
  371
  392
  413
  436
  459
  484
  509
Retained Cash Flow (-), $m
  -28
  -81
  -89
  -95
  -102
  -108
  -114
  -120
  -126
  -132
  -138
  -144
  -150
  -156
  -162
  -169
  -175
  -182
  -189
  -197
  -205
  -213
  -222
  -231
  -240
  -251
  -261
  -273
  -285
  -297
  -310
Prev. year cash balance distribution, $m
 
  65
  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
 
  106
  42
  44
  45
  46
  48
  49
  50
  51
  53
  30
  31
  38
  45
  52
  59
  67
  76
  84
  93
  102
  111
  121
  131
  141
  152
  163
  175
  186
  199
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
 
  102
  39
  38
  37
  36
  35
  33
  31
  29
  28
  14
  13
  14
  15
  15
  15
  15
  14
  13
  12
  11
  9
  8
  7
  5
  4
  4
  3
  2
  1
Current shareholders' claim on cash, %
  100
  96.3
  93.1
  90.5
  88.2
  86.4
  84.9
  83.6
  82.6
  81.8
  81.2
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1

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 (OSIS)

Valuation Ratios
P/E Ratio 63.8
Price to Sales 1.4
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 21.3
Price to Free Cash Flow 32.7
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 $961 million for the last fiscal year's total revenue generated by OSI Systems. The default revenue input number comes from 2017 income statement of OSI Systems. 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 16.3% 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 4.3%, whose default value for OSIS is calculated based on our internal credit rating of OSI Systems, 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.
    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 95.3%.

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 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 3.5% for OSI Systems.

Corporate tax rate of 27% is the nominal tax rate for OSI Systems. 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 26%.

Life of production assets of 6.4 years is the average useful life of capital assets used in OSI Systems 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 25.2%. 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 - $569 million for OSI Systems - 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 18.795 million for OSI Systems 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 at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ 7 Top Picks For 2018 And Their Corresponding ETFs   [Jan-05-18 01:37PM  Benzinga]
▶ OSI Systems Responds to Short Sellers Report   [03:48PM  Business Wire]
▶ OSI tops Street 1Q forecasts   [Oct-26-17 05:21PM  Associated Press]
Financial statements of OSIS
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