Intrinsic value of OSI Systems - OSIS

Previous Close

$78.13

  Intrinsic Value

$28.16

stock screener

  Rating & Target

str. sell

-64%

Previous close

$78.13

 
Intrinsic value

$28.16

 
Up/down potential

-64%

 
Rating

str. 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 2017), $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 1.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  15.80
  14.72
  13.75
  12.87
  12.09
  11.38
  10.74
  10.17
  9.65
  9.18
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
Revenue, $m
  1,113
  1,277
  1,452
  1,639
  1,837
  2,046
  2,266
  2,496
  2,737
  2,989
  3,251
  3,523
  3,807
  4,102
  4,408
  4,727
  5,058
  5,401
  5,759
  6,131
  6,518
  6,921
  7,341
  7,778
  8,234
  8,710
  9,206
  9,724
  10,265
  10,830
Variable operating expenses, $m
  1,055
  1,205
  1,365
  1,537
  1,718
  1,909
  2,110
  2,321
  2,542
  2,772
  2,976
  3,225
  3,485
  3,755
  4,035
  4,327
  4,630
  4,945
  5,272
  5,613
  5,967
  6,336
  6,720
  7,120
  7,538
  7,973
  8,427
  8,902
  9,397
  9,915
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
  1,055
  1,205
  1,365
  1,537
  1,718
  1,909
  2,110
  2,321
  2,542
  2,772
  2,976
  3,225
  3,485
  3,755
  4,035
  4,327
  4,630
  4,945
  5,272
  5,613
  5,967
  6,336
  6,720
  7,120
  7,538
  7,973
  8,427
  8,902
  9,397
  9,915
Operating income, $m
  58
  72
  87
  103
  119
  137
  156
  175
  195
  217
  275
  298
  322
  347
  373
  400
  428
  457
  487
  518
  551
  585
  621
  658
  696
  737
  778
  822
  868
  916
EBITDA, $m
  144
  165
  188
  212
  238
  265
  294
  323
  355
  387
  421
  456
  493
  531
  571
  612
  655
  700
  746
  794
  845
  897
  951
  1,008
  1,067
  1,128
  1,193
  1,260
  1,330
  1,403
Interest expense (income), $m
  5
  19
  24
  30
  37
  44
  51
  59
  67
  76
  85
  94
  104
  114
  124
  135
  147
  159
  171
  184
  197
  211
  225
  240
  256
  272
  289
  306
  325
  344
  364
Earnings before tax, $m
  39
  47
  56
  66
  75
  86
  97
  108
  120
  132
  181
  194
  208
  222
  237
  253
  269
  286
  303
  322
  341
  360
  381
  402
  424
  448
  472
  497
  524
  552
Tax expense, $m
  11
  13
  15
  18
  20
  23
  26
  29
  32
  36
  49
  52
  56
  60
  64
  68
  73
  77
  82
  87
  92
  97
  103
  109
  115
  121
  127
  134
  141
  149
Net income, $m
  29
  35
  41
  48
  55
  63
  70
  79
  87
  96
  132
  142
  152
  162
  173
  185
  196
  209
  221
  235
  249
  263
  278
  294
  310
  327
  345
  363
  383
  403

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
  1,425
  1,635
  1,859
  2,099
  2,352
  2,620
  2,901
  3,196
  3,505
  3,827
  4,162
  4,511
  4,874
  5,252
  5,644
  6,052
  6,476
  6,916
  7,374
  7,850
  8,346
  8,862
  9,399
  9,959
  10,543
  11,152
  11,787
  12,451
  13,143
  13,867
Adjusted assets (=assets-cash), $m
  1,425
  1,635
  1,859
  2,099
  2,352
  2,620
  2,901
  3,196
  3,505
  3,827
  4,162
  4,511
  4,874
  5,252
  5,644
  6,052
  6,476
  6,916
  7,374
  7,850
  8,346
  8,862
  9,399
  9,959
  10,543
  11,152
  11,787
  12,451
  13,143
  13,867
Revenue / Adjusted assets
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
Average production assets, $m
  501
  574
  653
  738
  827
  921
  1,020
  1,123
  1,232
  1,345
  1,463
  1,585
  1,713
  1,846
  1,984
  2,127
  2,276
  2,431
  2,592
  2,759
  2,933
  3,114
  3,303
  3,500
  3,705
  3,919
  4,143
  4,376
  4,619
  4,874
Working capital, $m
  156
  179
  203
  229
  257
  286
  317
  349
  383
  418
  455
  493
  533
  574
  617
  662
  708
  756
  806
  858
  913
  969
  1,028
  1,089
  1,153
  1,219
  1,289
  1,361
  1,437
  1,516
Total debt, $m
  451
  564
  685
  813
  949
  1,093
  1,244
  1,402
  1,568
  1,741
  1,921
  2,109
  2,304
  2,506
  2,717
  2,936
  3,164
  3,400
  3,646
  3,902
  4,168
  4,445
  4,733
  5,034
  5,348
  5,675
  6,016
  6,372
  6,744
  7,133
Total liabilities, $m
  765
  878
  998
  1,127
  1,263
  1,407
  1,558
  1,716
  1,882
  2,055
  2,235
  2,423
  2,618
  2,820
  3,031
  3,250
  3,477
  3,714
  3,960
  4,216
  4,482
  4,759
  5,047
  5,348
  5,662
  5,988
  6,330
  6,686
  7,058
  7,447
Total equity, $m
  660
  757
  861
  972
  1,089
  1,213
  1,343
  1,480
  1,623
  1,772
  1,927
  2,089
  2,257
  2,432
  2,613
  2,802
  2,998
  3,202
  3,414
  3,635
  3,864
  4,103
  4,352
  4,611
  4,881
  5,163
  5,457
  5,765
  6,085
  6,421
Total liabilities and equity, $m
  1,425
  1,635
  1,859
  2,099
  2,352
  2,620
  2,901
  3,196
  3,505
  3,827
  4,162
  4,512
  4,875
  5,252
  5,644
  6,052
  6,475
  6,916
  7,374
  7,851
  8,346
  8,862
  9,399
  9,959
  10,543
  11,151
  11,787
  12,451
  13,143
  13,868
Debt-to-equity ratio
  0.680
  0.750
  0.800
  0.840
  0.870
  0.900
  0.930
  0.950
  0.970
  0.980
  1.000
  1.010
  1.020
  1.030
  1.040
  1.050
  1.060
  1.060
  1.070
  1.070
  1.080
  1.080
  1.090
  1.090
  1.100
  1.100
  1.100
  1.110
  1.110
  1.110
Adjusted equity ratio
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  29
  35
  41
  48
  55
  63
  70
  79
  87
  96
  132
  142
  152
  162
  173
  185
  196
  209
  221
  235
  249
  263
  278
  294
  310
  327
  345
  363
  383
  403
Depreciation, amort., depletion, $m
  86
  94
  101
  110
  119
  128
  138
  148
  159
  171
  146
  159
  171
  185
  198
  213
  228
  243
  259
  276
  293
  311
  330
  350
  371
  392
  414
  438
  462
  487
Funds from operations, $m
  115
  128
  143
  158
  174
  191
  209
  227
  247
  267
  278
  300
  323
  347
  372
  397
  424
  452
  481
  511
  542
  574
  608
  644
  680
  719
  759
  801
  844
  890
Change in working capital, $m
  21
  23
  25
  26
  28
  29
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  69
  73
  76
  79
Cash from operations, $m
  94
  105
  118
  132
  146
  161
  178
  195
  213
  232
  242
  262
  283
  306
  329
  353
  378
  404
  431
  459
  488
  518
  550
  582
  617
  652
  689
  728
  769
  811
Maintenance CAPEX, $m
  -43
  -50
  -57
  -65
  -74
  -83
  -92
  -102
  -112
  -123
  -134
  -146
  -159
  -171
  -185
  -198
  -213
  -228
  -243
  -259
  -276
  -293
  -311
  -330
  -350
  -371
  -392
  -414
  -438
  -462
New CAPEX, $m
  -69
  -74
  -79
  -84
  -89
  -94
  -99
  -104
  -108
  -113
  -118
  -123
  -128
  -133
  -138
  -143
  -149
  -155
  -161
  -167
  -174
  -181
  -189
  -197
  -205
  -214
  -223
  -233
  -244
  -254
Cash from investing activities, $m
  -112
  -124
  -136
  -149
  -163
  -177
  -191
  -206
  -220
  -236
  -252
  -269
  -287
  -304
  -323
  -341
  -362
  -383
  -404
  -426
  -450
  -474
  -500
  -527
  -555
  -585
  -615
  -647
  -682
  -716
Free cash flow, $m
  -18
  -19
  -18
  -18
  -17
  -15
  -13
  -11
  -8
  -5
  -11
  -7
  -3
  2
  6
  11
  16
  21
  27
  32
  38
  43
  49
  55
  61
  68
  74
  81
  88
  95
Issuance/(repayment) of debt, $m
  104
  113
  121
  129
  136
  144
  151
  158
  166
  173
  180
  187
  195
  203
  211
  219
  228
  237
  246
  256
  266
  277
  289
  301
  313
  327
  341
  356
  372
  389
Issuance/(repurchase) of shares, $m
  62
  62
  63
  63
  62
  61
  60
  58
  55
  53
  23
  20
  16
  12
  8
  4
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  166
  175
  184
  192
  198
  205
  211
  216
  221
  226
  203
  207
  211
  215
  219
  223
  228
  237
  246
  256
  266
  277
  289
  301
  313
  327
  341
  356
  372
  389
Total cash flow (excl. dividends), $m
  148
  157
  165
  174
  182
  190
  198
  206
  213
  221
  193
  201
  209
  217
  225
  234
  244
  258
  272
  288
  304
  320
  338
  356
  375
  395
  415
  437
  460
  483
Retained Cash Flow (-), $m
  -91
  -97
  -104
  -111
  -117
  -124
  -130
  -137
  -143
  -149
  -155
  -162
  -168
  -175
  -182
  -189
  -196
  -204
  -212
  -221
  -229
  -239
  -249
  -259
  -270
  -282
  -294
  -307
  -321
  -335
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
  26
  30
  34
  39
  44
  50
  55
  61
  67
  74
  81
  88
  95
  103
  111
  119
  128
  137
  146
  155
  166
  176
  187
  198
  210
  222
  235
  249
  263
  277
Cash available for distribution, $m
  57
  59
  61
  63
  64
  66
  67
  69
  70
  72
  37
  39
  40
  42
  44
  45
  47
  54
  60
  67
  74
  82
  89
  97
  105
  113
  121
  130
  139
  148
Discount rate, %
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
  55
  54
  53
  51
  50
  47
  45
  43
  40
  37
  17
  16
  15
  14
  12
  11
  10
  10
  9
  8
  7
  6
  5
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  96.0
  92.6
  89.8
  87.3
  85.2
  83.4
  81.9
  80.5
  79.4
  78.4
  78.0
  77.7
  77.5
  77.3
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2
  77.2

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 69.5
Price to Sales 1.5
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 23.2
Price to Free Cash Flow 35.6
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 15.8% 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 4.4%, 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 5.4% 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 2.7%.

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 45%.

Life of production assets of 10 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 14%. 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 19 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 $1.5 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ OSI: Fiscal 3Q Earnings Snapshot   [06:21PM  Associated Press]
▶ OSI Systems Announces Third Quarter Conference Call   [Apr-18-18 08:30AM  Business Wire]
▶ OSI Systems to Present at the 30th Annual Roth Conference   [Mar-12-18 08:30AM  Business Wire]
▶ OSI Systems Facilitates Significant Drug Seizure in Albania   [Mar-08-18 07:30PM  Business Wire]
▶ Bribery Probe Follows Muddy Waters Report on Security Firm   [12:45PM  The Wall Street Journal]
▶ OSI reports 2Q loss   [04:11PM  Associated Press]
▶ OSI Systems Announces Second Quarter Conference Call   [Jan-22-18 05:45PM  Business Wire]
▶ 7 Top Picks For 2018 And Their Corresponding ETFs   [Jan-05-18 01:37PM  Benzinga]
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