Intrinsic value of OSI Systems - OSIS

Previous Close

$65.77

  Intrinsic Value

$26.87

stock screener

  Rating & Target

str. sell

-59%

Previous close

$65.77

 
Intrinsic value

$26.87

 
Up/down potential

-59%

 
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

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 1.2

 

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
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
Revenue, $m
  961
  1,096
  1,239
  1,391
  1,552
  1,721
  1,899
  2,085
  2,279
  2,481
  2,692
  2,911
  3,138
  3,375
  3,621
  3,877
  4,142
  4,418
  4,706
  5,005
  5,316
  5,640
  5,977
  6,329
  6,696
  7,079
  7,478
  7,896
  8,332
  8,788
  9,264
Variable operating expenses, $m
 
  1,041
  1,174
  1,315
  1,464
  1,621
  1,786
  1,959
  2,138
  2,326
  2,521
  2,701
  2,912
  3,131
  3,360
  3,597
  3,843
  4,100
  4,366
  4,643
  4,932
  5,232
  5,546
  5,872
  6,212
  6,568
  6,939
  7,326
  7,730
  8,153
  8,596
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
  1,041
  1,174
  1,315
  1,464
  1,621
  1,786
  1,959
  2,138
  2,326
  2,521
  2,701
  2,912
  3,131
  3,360
  3,597
  3,843
  4,100
  4,366
  4,643
  4,932
  5,232
  5,546
  5,872
  6,212
  6,568
  6,939
  7,326
  7,730
  8,153
  8,596
Operating income, $m
  33
  55
  65
  76
  88
  100
  113
  126
  140
  155
  170
  210
  227
  244
  261
  280
  299
  319
  340
  361
  384
  407
  431
  457
  483
  511
  540
  570
  601
  634
  669
EBITDA, $m
  101
  124
  140
  157
  175
  194
  214
  235
  257
  280
  304
  328
  354
  381
  408
  437
  467
  498
  531
  565
  600
  636
  674
  714
  755
  799
  844
  891
  940
  991
  1,045
Interest expense (income), $m
  5
  8
  11
  14
  17
  20
  24
  27
  31
  35
  39
  44
  48
  53
  57
  62
  68
  73
  79
  84
  90
  97
  103
  110
  117
  125
  132
  141
  149
  158
  167
Earnings before tax, $m
  26
  46
  54
  62
  71
  80
  89
  99
  109
  120
  131
  167
  179
  191
  204
  217
  231
  246
  261
  277
  293
  310
  328
  347
  366
  386
  407
  429
  452
  477
  502
Tax expense, $m
  5
  13
  15
  17
  19
  21
  24
  27
  29
  32
  35
  45
  48
  52
  55
  59
  62
  66
  71
  75
  79
  84
  89
  94
  99
  104
  110
  116
  122
  129
  135
Net income, $m
  21
  34
  39
  45
  52
  58
  65
  72
  80
  87
  95
  122
  130
  139
  149
  159
  169
  180
  191
  202
  214
  227
  240
  253
  267
  282
  297
  313
  330
  348
  366

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
  1,208
  1,366
  1,534
  1,711
  1,898
  2,094
  2,299
  2,512
  2,735
  2,968
  3,209
  3,460
  3,721
  3,992
  4,274
  4,567
  4,871
  5,188
  5,518
  5,861
  6,218
  6,590
  6,978
  7,382
  7,804
  8,245
  8,705
  9,186
  9,689
  10,214
Adjusted assets (=assets-cash), $m
  1,060
  1,208
  1,366
  1,534
  1,711
  1,898
  2,094
  2,299
  2,512
  2,735
  2,968
  3,209
  3,460
  3,721
  3,992
  4,274
  4,567
  4,871
  5,188
  5,518
  5,861
  6,218
  6,590
  6,978
  7,382
  7,804
  8,245
  8,705
  9,186
  9,689
  10,214
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
  285
  322
  362
  404
  448
  494
  542
  592
  645
  700
  757
  816
  878
  941
  1,008
  1,077
  1,149
  1,223
  1,301
  1,382
  1,466
  1,554
  1,646
  1,741
  1,840
  1,944
  2,053
  2,166
  2,285
  2,409
Working capital, $m
  307
  276
  312
  351
  391
  434
  479
  525
  574
  625
  678
  733
  791
  851
  912
  977
  1,044
  1,113
  1,186
  1,261
  1,340
  1,421
  1,506
  1,595
  1,687
  1,784
  1,885
  1,990
  2,100
  2,214
  2,335
Total debt, $m
  347
  320
  403
  491
  584
  682
  785
  893
  1,005
  1,122
  1,244
  1,371
  1,503
  1,640
  1,782
  1,930
  2,084
  2,244
  2,410
  2,583
  2,763
  2,950
  3,146
  3,349
  3,562
  3,783
  4,015
  4,256
  4,509
  4,773
  5,048
Total liabilities, $m
  661
  634
  717
  805
  898
  996
  1,099
  1,207
  1,319
  1,436
  1,558
  1,685
  1,817
  1,954
  2,096
  2,244
  2,398
  2,558
  2,724
  2,897
  3,077
  3,264
  3,460
  3,663
  3,876
  4,097
  4,329
  4,570
  4,823
  5,087
  5,362
Total equity, $m
  569
  574
  649
  729
  813
  902
  995
  1,092
  1,193
  1,299
  1,410
  1,524
  1,644
  1,768
  1,896
  2,030
  2,169
  2,314
  2,464
  2,621
  2,784
  2,953
  3,130
  3,314
  3,507
  3,707
  3,916
  4,135
  4,363
  4,602
  4,852
Total liabilities and equity, $m
  1,230
  1,208
  1,366
  1,534
  1,711
  1,898
  2,094
  2,299
  2,512
  2,735
  2,968
  3,209
  3,461
  3,722
  3,992
  4,274
  4,567
  4,872
  5,188
  5,518
  5,861
  6,217
  6,590
  6,977
  7,383
  7,804
  8,245
  8,705
  9,186
  9,689
  10,214
Debt-to-equity ratio
  0.610
  0.560
  0.620
  0.670
  0.720
  0.760
  0.790
  0.820
  0.840
  0.860
  0.880
  0.900
  0.910
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.990
  0.990
  1.000
  1.000
  1.010
  1.020
  1.020
  1.030
  1.030
  1.030
  1.040
  1.040
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
  34
  39
  45
  52
  58
  65
  72
  80
  87
  95
  122
  130
  139
  149
  159
  169
  180
  191
  202
  214
  227
  240
  253
  267
  282
  297
  313
  330
  348
  366
Depreciation, amort., depletion, $m
  68
  69
  75
  81
  87
  94
  101
  109
  117
  125
  134
  118
  127
  137
  147
  157
  168
  179
  191
  203
  216
  229
  243
  257
  272
  288
  304
  321
  338
  357
  376
Funds from operations, $m
  6
  103
  114
  126
  139
  152
  166
  181
  196
  212
  229
  240
  258
  277
  296
  316
  337
  359
  382
  405
  430
  456
  482
  510
  539
  570
  601
  634
  669
  705
  743
Change in working capital, $m
  -57
  34
  36
  38
  41
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
  64
  67
  70
  72
  75
  78
  82
  85
  89
  92
  96
  101
  105
  110
  115
  120
Cash from operations, $m
  63
  69
  78
  88
  98
  110
  122
  134
  147
  161
  176
  185
  200
  217
  234
  252
  270
  289
  309
  330
  352
  374
  397
  422
  447
  473
  500
  529
  559
  590
  622
Maintenance CAPEX, $m
  0
  -39
  -45
  -50
  -57
  -63
  -70
  -77
  -85
  -93
  -101
  -109
  -118
  -127
  -137
  -147
  -157
  -168
  -179
  -191
  -203
  -216
  -229
  -243
  -257
  -272
  -288
  -304
  -321
  -338
  -357
New CAPEX, $m
  -22
  -35
  -37
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -57
  -59
  -62
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -100
  -104
  -109
  -113
  -119
  -124
Cash from investing activities, $m
  -201
  -74
  -82
  -90
  -99
  -107
  -116
  -125
  -135
  -146
  -156
  -166
  -177
  -189
  -201
  -213
  -226
  -240
  -254
  -269
  -284
  -300
  -317
  -334
  -352
  -372
  -392
  -413
  -434
  -457
  -481
Free cash flow, $m
  -138
  -6
  -4
  -2
  0
  3
  5
  9
  12
  16
  20
  18
  23
  28
  33
  38
  44
  49
  55
  61
  67
  74
  80
  87
  94
  102
  109
  117
  125
  133
  142
Issuance/(repayment) of debt, $m
  254
  78
  83
  88
  93
  98
  103
  108
  112
  117
  122
  127
  132
  137
  142
  148
  154
  160
  166
  173
  180
  188
  195
  204
  212
  222
  231
  242
  252
  264
  276
Issuance/(repurchase) of shares, $m
  -41
  36
  36
  34
  33
  31
  28
  25
  22
  19
  15
  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  
  204
  114
  119
  122
  126
  129
  131
  133
  134
  136
  137
  127
  132
  137
  142
  148
  154
  160
  166
  173
  180
  188
  195
  204
  212
  222
  231
  242
  252
  264
  276
Total cash flow (excl. dividends), $m
  65
  108
  115
  120
  126
  131
  136
  141
  147
  152
  157
  145
  155
  165
  175
  186
  198
  209
  221
  234
  248
  261
  276
  291
  307
  323
  340
  358
  377
  397
  417
Retained Cash Flow (-), $m
  -28
  -70
  -75
  -80
  -84
  -89
  -93
  -97
  -102
  -106
  -110
  -115
  -119
  -124
  -129
  -134
  -139
  -145
  -150
  -157
  -163
  -170
  -177
  -184
  -192
  -201
  -209
  -219
  -228
  -239
  -250
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
 
  104
  40
  41
  41
  42
  43
  44
  45
  46
  47
  30
  36
  41
  47
  52
  58
  65
  71
  78
  85
  92
  99
  107
  115
  123
  131
  140
  149
  158
  168
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
 
  99
  36
  35
  34
  33
  31
  30
  28
  26
  25
  14
  15
  16
  16
  15
  15
  14
  13
  12
  11
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  96.8
  94.1
  91.9
  90.0
  88.5
  87.2
  86.2
  85.4
  84.8
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4

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 58.5
Price to Sales 1.3
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 19.5
Price to Free Cash Flow 30
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 14% 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 18.757 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 $1.2 billion.

RELATED COMPANIES Price Int.Val. Rating
GE General Electr 17.82 23.56  hold
LLL L3 Technologie 195.05 123.15  sell
ALOG Analogic 84.85 11.05  str.sell

COMPANY NEWS

▶ OSI Systems Responds to Short Sellers Report   [03:48PM  Business Wire]
▶ OSI tops Street 1Q forecasts   [Oct-26-17 05:21PM  Associated Press]
▶ OSI Systems Announces First Quarter Conference Call   [Oct-19-17 08:30AM  Business Wire]
▶ ETFs with exposure to OSI Systems, Inc. : October 3, 2017   [Oct-03-17 11:29AM  Capital Cube]
▶ Stocks Showing Rising Market Leadership: OSI Systems Earns 81 RS Rating   [Sep-18-17 03:00AM  Investor's Business Daily]
▶ OSI beats 4Q profit forecasts   [Aug-24-17 09:31PM  Associated Press]
▶ ETFs with exposure to OSI Systems, Inc. : July 24, 2017   [Jul-24-17 05:51PM  Capital Cube]
▶ ETFs with exposure to OSI Systems, Inc. : July 14, 2017   [Jul-14-17 04:04PM  Capital Cube]
Financial statements of OSIS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.