Intrinsic value of Power Integrations - POWI

Previous Close

$63.79

  Intrinsic Value

$26.46

stock screener

  Rating & Target

str. sell

-59%

Previous close

$63.79

 
Intrinsic value

$26.46

 
Up/down potential

-59%

 
Rating

str. sell

We calculate the intrinsic value of POWI 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, %
  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
  440
  451
  462
  475
  489
  505
  523
  541
  561
  583
  606
  630
  657
  684
  714
  745
  778
  813
  850
  889
  931
  974
  1,020
  1,068
  1,119
  1,173
  1,229
  1,288
  1,351
  1,416
Variable operating expenses, $m
  346
  354
  363
  373
  384
  396
  409
  423
  438
  455
  460
  479
  499
  520
  542
  566
  591
  618
  646
  676
  707
  740
  775
  812
  850
  891
  934
  979
  1,026
  1,076
Fixed operating expenses, $m
  36
  37
  37
  38
  39
  40
  41
  42
  43
  44
  44
  45
  46
  47
  49
  50
  51
  52
  53
  54
  55
  56
  58
  59
  60
  62
  63
  64
  66
  67
Total operating expenses, $m
  382
  391
  400
  411
  423
  436
  450
  465
  481
  499
  504
  524
  545
  567
  591
  616
  642
  670
  699
  730
  762
  796
  833
  871
  910
  953
  997
  1,043
  1,092
  1,143
Operating income, $m
  58
  60
  62
  64
  67
  70
  73
  77
  80
  85
  101
  106
  111
  117
  123
  129
  136
  144
  151
  160
  168
  177
  187
  198
  208
  220
  232
  245
  259
  273
EBITDA, $m
  88
  90
  93
  95
  99
  102
  106
  111
  115
  120
  126
  132
  138
  145
  152
  160
  168
  177
  186
  196
  207
  218
  229
  242
  255
  268
  283
  298
  314
  331
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
Earnings before tax, $m
  58
  60
  62
  64
  66
  69
  72
  76
  79
  84
  100
  104
  109
  115
  121
  127
  133
  140
  148
  156
  164
  173
  182
  192
  203
  214
  225
  238
  251
  264
Tax expense, $m
  16
  16
  17
  17
  18
  19
  20
  20
  21
  23
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  71
Net income, $m
  43
  44
  45
  47
  48
  51
  53
  55
  58
  61
  73
  76
  80
  84
  88
  93
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  165
  174
  183
  193

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
  397
  406
  416
  428
  441
  455
  471
  488
  506
  525
  546
  568
  591
  617
  643
  671
  701
  733
  766
  801
  838
  878
  919
  962
  1,008
  1,056
  1,107
  1,161
  1,217
  1,276
Adjusted assets (=assets-cash), $m
  397
  406
  416
  428
  441
  455
  471
  488
  506
  525
  546
  568
  591
  617
  643
  671
  701
  733
  766
  801
  838
  878
  919
  962
  1,008
  1,056
  1,107
  1,161
  1,217
  1,276
Revenue / Adjusted assets
  1.108
  1.111
  1.111
  1.110
  1.109
  1.110
  1.110
  1.109
  1.109
  1.110
  1.110
  1.109
  1.112
  1.109
  1.110
  1.110
  1.110
  1.109
  1.110
  1.110
  1.111
  1.109
  1.110
  1.110
  1.110
  1.111
  1.110
  1.109
  1.110
  1.110
Average production assets, $m
  167
  171
  175
  180
  186
  192
  198
  205
  213
  221
  230
  239
  249
  259
  271
  282
  295
  308
  322
  337
  353
  369
  387
  405
  424
  444
  466
  488
  512
  537
Working capital, $m
  31
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  101
Total debt, $m
  2
  3
  5
  8
  10
  13
  16
  19
  22
  26
  30
  34
  38
  43
  48
  53
  59
  65
  71
  78
  85
  92
  100
  108
  117
  126
  136
  146
  157
  168
Total liabilities, $m
  75
  77
  79
  81
  83
  86
  89
  92
  96
  99
  103
  107
  112
  117
  122
  127
  133
  138
  145
  151
  158
  166
  174
  182
  191
  200
  209
  219
  230
  241
Total equity, $m
  322
  329
  338
  347
  358
  369
  382
  395
  410
  426
  443
  461
  480
  500
  522
  544
  569
  594
  621
  650
  680
  712
  745
  780
  818
  857
  898
  941
  987
  1,035
Total liabilities and equity, $m
  397
  406
  417
  428
  441
  455
  471
  487
  506
  525
  546
  568
  592
  617
  644
  671
  702
  732
  766
  801
  838
  878
  919
  962
  1,009
  1,057
  1,107
  1,160
  1,217
  1,276
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.020
  0.030
  0.030
  0.040
  0.050
  0.050
  0.060
  0.070
  0.070
  0.080
  0.090
  0.090
  0.100
  0.100
  0.110
  0.110
  0.120
  0.130
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.160
  0.160
Adjusted equity ratio
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  44
  45
  47
  48
  51
  53
  55
  58
  61
  73
  76
  80
  84
  88
  93
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  165
  174
  183
  193
Depreciation, amort., depletion, $m
  30
  30
  31
  31
  32
  33
  33
  34
  35
  36
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
Funds from operations, $m
  72
  74
  76
  78
  80
  83
  86
  89
  93
  97
  98
  102
  107
  112
  117
  123
  129
  136
  143
  150
  158
  166
  175
  184
  194
  204
  215
  227
  239
  251
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
Cash from operations, $m
  72
  73
  75
  77
  79
  82
  85
  88
  91
  95
  96
  100
  105
  110
  115
  121
  127
  133
  140
  147
  155
  163
  172
  181
  190
  200
  211
  222
  234
  247
Maintenance CAPEX, $m
  -18
  -18
  -19
  -19
  -20
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
New CAPEX, $m
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
Cash from investing activities, $m
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -44
  -45
  -48
  -50
  -53
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -81
Free cash flow, $m
  51
  51
  52
  53
  54
  56
  57
  59
  62
  64
  63
  66
  69
  72
  76
  80
  84
  88
  93
  98
  103
  108
  114
  121
  127
  134
  141
  149
  158
  166
Issuance/(repayment) of debt, $m
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
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  
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Total cash flow (excl. dividends), $m
  52
  53
  54
  55
  57
  58
  60
  63
  65
  68
  67
  70
  74
  77
  81
  85
  89
  94
  99
  104
  110
  116
  122
  129
  136
  143
  151
  159
  168
  177
Retained Cash Flow (-), $m
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
Prev. year cash balance distribution, $m
  232
  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
  278
  46
  46
  46
  46
  47
  48
  49
  50
  52
  50
  52
  54
  57
  59
  62
  65
  69
  72
  76
  80
  84
  89
  93
  99
  104
  110
  116
  123
  129
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
  267
  42
  40
  38
  36
  34
  32
  31
  29
  27
  24
  22
  21
  19
  17
  16
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
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

Power Integrations, Inc. designs, develops and markets analog and mixed-signal integrated circuits (ICs), and other electronic components and circuitry used in high-voltage power conversion. The Company's products are used in power converters that convert electricity from a high-voltage source to the type of power required for downstream use. The Company's ICs used in alternating current (AC)-direct current (DC) power supply convert high-voltage AC from a wall outlet to the low-voltage DC required by electronic devices. The Company offers a range of products, such as TOPSwitch, TinySwitch, LinkSwitch and Hiper families. The Company also offers CapZero and SenZero families. The Company offers a range of high-voltage gate-driver products sold under the SCALE and SCALE-II product-family names. The DPA-Switch family of products is a monolithic high-voltage DC-DC power conversion IC designed specifically for use in distributed power architectures.

FINANCIAL RATIOS  of  Power Integrations (POWI)

Valuation Ratios
P/E Ratio 38.9
Price to Sales 4.8
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 19
Price to Free Cash Flow 21.7
Growth Rates
Sales Growth Rate 12.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -45.5%
Cap. Spend. - 3 Yr. Gr. Rate -3%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.2%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. 11.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 49.4%
Gross Margin - 3 Yr. Avg. 51.4%
EBITDA Margin 18.9%
EBITDA Margin - 3 Yr. Avg. 19.8%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 13.2%
Pre-Tax Margin 12.7%
Pre-Tax Margin - 3 Yr. Avg. 13.4%
Net Profit Margin 12.4%
Net Profit Margin - 3 Yr. Avg. 13.6%
Effective Tax Rate 2%
Eff/ Tax Rate - 3 Yr. Avg. -1.1%
Payout Ratio 31.3%

POWI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the POWI stock intrinsic value calculation we used $431.755 million for the last fiscal year's total revenue generated by Power Integrations. The default revenue input number comes from 0001 income statement of Power Integrations. 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 POWI 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 POWI is calculated based on our internal credit rating of Power Integrations, 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 Power Integrations.
    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 POWI stock the variable cost ratio is equal to 78.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $35 million in the base year in the intrinsic value calculation for POWI 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 Power Integrations.

Corporate tax rate of 27% is the nominal tax rate for Power Integrations. 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 POWI 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 POWI are equal to 37.9%.

Life of production assets of 9.2 years is the average useful life of capital assets used in Power Integrations 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 POWI is equal to 7.1%. 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 - $547.682 million for Power Integrations - 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 29.581 million for Power Integrations 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 Power Integrations at the current share price and the inputted number of shares is $1.9 billion.

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COMPANY NEWS

▶ Is Power Integrations Inc (NASDAQ:POWI) A Volatile Stock?   [Nov-21-18 08:39AM  Simply Wall St.]
▶ Power Integrations: 3Q Earnings Snapshot   [05:51PM  Associated Press]
▶ New Strong Sell Stocks for October 19th   [Oct-19-18 08:48AM  Zacks]
▶ Power Integrations CFO to Speak at Deutsche Bank Conference   [Sep-07-18 07:15AM  Business Wire]
▶ Power Integrations: 2Q Earnings Snapshot   [Jul-26-18 05:29PM  Associated Press]
▶ Power Integrations CFO to Speak at Investor Conference   [Jun-08-18 07:15AM  Business Wire]
▶ Power Integrations: 1Q Earnings Snapshot   [Apr-26-18 07:20PM  Associated Press]
▶ New Strong Sell Stocks for February 7th   [Feb-07-18 08:28AM  Zacks]
▶ Power Integrations reports 4Q loss   [Feb-01-18 04:29PM  Associated Press]
▶ Power Integrations Shows Rising Relative Strength; Still Shy Of Key Benchmark   [Dec-01-17 03:00AM  Investor's Business Daily]
▶ Power Integrations posts 3Q profit   [Oct-26-17 06:01PM  Associated Press]
▶ Did Semiconductor Growth Plateau Last Quarter?   [Aug-17-17 02:44PM  Barrons.com]
▶ New Strong Sell Stocks for August 9th   [Aug-09-17 09:18AM  Zacks]
▶ Chip Giant Intel Beats Second-Quarter Sales, Earnings Targets   [Jul-27-17 06:44PM  Investor's Business Daily]
▶ Power Integrations posts 2Q profit   [06:35PM  Associated Press]
▶ Alphabet, GE Price Targets Cut; Under Armour, Lululemon Downgraded   [Jul-25-17 04:11PM  Investor's Business Daily]

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