Intrinsic value of Power Integrations - POWI

Previous Close

$77.45

  Intrinsic Value

$27.93

stock screener

  Rating & Target

str. sell

-64%

Previous close

$77.45

 
Intrinsic value

$27.93

 
Up/down potential

-64%

 
Rating

str. sell

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

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

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
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.50
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.64
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
Revenue, $m
  387
  421
  457
  493
  532
  572
  613
  656
  701
  747
  796
  846
  898
  953
  1,010
  1,069
  1,131
  1,195
  1,263
  1,333
  1,406
  1,483
  1,564
  1,648
  1,736
  1,828
  1,924
  2,025
  2,131
  2,241
  2,357
Variable operating expenses, $m
 
  342
  370
  399
  429
  461
  494
  528
  563
  600
  638
  668
  710
  753
  798
  845
  894
  945
  998
  1,053
  1,111
  1,172
  1,236
  1,302
  1,371
  1,444
  1,520
  1,600
  1,684
  1,771
  1,863
Fixed operating expenses, $m
 
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  55
Total operating expenses, $m
  340
  369
  397
  427
  458
  490
  524
  559
  595
  632
  671
  702
  745
  789
  835
  883
  933
  985
  1,039
  1,095
  1,154
  1,216
  1,281
  1,348
  1,418
  1,492
  1,569
  1,651
  1,736
  1,824
  1,918
Operating income, $m
  48
  52
  59
  66
  74
  81
  89
  98
  106
  115
  124
  143
  153
  164
  175
  187
  199
  211
  224
  238
  252
  267
  283
  300
  317
  335
  354
  374
  395
  417
  440
EBITDA, $m
  72
  74
  82
  90
  99
  107
  116
  126
  136
  146
  157
  168
  180
  192
  205
  218
  232
  246
  262
  277
  294
  311
  329
  348
  368
  389
  411
  434
  458
  483
  509
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
Earnings before tax, $m
  49
  52
  59
  66
  73
  81
  88
  96
  105
  114
  123
  141
  151
  162
  172
  184
  195
  208
  221
  234
  248
  263
  278
  294
  311
  329
  348
  367
  387
  409
  431
Tax expense, $m
  1
  14
  16
  18
  20
  22
  24
  26
  28
  31
  33
  38
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  79
  84
  89
  94
  99
  105
  110
  116
Net income, $m
  48
  38
  43
  48
  53
  59
  65
  70
  77
  83
  90
  103
  110
  118
  126
  134
  143
  152
  161
  171
  181
  192
  203
  215
  227
  240
  254
  268
  283
  298
  315

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  250
  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
  554
  331
  359
  388
  418
  449
  482
  515
  550
  587
  625
  664
  706
  748
  793
  840
  888
  939
  992
  1,047
  1,105
  1,165
  1,228
  1,294
  1,363
  1,436
  1,511
  1,591
  1,674
  1,761
  1,852
Adjusted assets (=assets-cash), $m
  304
  331
  359
  388
  418
  449
  482
  515
  550
  587
  625
  664
  706
  748
  793
  840
  888
  939
  992
  1,047
  1,105
  1,165
  1,228
  1,294
  1,363
  1,436
  1,511
  1,591
  1,674
  1,761
  1,852
Revenue / Adjusted assets
  1.273
  1.272
  1.273
  1.271
  1.273
  1.274
  1.272
  1.274
  1.275
  1.273
  1.274
  1.274
  1.272
  1.274
  1.274
  1.273
  1.274
  1.273
  1.273
  1.273
  1.272
  1.273
  1.274
  1.274
  1.274
  1.273
  1.273
  1.273
  1.273
  1.273
  1.273
Average production assets, $m
  85
  92
  100
  108
  116
  125
  134
  143
  153
  163
  173
  184
  196
  208
  220
  233
  247
  261
  275
  291
  307
  323
  341
  359
  378
  398
  419
  441
  464
  489
  514
Working capital, $m
  274
  26
  28
  31
  33
  35
  38
  41
  43
  46
  49
  52
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
  113
  119
  126
  132
  139
  146
Total debt, $m
  0
  5
  9
  14
  19
  24
  30
  36
  41
  48
  54
  61
  68
  75
  82
  90
  98
  107
  116
  125
  135
  145
  155
  166
  178
  190
  203
  216
  230
  245
  260
Total liabilities, $m
  51
  56
  60
  65
  70
  75
  81
  87
  92
  99
  105
  112
  119
  126
  133
  141
  149
  158
  167
  176
  186
  196
  206
  217
  229
  241
  254
  267
  281
  296
  311
Total equity, $m
  503
  275
  298
  322
  348
  374
  401
  429
  458
  488
  520
  553
  587
  623
  660
  699
  739
  781
  825
  871
  919
  969
  1,022
  1,077
  1,134
  1,194
  1,257
  1,323
  1,392
  1,465
  1,541
Total liabilities and equity, $m
  554
  331
  358
  387
  418
  449
  482
  516
  550
  587
  625
  665
  706
  749
  793
  840
  888
  939
  992
  1,047
  1,105
  1,165
  1,228
  1,294
  1,363
  1,435
  1,511
  1,590
  1,673
  1,761
  1,852
Debt-to-equity ratio
  0.000
  0.020
  0.030
  0.040
  0.060
  0.070
  0.070
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.160
  0.170
  0.170
  0.170
Adjusted equity ratio
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832
  0.832

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  48
  38
  43
  48
  53
  59
  65
  70
  77
  83
  90
  103
  110
  118
  126
  134
  143
  152
  161
  171
  181
  192
  203
  215
  227
  240
  254
  268
  283
  298
  315
Depreciation, amort., depletion, $m
  24
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
  66
  69
Funds from operations, $m
  103
  60
  66
  72
  78
  85
  92
  99
  106
  114
  122
  128
  137
  146
  156
  166
  176
  187
  198
  210
  223
  236
  249
  263
  278
  294
  310
  328
  346
  365
  384
Change in working capital, $m
  5
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  98
  58
  64
  70
  76
  82
  89
  96
  104
  111
  119
  125
  134
  143
  152
  162
  172
  183
  194
  206
  218
  231
  244
  258
  273
  288
  304
  321
  339
  358
  377
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
New CAPEX, $m
  -12
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
Cash from investing activities, $m
  -117
  -18
  -20
  -21
  -23
  -25
  -26
  -27
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -43
  -44
  -47
  -50
  -52
  -55
  -58
  -62
  -64
  -68
  -71
  -75
  -79
  -83
  -87
  -91
Free cash flow, $m
  -19
  39
  43
  48
  53
  58
  63
  69
  75
  80
  87
  91
  97
  104
  112
  119
  127
  135
  144
  153
  163
  173
  183
  194
  205
  217
  230
  243
  256
  271
  286
Issuance/(repayment) of debt, $m
  0
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
Issuance/(repurchase) of shares, $m
  7
  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  
  7
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
Total cash flow (excl. dividends), $m
  -13
  44
  48
  53
  58
  63
  69
  75
  80
  87
  93
  97
  104
  112
  119
  127
  135
  144
  153
  162
  172
  183
  194
  205
  217
  229
  242
  256
  270
  285
  301
Retained Cash Flow (-), $m
  -74
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
Prev. year cash balance distribution, $m
 
  250
  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
 
  271
  25
  29
  33
  37
  42
  46
  51
  56
  61
  64
  70
  76
  82
  88
  95
  102
  109
  117
  124
  133
  141
  150
  159
  169
  179
  190
  201
  213
  225
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
 
  260
  23
  25
  27
  29
  30
  31
  32
  32
  32
  31
  30
  29
  28
  26
  24
  22
  20
  18
  16
  14
  12
  10
  8
  7
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  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
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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 47.2
Price to Sales 5.9
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 23.1
Price to Free Cash Flow 26.3
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 $387 million for the last fiscal year's total revenue generated by Power Integrations. The default revenue input number comes from 2016 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 8.8% 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 4.3%, 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 81.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $26 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 3.5% 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 21.8%.

Life of production assets of 7.4 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 6.2%. 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 - $503 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 29.912 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 $2.3 billion.

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COMPANY NEWS

▶ 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]
▶ Micron Technology Gets Slew Of Price-Target Hikes, But Shares Fall   [Jun-30-17 04:10PM  Investor's Business Daily]
▶ Which Companies Are Now Outperforming 95% Of All Stocks?   [Jun-29-17 11:19AM  Investor's Business Daily]
▶ Can This Chip Stock Continue To Power High-Voltage Breakout?   [10:54AM  Investor's Business Daily]
▶ Chip Stock Breaks Out On Likely Apple iPhone 8 Contract Win   [Jun-27-17 04:19PM  Investor's Business Daily]
▶ Power Integrations Management to Speak at Stifel Conference   [Jun-05-17 06:45AM  Business Wire]
▶ Power Integrations posts 1Q profit   [Apr-27-17 05:10PM  Associated Press]
▶ Power Integrations posts 4Q profit   [Feb-01-17 05:50PM  Associated Press]
Financial statements of POWI
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