Intrinsic value of Power Integrations, Inc. - POWI

Previous Close

$86.91

  Intrinsic Value

$22.53

stock screener

  Rating & Target

str. sell

-74%

Previous close

$86.91

 
Intrinsic value

$22.53

 
Up/down potential

-74%

 
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 2.5

 

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
  424
  434
  445
  458
  472
  487
  503
  521
  541
  561
  584
  607
  633
  659
  688
  718
  750
  784
  819
  857
  897
  939
  983
  1,029
  1,078
  1,130
  1,184
  1,241
  1,301
  1,365
Variable operating expenses, $m
  367
  375
  384
  395
  406
  419
  433
  448
  464
  482
  489
  509
  530
  552
  576
  602
  628
  657
  686
  718
  751
  786
  823
  862
  903
  947
  992
  1,040
  1,090
  1,143
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
  367
  375
  384
  395
  406
  419
  433
  448
  464
  482
  489
  509
  530
  552
  576
  602
  628
  657
  686
  718
  751
  786
  823
  862
  903
  947
  992
  1,040
  1,090
  1,143
Operating income, $m
  58
  59
  61
  63
  65
  68
  70
  73
  76
  80
  95
  98
  103
  107
  112
  116
  122
  127
  133
  139
  145
  152
  159
  167
  175
  183
  192
  201
  211
  221
EBITDA, $m
  87
  89
  92
  94
  97
  100
  104
  107
  111
  116
  120
  125
  130
  136
  142
  148
  154
  161
  169
  176
  185
  193
  202
  212
  222
  232
  244
  255
  268
  281
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
Earnings before tax, $m
  58
  59
  61
  63
  65
  67
  70
  73
  76
  79
  93
  97
  101
  105
  110
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  186
  195
  204
  214
Tax expense, $m
  16
  16
  16
  17
  18
  18
  19
  20
  20
  21
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
Net income, $m
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  108
  113
  119
  124
  130
  136
  142
  149
  156

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
  417
  426
  437
  450
  463
  478
  495
  512
  531
  552
  573
  597
  621
  648
  676
  705
  737
  770
  805
  842
  881
  922
  965
  1,011
  1,059
  1,110
  1,163
  1,219
  1,278
  1,340
Adjusted assets (=assets-cash), $m
  417
  426
  437
  450
  463
  478
  495
  512
  531
  552
  573
  597
  621
  648
  676
  705
  737
  770
  805
  842
  881
  922
  965
  1,011
  1,059
  1,110
  1,163
  1,219
  1,278
  1,340
Revenue / Adjusted assets
  1.017
  1.019
  1.018
  1.018
  1.019
  1.019
  1.016
  1.018
  1.019
  1.016
  1.019
  1.017
  1.019
  1.017
  1.018
  1.018
  1.018
  1.018
  1.017
  1.018
  1.018
  1.018
  1.019
  1.018
  1.018
  1.018
  1.018
  1.018
  1.018
  1.019
Average production assets, $m
  174
  178
  183
  188
  193
  200
  206
  214
  222
  230
  239
  249
  259
  270
  282
  294
  307
  321
  336
  351
  368
  385
  403
  422
  442
  463
  485
  509
  534
  559
Working capital, $m
  56
  58
  59
  61
  63
  65
  67
  69
  72
  75
  78
  81
  84
  88
  91
  95
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
Total debt, $m
  1
  3
  4
  6
  8
  11
  13
  16
  19
  22
  25
  28
  32
  36
  40
  45
  50
  55
  60
  65
  71
  78
  84
  91
  98
  106
  114
  122
  131
  141
Total liabilities, $m
  63
  64
  66
  68
  70
  72
  75
  77
  80
  83
  87
  90
  94
  98
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
  168
  176
  184
  193
  202
Total equity, $m
  354
  362
  371
  382
  393
  406
  420
  435
  451
  468
  487
  507
  528
  550
  574
  599
  625
  654
  683
  715
  748
  783
  820
  858
  899
  942
  988
  1,035
  1,085
  1,138
Total liabilities and equity, $m
  417
  426
  437
  450
  463
  478
  495
  512
  531
  551
  574
  597
  622
  648
  676
  705
  736
  770
  805
  842
  881
  922
  966
  1,011
  1,059
  1,110
  1,164
  1,219
  1,278
  1,340
Debt-to-equity ratio
  0.000
  0.010
  0.010
  0.020
  0.020
  0.030
  0.030
  0.040
  0.040
  0.050
  0.050
  0.060
  0.060
  0.070
  0.070
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
Adjusted equity ratio
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  108
  113
  119
  124
  130
  136
  142
  149
  156
Depreciation, amort., depletion, $m
  30
  30
  31
  31
  32
  33
  33
  34
  35
  36
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
Funds from operations, $m
  72
  73
  75
  77
  79
  82
  84
  87
  90
  93
  94
  97
  101
  106
  110
  115
  120
  125
  131
  136
  143
  149
  156
  163
  171
  179
  188
  197
  206
  216
Change in working capital, $m
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
Cash from operations, $m
  71
  72
  74
  75
  77
  80
  82
  85
  87
  91
  91
  94
  98
  102
  106
  111
  115
  121
  126
  131
  137
  144
  150
  157
  165
  172
  180
  189
  198
  207
Maintenance CAPEX, $m
  -18
  -19
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
New CAPEX, $m
  -3
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
Cash from investing activities, $m
  -21
  -23
  -24
  -24
  -26
  -27
  -28
  -29
  -31
  -33
  -33
  -35
  -36
  -39
  -41
  -42
  -44
  -47
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -79
  -83
Free cash flow, $m
  49
  50
  50
  51
  52
  53
  54
  55
  57
  58
  57
  59
  61
  63
  66
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
  125
Issuance/(repayment) of debt, $m
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
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  
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
Total cash flow (excl. dividends), $m
  51
  51
  52
  53
  54
  55
  56
  58
  60
  62
  60
  63
  65
  67
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
Retained Cash Flow (-), $m
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
Prev. year cash balance distribution, $m
  180
  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
  224
  43
  42
  42
  42
  42
  43
  43
  44
  44
  42
  43
  44
  45
  46
  48
  49
  51
  53
  54
  56
  59
  61
  63
  66
  69
  72
  75
  78
  81
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
  214
  39
  37
  35
  33
  31
  29
  27
  25
  23
  20
  18
  17
  15
  14
  12
  11
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  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, Inc. (POWI)

Valuation Ratios
P/E Ratio 53
Price to Sales 6.6
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 25.9
Price to Free Cash Flow 29.6
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 $416 million for the last fiscal year's total revenue generated by Power Integrations, Inc.. The default revenue input number comes from 0001 income statement of Power Integrations, Inc.. 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, Inc., 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, Inc..
    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 86.5%.

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 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, Inc..

Corporate tax rate of 27% is the nominal tax rate for Power Integrations, Inc.. 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 41%.

Life of production assets of 9.4 years is the average useful life of capital assets used in Power Integrations, Inc. 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 13.3%. 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 - $527.072 million for Power Integrations, Inc. - 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 28.899 million for Power Integrations, Inc. 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, Inc. at the current share price and the inputted number of shares is $2.5 billion.

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