Intrinsic value of Power Integrations - POWI

Previous Close

$72.10

  Intrinsic Value

$28.86

stock screener

  Rating & Target

str. sell

-60%

Previous close

$72.10

 
Intrinsic value

$28.86

 
Up/down potential

-60%

 
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 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 2.2

 

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, %
  10.80
  10.22
  9.70
  9.23
  8.81
  8.42
  8.08
  7.77
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.07
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
Revenue, $m
  479
  528
  579
  632
  688
  746
  806
  869
  934
  1,001
  1,072
  1,145
  1,221
  1,300
  1,382
  1,468
  1,557
  1,650
  1,747
  1,848
  1,953
  2,063
  2,178
  2,298
  2,424
  2,555
  2,692
  2,836
  2,987
  3,144
Variable operating expenses, $m
  378
  415
  454
  495
  538
  582
  628
  676
  726
  778
  820
  876
  934
  994
  1,057
  1,123
  1,191
  1,262
  1,336
  1,413
  1,494
  1,578
  1,666
  1,758
  1,854
  1,954
  2,060
  2,169
  2,285
  2,405
Fixed operating expenses, $m
  34
  34
  35
  36
  37
  38
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  54
  56
  57
  58
  59
  61
  62
  63
Total operating expenses, $m
  412
  449
  489
  531
  575
  620
  666
  715
  766
  819
  862
  919
  978
  1,039
  1,103
  1,170
  1,239
  1,311
  1,386
  1,464
  1,546
  1,631
  1,720
  1,814
  1,911
  2,012
  2,119
  2,230
  2,347
  2,468
Operating income, $m
  67
  78
  89
  101
  113
  126
  139
  153
  168
  183
  210
  226
  243
  261
  279
  298
  318
  339
  361
  383
  407
  432
  458
  485
  513
  543
  574
  606
  640
  676
EBITDA, $m
  104
  117
  131
  145
  161
  176
  193
  210
  228
  246
  266
  286
  306
  328
  351
  374
  399
  425
  451
  479
  508
  539
  570
  604
  639
  675
  713
  753
  795
  839
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
Earnings before tax, $m
  67
  77
  88
  100
  111
  124
  136
  150
  164
  178
  205
  220
  237
  254
  271
  290
  309
  329
  349
  371
  394
  418
  443
  469
  496
  524
  554
  585
  618
  652
Tax expense, $m
  18
  21
  24
  27
  30
  33
  37
  40
  44
  48
  55
  60
  64
  68
  73
  78
  83
  89
  94
  100
  106
  113
  119
  127
  134
  142
  150
  158
  167
  176
Net income, $m
  49
  56
  64
  73
  81
  90
  100
  109
  119
  130
  149
  161
  173
  185
  198
  211
  225
  240
  255
  271
  288
  305
  323
  342
  362
  383
  404
  427
  451
  476

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
  432
  476
  522
  570
  620
  672
  727
  783
  842
  903
  966
  1,032
  1,101
  1,172
  1,246
  1,324
  1,404
  1,488
  1,575
  1,666
  1,761
  1,860
  1,964
  2,072
  2,186
  2,304
  2,428
  2,557
  2,693
  2,835
Adjusted assets (=assets-cash), $m
  432
  476
  522
  570
  620
  672
  727
  783
  842
  903
  966
  1,032
  1,101
  1,172
  1,246
  1,324
  1,404
  1,488
  1,575
  1,666
  1,761
  1,860
  1,964
  2,072
  2,186
  2,304
  2,428
  2,557
  2,693
  2,835
Revenue / Adjusted assets
  1.109
  1.109
  1.109
  1.109
  1.110
  1.110
  1.109
  1.110
  1.109
  1.109
  1.110
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
  1.109
Average production assets, $m
  248
  273
  300
  327
  356
  386
  418
  450
  484
  519
  555
  593
  632
  673
  716
  760
  807
  855
  905
  957
  1,012
  1,069
  1,128
  1,191
  1,256
  1,324
  1,395
  1,469
  1,547
  1,629
Working capital, $m
  26
  29
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  71
  76
  81
  86
  91
  96
  102
  107
  113
  120
  126
  133
  141
  148
  156
  164
  173
Total debt, $m
  9
  17
  26
  35
  44
  54
  64
  75
  86
  98
  110
  122
  135
  148
  162
  177
  192
  208
  225
  242
  260
  279
  298
  319
  340
  362
  386
  410
  436
  463
Total liabilities, $m
  82
  90
  99
  108
  117
  127
  137
  148
  159
  171
  183
  195
  208
  222
  236
  250
  265
  281
  298
  315
  333
  352
  371
  392
  413
  435
  459
  483
  509
  536
Total equity, $m
  350
  386
  423
  462
  503
  545
  589
  635
  683
  732
  784
  837
  893
  951
  1,011
  1,073
  1,139
  1,207
  1,277
  1,351
  1,428
  1,509
  1,593
  1,681
  1,773
  1,869
  1,969
  2,074
  2,184
  2,299
Total liabilities and equity, $m
  432
  476
  522
  570
  620
  672
  726
  783
  842
  903
  967
  1,032
  1,101
  1,173
  1,247
  1,323
  1,404
  1,488
  1,575
  1,666
  1,761
  1,861
  1,964
  2,073
  2,186
  2,304
  2,428
  2,557
  2,693
  2,835
Debt-to-equity ratio
  0.020
  0.040
  0.060
  0.070
  0.090
  0.100
  0.110
  0.120
  0.130
  0.130
  0.140
  0.150
  0.150
  0.160
  0.160
  0.160
  0.170
  0.170
  0.180
  0.180
  0.180
  0.180
  0.190
  0.190
  0.190
  0.190
  0.200
  0.200
  0.200
  0.200
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
  49
  56
  64
  73
  81
  90
  100
  109
  119
  130
  149
  161
  173
  185
  198
  211
  225
  240
  255
  271
  288
  305
  323
  342
  362
  383
  404
  427
  451
  476
Depreciation, amort., depletion, $m
  36
  39
  42
  44
  47
  50
  53
  57
  60
  64
  56
  59
  63
  67
  72
  76
  81
  85
  90
  96
  101
  107
  113
  119
  126
  132
  139
  147
  155
  163
Funds from operations, $m
  85
  96
  106
  117
  129
  141
  153
  166
  180
  194
  205
  220
  236
  252
  270
  287
  306
  325
  346
  367
  389
  412
  436
  461
  487
  515
  544
  574
  606
  639
Change in working capital, $m
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  83
  93
  103
  114
  126
  137
  150
  163
  176
  190
  201
  216
  232
  248
  265
  283
  301
  320
  340
  361
  383
  406
  430
  454
  481
  508
  536
  566
  598
  630
Maintenance CAPEX, $m
  -22
  -25
  -27
  -30
  -33
  -36
  -39
  -42
  -45
  -48
  -52
  -56
  -59
  -63
  -67
  -72
  -76
  -81
  -85
  -90
  -96
  -101
  -107
  -113
  -119
  -126
  -132
  -139
  -147
  -155
New CAPEX, $m
  -24
  -25
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -82
Cash from investing activities, $m
  -46
  -50
  -54
  -58
  -62
  -66
  -70
  -74
  -79
  -83
  -88
  -94
  -98
  -104
  -110
  -116
  -122
  -129
  -135
  -142
  -151
  -158
  -167
  -175
  -184
  -194
  -203
  -213
  -225
  -237
Free cash flow, $m
  36
  43
  49
  57
  64
  72
  80
  88
  97
  106
  113
  123
  133
  144
  155
  167
  179
  191
  205
  218
  233
  248
  263
  279
  296
  314
  333
  352
  373
  394
Issuance/(repayment) of debt, $m
  9
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
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  
  9
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
Total cash flow (excl. dividends), $m
  45
  51
  58
  66
  73
  82
  90
  99
  108
  118
  125
  135
  146
  157
  169
  181
  194
  207
  221
  236
  251
  266
  283
  300
  318
  337
  356
  377
  398
  421
Retained Cash Flow (-), $m
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -88
  -92
  -96
  -100
  -105
  -110
  -115
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
  25
  27
  30
  33
  36
  39
  43
  46
  50
  53
  57
  61
  65
  70
  74
  79
  84
  89
  94
  100
  105
  111
  118
  124
  131
  138
  146
  153
  162
  170
Cash available for distribution, $m
  243
  15
  21
  27
  33
  39
  46
  53
  61
  68
  73
  82
  91
  100
  109
  119
  129
  139
  150
  162
  174
  186
  199
  212
  226
  241
  256
  272
  288
  306
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
  233
  14
  18
  22
  25
  28
  31
  33
  35
  36
  35
  35
  34
  33
  32
  30
  28
  26
  23
  21
  18
  15
  13
  11
  9
  7
  5
  4
  3
  2
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
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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 43.9
Price to Sales 5.4
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 21.5
Price to Free Cash Flow 24.5
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 $432 million for the last fiscal year's total revenue generated by Power Integrations. The default revenue input number comes from 2017 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 10.8% 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 79.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $33 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 5.7%.

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 POWI are equal to 51.8%.

Life of production assets of 10 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 5.5%. 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 - $548 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 30 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 $2.2 billion.

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COMPANY NEWS

▶ 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]
▶ 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]
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