Intrinsic value of Richardson Electronics - RELL

Previous Close

$7.00

  Intrinsic Value

$57.36

stock screener

  Rating & Target

str. buy

+719%

Previous close

$7.00

 
Intrinsic value

$57.36

 
Up/down potential

+719%

 
Rating

str. buy

We calculate the intrinsic value of RELL 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 0.1

 

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, %
  21.80
  20.12
  18.61
  17.25
  16.02
  14.92
  13.93
  13.04
  12.23
  11.51
  10.86
  10.27
  9.74
  9.27
  8.84
  8.46
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.09
  5.98
  5.88
  5.79
Revenue, $m
  199
  239
  283
  332
  385
  443
  504
  570
  640
  714
  791
  872
  957
  1,046
  1,139
  1,235
  1,335
  1,439
  1,547
  1,660
  1,777
  1,898
  2,025
  2,156
  2,293
  2,435
  2,583
  2,738
  2,899
  3,066
Variable operating expenses, $m
  127
  152
  180
  211
  245
  281
  320
  361
  406
  452
  500
  552
  605
  661
  720
  781
  844
  910
  978
  1,050
  1,123
  1,200
  1,280
  1,363
  1,450
  1,540
  1,633
  1,731
  1,833
  1,939
Fixed operating expenses, $m
  57
  58
  60
  61
  62
  64
  65
  67
  68
  70
  71
  73
  74
  76
  78
  79
  81
  83
  85
  87
  88
  90
  92
  94
  96
  99
  101
  103
  105
  108
Total operating expenses, $m
  184
  210
  240
  272
  307
  345
  385
  428
  474
  522
  571
  625
  679
  737
  798
  860
  925
  993
  1,063
  1,137
  1,211
  1,290
  1,372
  1,457
  1,546
  1,639
  1,734
  1,834
  1,938
  2,047
Operating income, $m
  15
  28
  43
  60
  78
  98
  119
  142
  166
  192
  220
  248
  278
  309
  341
  375
  410
  446
  484
  524
  565
  608
  652
  698
  747
  797
  849
  904
  961
  1,020
EBITDA, $m
  19
  33
  49
  66
  85
  106
  128
  152
  177
  204
  232
  261
  292
  324
  358
  393
  430
  468
  508
  549
  592
  636
  683
  731
  781
  833
  888
  945
  1,004
  1,066
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  23
  25
  27
  28
Earnings before tax, $m
  15
  28
  43
  59
  77
  96
  116
  139
  162
  187
  214
  242
  270
  301
  332
  365
  399
  434
  471
  510
  550
  591
  634
  679
  726
  775
  826
  879
  934
  992
Tax expense, $m
  4
  8
  12
  16
  21
  26
  31
  37
  44
  50
  58
  65
  73
  81
  90
  98
  108
  117
  127
  138
  148
  160
  171
  183
  196
  209
  223
  237
  252
  268
Net income, $m
  11
  20
  31
  43
  56
  70
  85
  101
  118
  136
  156
  176
  197
  219
  242
  266
  291
  317
  344
  372
  401
  431
  463
  496
  530
  566
  603
  642
  682
  724

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
  166
  199
  236
  277
  321
  369
  420
  475
  533
  595
  659
  727
  798
  872
  949
  1,029
  1,113
  1,199
  1,290
  1,383
  1,481
  1,582
  1,687
  1,797
  1,911
  2,029
  2,153
  2,281
  2,416
  2,555
Adjusted assets (=assets-cash), $m
  166
  199
  236
  277
  321
  369
  420
  475
  533
  595
  659
  727
  798
  872
  949
  1,029
  1,113
  1,199
  1,290
  1,383
  1,481
  1,582
  1,687
  1,797
  1,911
  2,029
  2,153
  2,281
  2,416
  2,555
Revenue / Adjusted assets
  1.199
  1.201
  1.199
  1.199
  1.199
  1.201
  1.200
  1.200
  1.201
  1.200
  1.200
  1.199
  1.199
  1.200
  1.200
  1.200
  1.199
  1.200
  1.199
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
Average production assets, $m
  27
  32
  38
  44
  52
  59
  68
  76
  86
  96
  106
  117
  128
  140
  153
  165
  179
  193
  207
  222
  238
  254
  271
  289
  307
  326
  346
  367
  388
  411
Working capital, $m
  58
  69
  82
  97
  112
  129
  147
  166
  186
  208
  230
  254
  279
  304
  331
  359
  389
  419
  450
  483
  517
  552
  589
  627
  667
  709
  752
  797
  843
  892
Total debt, $m
  7
  14
  23
  32
  42
  53
  65
  78
  91
  105
  120
  135
  152
  168
  186
  205
  224
  244
  264
  286
  308
  331
  355
  380
  406
  434
  462
  491
  522
  554
Total liabilities, $m
  38
  46
  54
  63
  74
  84
  96
  109
  122
  136
  151
  166
  183
  200
  217
  236
  255
  275
  295
  317
  339
  362
  386
  411
  438
  465
  493
  522
  553
  585
Total equity, $m
  128
  153
  182
  213
  248
  284
  324
  366
  411
  458
  508
  560
  615
  672
  732
  793
  858
  925
  994
  1,067
  1,142
  1,220
  1,301
  1,385
  1,473
  1,565
  1,660
  1,759
  1,862
  1,970
Total liabilities and equity, $m
  166
  199
  236
  276
  322
  368
  420
  475
  533
  594
  659
  726
  798
  872
  949
  1,029
  1,113
  1,200
  1,289
  1,384
  1,481
  1,582
  1,687
  1,796
  1,911
  2,030
  2,153
  2,281
  2,415
  2,555
Debt-to-equity ratio
  0.050
  0.090
  0.130
  0.150
  0.170
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.240
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
Adjusted equity ratio
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  20
  31
  43
  56
  70
  85
  101
  118
  136
  156
  176
  197
  219
  242
  266
  291
  317
  344
  372
  401
  431
  463
  496
  530
  566
  603
  642
  682
  724
Depreciation, amort., depletion, $m
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  12
  13
  14
  16
  17
  19
  20
  22
  23
  25
  27
  29
  30
  32
  35
  37
  39
  41
  44
  46
Funds from operations, $m
  15
  25
  36
  49
  63
  78
  94
  111
  129
  148
  168
  189
  212
  235
  259
  285
  311
  339
  367
  397
  428
  460
  494
  528
  565
  602
  642
  683
  726
  770
Change in working capital, $m
  10
  12
  13
  14
  15
  17
  18
  19
  20
  21
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
Cash from operations, $m
  4
  13
  23
  35
  47
  61
  76
  92
  109
  127
  146
  166
  187
  209
  233
  257
  282
  308
  336
  364
  394
  425
  457
  490
  525
  561
  599
  638
  679
  721
Maintenance CAPEX, $m
  -2
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -29
  -30
  -32
  -35
  -37
  -39
  -41
  -44
New CAPEX, $m
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
Cash from investing activities, $m
  -7
  -8
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -38
  -41
  -43
  -46
  -48
  -50
  -54
  -57
  -60
  -63
  -66
Free cash flow, $m
  -3
  5
  14
  24
  35
  47
  61
  75
  91
  107
  125
  143
  163
  183
  204
  227
  250
  274
  300
  326
  353
  382
  411
  442
  474
  507
  542
  578
  616
  655
Issuance/(repayment) of debt, $m
  7
  8
  8
  9
  10
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
Issuance/(repurchase) of shares, $m
  12
  5
  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  
  19
  13
  8
  9
  10
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
Total cash flow (excl. dividends), $m
  16
  18
  22
  33
  45
  58
  72
  88
  104
  121
  139
  159
  179
  200
  222
  245
  269
  294
  320
  347
  376
  405
  435
  467
  500
  534
  570
  608
  647
  687
Retained Cash Flow (-), $m
  -23
  -26
  -29
  -31
  -34
  -37
  -40
  -42
  -45
  -47
  -50
  -52
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -103
  -108
Prev. year cash balance distribution, $m
  31
  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
  24
  -8
  -6
  2
  11
  21
  33
  45
  59
  74
  90
  106
  124
  143
  163
  183
  205
  227
  251
  275
  300
  327
  354
  383
  412
  443
  475
  508
  543
  579
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
  23
  -7
  -5
  1
  9
  15
  22
  28
  34
  39
  43
  45
  47
  48
  48
  47
  45
  42
  39
  35
  31
  27
  23
  19
  16
  13
  10
  8
  6
  4
Current shareholders' claim on cash, %
  85.8
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0
  81.0

Richardson Electronics, Ltd. is a provider of engineered solutions, power grid and microwave tubes, and related consumables; power conversion, and radio frequency (RF) and microwave components; high value displays, flat panel detector solutions and replacement parts for diagnostic imaging equipment, and customized display solutions. The Company's segments include Power and Microwave Technologies Group, which provides engineered solutions and distributes electronic components to customers in alternative energy, aviation, broadcast, communications, industrial, medical, military, scientific and semiconductor markets; Canvys, which provides customized display solutions to corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets, and Healthcare, which manufactures, distributes and services replacement parts for the healthcare market, including hospitals, medical centers, independent service organizations and multi-vendor service providers.

FINANCIAL RATIOS  of  Richardson Electronics (RELL)

Valuation Ratios
P/E Ratio -12.9
Price to Sales 0.7
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 45
Price to Free Cash Flow -30
Growth Rates
Sales Growth Rate -3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -4.3%
Ret/ On Assets - 3 Yr. Avg. -3.8%
Return On Total Capital -5.1%
Ret/ On T. Cap. - 3 Yr. Avg. -4.5%
Return On Equity -5.1%
Return On Equity - 3 Yr. Avg. -4.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 32.1%
Gross Margin - 3 Yr. Avg. 31.2%
EBITDA Margin -2.2%
EBITDA Margin - 3 Yr. Avg. -2.9%
Operating Margin -4.4%
Oper. Margin - 3 Yr. Avg. -5%
Pre-Tax Margin -4.4%
Pre-Tax Margin - 3 Yr. Avg. -4.6%
Net Profit Margin -5.1%
Net Profit Margin - 3 Yr. Avg. -4.8%
Effective Tax Rate -16.7%
Eff/ Tax Rate - 3 Yr. Avg. -6.3%
Payout Ratio -42.9%

RELL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RELL stock intrinsic value calculation we used $163.212 million for the last fiscal year's total revenue generated by Richardson Electronics. The default revenue input number comes from 0001 income statement of Richardson Electronics. 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 RELL stock valuation model: a) initial revenue growth rate of 21.8% 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 RELL is calculated based on our internal credit rating of Richardson Electronics, 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 Richardson Electronics.
    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 RELL stock the variable cost ratio is equal to 63.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $56 million in the base year in the intrinsic value calculation for RELL 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 Richardson Electronics.

Corporate tax rate of 27% is the nominal tax rate for Richardson Electronics. 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 RELL 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 RELL are equal to 13.4%.

Life of production assets of 8.9 years is the average useful life of capital assets used in Richardson Electronics 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 RELL is equal to 29.1%. 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 - $135.181 million for Richardson Electronics - 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 10.806 million for Richardson Electronics 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 Richardson Electronics at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Richardson Electronics: Fiscal 1Q Earnings Snapshot   [Oct-10-18 05:12PM  Associated Press]
▶ 3 Large and Small Earnings Stories You May Have Missed   [Jul-27-18 12:30PM  TheStreet.com]
▶ Richardson Electronics: Fiscal 4Q Earnings Snapshot   [Jul-25-18 08:06PM  Associated Press]
▶ VOXX Doesn't Knock Traders' Socks Off   [Jul-11-18 10:00AM  TheStreet.com]
▶ Earnings Progress Reports: RAIL, FIT, RELL   [May-04-18 12:00PM  TheStreet.com]
▶ Richardson Electronics: Fiscal 3Q Earnings Snapshot   [Apr-11-18 05:18PM  Associated Press]
▶ Canvys Introduces New 27 and 32 4K Ultra HD Displays   [Mar-22-18 10:00AM  GlobeNewswire]
▶ The Dearth of Available, Investable Net/Nets   [Mar-16-18 12:00PM  TheStreet.com]
▶ Richardson Electronics posts 2Q profit   [Jan-10-18 05:15PM  Associated Press]
▶ Do Cheap Stocks Still Exist?   [Dec-08-17 11:53AM  GuruFocus.com]
▶ Richardson Electronics reports 1Q loss   [Oct-11-17 05:08PM  Associated Press]
▶ Valuable Earnings Insight on 2 Value Names   [Jul-21-17 12:30PM  TheStreet.com]
▶ Richardson Electronics reports 4Q loss   [Jul-19-17 11:24PM  Associated Press]
▶ A Noteworthy Thursday for 4 Value Names   [May-26-17 10:00AM  TheStreet.com]
▶ FreightCar America Among Slim Deep-Value Pickings   [Apr-21-17 03:08PM  TheStreet.com]
▶ Richardson Electronics reports 3Q loss   [Apr-05-17 05:20PM  Associated Press]
▶ Canvys Announces New True Flat G Series Custom Displays   [Feb-20-17 03:00PM  GlobeNewswire]
▶ Richardson Electronics Could Use a Spark   [Jan-30-17 12:00PM  TheStreet.com]
▶ 4 Top-Ranked Net-Net Working Capital Stocks   [Dec-30-16 10:51AM  GuruFocus.com]
▶ Buy These 5 Stocks For Less Than Liquidation Value   [12:09PM  at Insider Monkey]
▶ Richardson Healthcare Announces XR-29 Compliance Solution   [Aug-01-16 11:30AM  Business Wire]

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