Intrinsic value of Sparton - SPA

Previous Close

$14.25

  Intrinsic Value

$1.04

stock screener

  Rating & Target

str. sell

-93%

Previous close

$14.25

 
Intrinsic value

$1.04

 
Up/down potential

-93%

 
Rating

str. sell

We calculate the intrinsic value of SPA 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, %
  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
  406
  415
  426
  437
  451
  465
  481
  498
  517
  537
  558
  580
  605
  630
  657
  686
  717
  749
  783
  819
  857
  897
  939
  984
  1,030
  1,080
  1,132
  1,186
  1,244
  1,304
Variable operating expenses, $m
  457
  468
  480
  493
  508
  524
  542
  561
  582
  604
  623
  649
  676
  704
  735
  767
  801
  837
  875
  915
  958
  1,002
  1,050
  1,099
  1,152
  1,207
  1,265
  1,326
  1,390
  1,458
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
  457
  468
  480
  493
  508
  524
  542
  561
  582
  604
  623
  649
  676
  704
  735
  767
  801
  837
  875
  915
  958
  1,002
  1,050
  1,099
  1,152
  1,207
  1,265
  1,326
  1,390
  1,458
Operating income, $m
  -52
  -53
  -54
  -56
  -57
  -59
  -61
  -63
  -65
  -67
  -66
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -96
  -101
  -106
  -111
  -116
  -121
  -127
  -133
  -140
  -146
  -153
EBITDA, $m
  -37
  -38
  -39
  -40
  -41
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -120
Interest expense (income), $m
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
Earnings before tax, $m
  -56
  -57
  -59
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -107
  -113
  -118
  -124
  -130
  -136
  -143
  -150
  -157
  -165
  -173
Tax expense, $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
Net income, $m
  -56
  -57
  -59
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -107
  -113
  -118
  -124
  -130
  -136
  -143
  -150
  -157
  -165
  -173

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
  221
  226
  232
  239
  246
  254
  262
  272
  282
  293
  304
  317
  330
  344
  359
  374
  391
  409
  427
  447
  467
  489
  512
  537
  562
  589
  617
  647
  678
  711
Adjusted assets (=assets-cash), $m
  221
  226
  232
  239
  246
  254
  262
  272
  282
  293
  304
  317
  330
  344
  359
  374
  391
  409
  427
  447
  467
  489
  512
  537
  562
  589
  617
  647
  678
  711
Revenue / Adjusted assets
  1.837
  1.836
  1.836
  1.828
  1.833
  1.831
  1.836
  1.831
  1.833
  1.833
  1.836
  1.830
  1.833
  1.831
  1.830
  1.834
  1.834
  1.831
  1.834
  1.832
  1.835
  1.834
  1.834
  1.832
  1.833
  1.834
  1.835
  1.833
  1.835
  1.834
Average production assets, $m
  58
  59
  60
  62
  64
  66
  68
  71
  73
  76
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  122
  127
  133
  140
  146
  153
  161
  168
  177
  185
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
  77
  81
  84
  88
  93
  98
  103
  109
  115
  122
  129
  137
  145
  154
  163
  173
  183
  194
  206
  218
  231
  245
  259
  274
  290
  307
  324
  343
  362
  383
Total liabilities, $m
  138
  141
  145
  149
  153
  158
  164
  169
  176
  182
  190
  197
  205
  214
  223
  233
  244
  255
  266
  278
  291
  305
  319
  334
  350
  367
  385
  403
  423
  443
Total equity, $m
  83
  85
  88
  90
  93
  96
  99
  102
  106
  110
  115
  119
  124
  130
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
  268
Total liabilities and equity, $m
  221
  226
  233
  239
  246
  254
  263
  271
  282
  292
  305
  316
  329
  344
  358
  374
  391
  409
  427
  446
  467
  489
  512
  536
  562
  589
  618
  647
  679
  711
Debt-to-equity ratio
  0.930
  0.950
  0.960
  0.980
  1.000
  1.020
  1.040
  1.060
  1.080
  1.110
  1.130
  1.150
  1.170
  1.190
  1.210
  1.220
  1.240
  1.260
  1.280
  1.290
  1.310
  1.330
  1.340
  1.350
  1.370
  1.380
  1.390
  1.410
  1.420
  1.430
Adjusted equity ratio
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377
  0.377

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -56
  -57
  -59
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -107
  -113
  -118
  -124
  -130
  -136
  -143
  -150
  -157
  -165
  -173
Depreciation, amort., depletion, $m
  15
  15
  15
  15
  16
  16
  17
  17
  17
  18
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
Funds from operations, $m
  -41
  -42
  -43
  -45
  -46
  -48
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -115
  -120
  -126
  -133
  -139
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
  -42
  -44
  -45
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -110
  -116
  -122
  -128
  -134
  -141
  -148
Maintenance CAPEX, $m
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
New CAPEX, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
Cash from investing activities, $m
  -11
  -11
  -13
  -13
  -13
  -14
  -14
  -14
  -16
  -16
  -17
  -17
  -18
  -20
  -20
  -21
  -22
  -24
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
Free cash flow, $m
  -54
  -55
  -57
  -59
  -61
  -63
  -66
  -69
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -97
  -101
  -106
  -111
  -117
  -122
  -128
  -134
  -141
  -148
  -155
  -163
  -171
  -180
  -188
Issuance/(repayment) of debt, $m
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
Issuance/(repurchase) of shares, $m
  57
  59
  61
  63
  65
  67
  69
  72
  75
  78
  77
  80
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  146
  153
  160
  168
  177
  185
Cash from financing (excl. dividends), $m  
  60
  62
  65
  67
  70
  72
  74
  78
  81
  85
  84
  88
  91
  96
  100
  105
  110
  116
  122
  127
  133
  140
  146
  154
  162
  170
  178
  187
  197
  206
Total cash flow (excl. dividends), $m
  6
  7
  7
  8
  8
  8
  9
  9
  9
  10
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
Retained Cash Flow (-), $m
  -57
  -59
  -61
  -63
  -65
  -67
  -69
  -72
  -75
  -78
  -77
  -80
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -115
  -120
  -126
  -132
  -139
  -146
  -153
  -160
  -168
  -177
  -185
Prev. year cash balance distribution, $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 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
  -51
  -52
  -54
  -55
  -57
  -59
  -61
  -63
  -65
  -68
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -115
  -120
  -126
  -132
  -139
  -145
  -152
  -160
  -168
Discount rate, %
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
  -48
  -46
  -44
  -42
  -40
  -38
  -36
  -33
  -31
  -28
  -26
  -23
  -21
  -18
  -16
  -14
  -12
  -10
  -8
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
  -1
  0
  0
Current shareholders' claim on cash, %
  70.9
  50.2
  35.5
  25.0
  17.6
  12.4
  8.7
  6.1
  4.3
  3.0
  2.1
  1.5
  1.1
  0.8
  0.5
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Sparton Corporation is a provider of design, development and manufacturing services for electromechanical devices, as well as engineered products complementary to the same electromechanical value stream. The Company operates through two segments: Manufacturing & Design Services (MDS) and Engineered Components & Products (ECP). The Company serves the medical and biotechnology, military and aerospace, and industrial and commercial markets. Its products and services include offerings for original equipment manufacturers (OEM) and emerging technology (ET) customers, which utilize microprocessor-based systems, such as transducers, printed circuit boards and assemblies, and sensors, as well as development and design engineering services. It develops and manufactures sonobuoys, which are anti-submarine warfare (ASW) devices. The Company also manufactures rugged flat panel display systems for military panel personal computer workstations, air traffic control and industrial applications.

FINANCIAL RATIOS  of  Sparton (SPA)

Valuation Ratios
P/E Ratio 140.5
Price to Sales 0.4
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 4.5
Price to Free Cash Flow 5.9
Growth Rates
Sales Growth Rate -5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate -29.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 91.5%
Total Debt to Equity 91.5%
Interest Coverage 2
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. -2.1%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. -3.7%
Return On Equity 1.2%
Return On Equity - 3 Yr. Avg. -9.3%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 18.1%
Gross Margin - 3 Yr. Avg. 18.9%
EBITDA Margin 5.5%
EBITDA Margin - 3 Yr. Avg. 1.5%
Operating Margin 2%
Oper. Margin - 3 Yr. Avg. -2%
Pre-Tax Margin 0.8%
Pre-Tax Margin - 3 Yr. Avg. -2.9%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. -2%
Effective Tax Rate 66.7%
Eff/ Tax Rate - 3 Yr. Avg. 41.8%
Payout Ratio 0%

SPA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPA stock intrinsic value calculation we used $397.562 million for the last fiscal year's total revenue generated by Sparton. The default revenue input number comes from 0001 income statement of Sparton. 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 SPA 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 5.9%, whose default value for SPA is calculated based on our internal credit rating of Sparton, 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 Sparton.
    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 SPA stock the variable cost ratio is equal to 112.8%.

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 SPA 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 Sparton.

Corporate tax rate of 27% is the nominal tax rate for Sparton. 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 SPA 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 SPA are equal to 14.2%.

Life of production assets of 5.5 years is the average useful life of capital assets used in Sparton 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 SPA is equal to 13.9%. 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 - $81.868 million for Sparton - 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 9.835 million for Sparton 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 Sparton at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Sparton DLS Appraised at CMMI-Maturity Level 3   [Nov-13-18 08:30AM  Business Wire]
▶ Sparton: Fiscal 1Q Earnings Snapshot   [Nov-08-18 04:59PM  Associated Press]
▶ Sparton: Fiscal 4Q Earnings Snapshot   [Sep-13-18 04:38PM  Associated Press]
▶ Sparton DeLeon Springs Achieves AS9100:2016 Certification   [Sep-11-18 08:30AM  Business Wire]
▶ Sparton: Fiscal 3Q Earnings Snapshot   [May-09-18 05:10PM  Associated Press]
▶ Is Sparton Resources Incs (CVE:SRI) ROE Of 56.13% Sustainable?   [Mar-27-18 10:36AM  Simply Wall St.]
▶ Why Sparton Corporation Stock Sank 26% Just Now   [Mar-05-18 03:38PM  Motley Fool]
▶ [$$] Ultra Electronics: under water   [Mar-04-18 11:16PM  Financial Times]
▶ Sparton reports 2Q loss   [Feb-06-18 05:21PM  Associated Press]
▶ Sparton Announces Completion of CFIUS Process   [Nov-21-17 08:30AM  Business Wire]
▶ Sparton reports 1Q loss   [Nov-09-17 04:46PM  Associated Press]
▶ White House announces new travel restrictions   [Sep-25-17 10:55AM  Yahoo Finance Video]
▶ ETFs with exposure to Sparton Corp. : September 19, 2017   [Sep-19-17 06:34PM  Capital Cube]
▶ Sparton posts 4Q profit   [Sep-14-17 09:56PM  Associated Press]
▶ How to Invest in Defense Stocks   [01:02PM  Motley Fool]
▶ Company News for July 10, 2017   [10:13AM  Zacks]
▶ [$$] Ultra Electronics in talks to buy Sparton   [Jun-24-17 08:22AM  Financial Times]
▶ Sparton posts 3Q profit   [May-09-17 06:32PM  Associated Press]
▶ ETFs with exposure to Sparton Corp. : April 26, 2017   [Apr-26-17 03:37PM  Capital Cube]

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