Intrinsic value of Varex Imaging - VREX

Previous Close

$29.40

  Intrinsic Value

$28.56

stock screener

  Rating & Target

hold

-3%

Previous close

$29.40

 
Intrinsic value

$28.56

 
Up/down potential

-3%

 
Rating

hold

We calculate the intrinsic value of VREX 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 1.1

 

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, %
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.64
  8.27
  7.94
  7.65
  7.38
  7.15
  6.93
  6.74
  6.56
  6.41
  6.27
  6.14
  6.03
  5.92
  5.83
  5.75
  5.67
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
Revenue, $m
  786
  879
  977
  1,080
  1,188
  1,301
  1,418
  1,541
  1,668
  1,801
  1,938
  2,081
  2,230
  2,385
  2,546
  2,713
  2,886
  3,067
  3,256
  3,452
  3,656
  3,870
  4,092
  4,324
  4,567
  4,820
  5,085
  5,361
  5,651
  5,954
Variable operating expenses, $m
  643
  716
  792
  872
  955
  1,043
  1,134
  1,229
  1,328
  1,431
  1,505
  1,616
  1,731
  1,851
  1,976
  2,106
  2,241
  2,381
  2,527
  2,680
  2,838
  3,004
  3,177
  3,357
  3,545
  3,742
  3,947
  4,162
  4,387
  4,622
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
  643
  716
  792
  872
  955
  1,043
  1,134
  1,229
  1,328
  1,431
  1,505
  1,616
  1,731
  1,851
  1,976
  2,106
  2,241
  2,381
  2,527
  2,680
  2,838
  3,004
  3,177
  3,357
  3,545
  3,742
  3,947
  4,162
  4,387
  4,622
Operating income, $m
  143
  163
  185
  208
  232
  258
  284
  311
  340
  370
  434
  466
  499
  534
  569
  607
  646
  686
  728
  772
  818
  866
  915
  967
  1,022
  1,078
  1,137
  1,199
  1,264
  1,332
EBITDA, $m
  214
  240
  267
  295
  324
  355
  387
  420
  455
  491
  529
  568
  608
  651
  694
  740
  787
  837
  888
  942
  998
  1,056
  1,116
  1,180
  1,246
  1,315
  1,387
  1,463
  1,542
  1,624
Interest expense (income), $m
  10
  26
  31
  35
  40
  46
  51
  57
  63
  69
  76
  83
  90
  97
  105
  112
  121
  129
  138
  147
  157
  167
  178
  188
  200
  212
  224
  237
  251
  265
  280
Earnings before tax, $m
  116
  133
  150
  168
  187
  206
  227
  248
  271
  294
  351
  376
  402
  429
  457
  486
  516
  548
  581
  615
  651
  688
  727
  767
  810
  854
  900
  949
  999
  1,052
Tax expense, $m
  31
  36
  40
  45
  50
  56
  61
  67
  73
  79
  95
  102
  109
  116
  123
  131
  139
  148
  157
  166
  176
  186
  196
  207
  219
  231
  243
  256
  270
  284
Net income, $m
  85
  97
  109
  123
  136
  151
  166
  181
  198
  214
  256
  274
  293
  313
  334
  355
  377
  400
  424
  449
  475
  502
  531
  560
  591
  623
  657
  693
  729
  768

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
  1,171
  1,310
  1,456
  1,610
  1,770
  1,938
  2,114
  2,296
  2,486
  2,683
  2,889
  3,102
  3,324
  3,554
  3,794
  4,043
  4,302
  4,571
  4,852
  5,144
  5,449
  5,767
  6,099
  6,445
  6,806
  7,183
  7,578
  7,990
  8,421
  8,873
Adjusted assets (=assets-cash), $m
  1,171
  1,310
  1,456
  1,610
  1,770
  1,938
  2,114
  2,296
  2,486
  2,683
  2,889
  3,102
  3,324
  3,554
  3,794
  4,043
  4,302
  4,571
  4,852
  5,144
  5,449
  5,767
  6,099
  6,445
  6,806
  7,183
  7,578
  7,990
  8,421
  8,873
Revenue / Adjusted assets
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
  0.671
Average production assets, $m
  386
  432
  480
  530
  583
  639
  696
  756
  819
  884
  952
  1,022
  1,095
  1,171
  1,250
  1,332
  1,417
  1,506
  1,599
  1,695
  1,795
  1,900
  2,009
  2,123
  2,242
  2,367
  2,497
  2,632
  2,775
  2,923
Working capital, $m
  256
  287
  319
  352
  387
  424
  462
  502
  544
  587
  632
  679
  727
  777
  830
  884
  941
  1,000
  1,061
  1,125
  1,192
  1,262
  1,334
  1,410
  1,489
  1,571
  1,658
  1,748
  1,842
  1,941
Total debt, $m
  568
  656
  749
  847
  949
  1,056
  1,167
  1,283
  1,404
  1,529
  1,660
  1,796
  1,937
  2,083
  2,236
  2,394
  2,559
  2,730
  2,909
  3,095
  3,289
  3,491
  3,701
  3,922
  4,151
  4,391
  4,642
  4,904
  5,179
  5,466
Total liabilities, $m
  745
  833
  926
  1,024
  1,126
  1,233
  1,344
  1,460
  1,581
  1,707
  1,837
  1,973
  2,114
  2,260
  2,413
  2,571
  2,736
  2,907
  3,086
  3,272
  3,466
  3,668
  3,879
  4,099
  4,329
  4,569
  4,819
  5,082
  5,356
  5,643
Total equity, $m
  426
  477
  530
  586
  644
  706
  769
  836
  905
  977
  1,051
  1,129
  1,210
  1,294
  1,381
  1,472
  1,566
  1,664
  1,766
  1,873
  1,984
  2,099
  2,220
  2,346
  2,477
  2,615
  2,758
  2,908
  3,065
  3,230
Total liabilities and equity, $m
  1,171
  1,310
  1,456
  1,610
  1,770
  1,939
  2,113
  2,296
  2,486
  2,684
  2,888
  3,102
  3,324
  3,554
  3,794
  4,043
  4,302
  4,571
  4,852
  5,145
  5,450
  5,767
  6,099
  6,445
  6,806
  7,184
  7,577
  7,990
  8,421
  8,873
Debt-to-equity ratio
  1.330
  1.380
  1.410
  1.440
  1.470
  1.500
  1.520
  1.540
  1.550
  1.570
  1.580
  1.590
  1.600
  1.610
  1.620
  1.630
  1.630
  1.640
  1.650
  1.650
  1.660
  1.660
  1.670
  1.670
  1.680
  1.680
  1.680
  1.690
  1.690
  1.690
Adjusted equity ratio
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  85
  97
  109
  123
  136
  151
  166
  181
  198
  214
  256
  274
  293
  313
  334
  355
  377
  400
  424
  449
  475
  502
  531
  560
  591
  623
  657
  693
  729
  768
Depreciation, amort., depletion, $m
  72
  76
  81
  86
  92
  97
  103
  109
  115
  122
  95
  102
  110
  117
  125
  133
  142
  151
  160
  169
  180
  190
  201
  212
  224
  237
  250
  263
  277
  292
Funds from operations, $m
  157
  173
  191
  209
  228
  248
  269
  290
  313
  336
  351
  377
  403
  430
  459
  488
  519
  551
  584
  619
  655
  692
  732
  773
  815
  860
  907
  956
  1,007
  1,060
Change in working capital, $m
  29
  30
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  48
  50
  52
  54
  57
  59
  61
  64
  67
  70
  73
  76
  79
  83
  86
  90
  94
  99
Cash from operations, $m
  128
  143
  159
  175
  193
  211
  230
  250
  271
  293
  307
  330
  354
  380
  406
  434
  462
  492
  523
  555
  588
  623
  659
  697
  736
  778
  821
  866
  913
  962
Maintenance CAPEX, $m
  -34
  -39
  -43
  -48
  -53
  -58
  -64
  -70
  -76
  -82
  -88
  -95
  -102
  -110
  -117
  -125
  -133
  -142
  -151
  -160
  -169
  -180
  -190
  -201
  -212
  -224
  -237
  -250
  -263
  -277
New CAPEX, $m
  -43
  -46
  -48
  -51
  -53
  -55
  -58
  -60
  -63
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -105
  -109
  -114
  -119
  -124
  -130
  -136
  -142
  -149
Cash from investing activities, $m
  -77
  -85
  -91
  -99
  -106
  -113
  -122
  -130
  -139
  -147
  -156
  -165
  -175
  -186
  -196
  -207
  -218
  -231
  -243
  -256
  -269
  -285
  -299
  -315
  -331
  -348
  -367
  -386
  -405
  -426
Free cash flow, $m
  51
  59
  67
  77
  87
  97
  109
  121
  133
  146
  150
  165
  179
  194
  210
  227
  244
  261
  279
  298
  318
  339
  360
  382
  405
  429
  454
  480
  507
  536
Issuance/(repayment) of debt, $m
  84
  88
  93
  98
  102
  107
  111
  116
  121
  126
  131
  136
  141
  147
  152
  158
  165
  171
  179
  186
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
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  
  84
  88
  93
  98
  102
  107
  111
  116
  121
  126
  131
  136
  141
  147
  152
  158
  165
  171
  179
  186
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
Total cash flow (excl. dividends), $m
  135
  147
  160
  174
  189
  204
  220
  237
  254
  272
  281
  300
  320
  341
  362
  385
  408
  433
  458
  484
  512
  541
  571
  602
  635
  669
  705
  742
  782
  823
Retained Cash Flow (-), $m
  -47
  -50
  -53
  -56
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -111
  -116
  -121
  -126
  -132
  -137
  -144
  -150
  -157
  -164
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
  8
  9
  11
  12
  13
  14
  16
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  68
Cash available for distribution, $m
  87
  96
  107
  119
  131
  143
  156
  170
  185
  200
  206
  223
  239
  257
  275
  294
  314
  334
  356
  378
  401
  425
  450
  476
  503
  532
  561
  592
  625
  658
Discount rate, %
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
  81
  82
  83
  83
  82
  80
  77
  72
  68
  62
  54
  48
  42
  36
  30
  25
  20
  16
  13
  10
  7
  5
  4
  2
  2
  1
  1
  0
  0
  0
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

Varex Imaging Corporation is a supplier of medical X-ray tubes and image processing solutions. The Company’s segments include Medical and Industrial. The X-ray imaging system manufacturers use the Company’s components for medical imaging, cargo screening and border security, to detect, diagnose and protect. The Medical business segment designs, manufactures, sells and services X-ray imaging components for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, radiation therapy and computer-aided detection. The Industrial business segment designs, manufactures, sells and services products for use in security and industrial inspection applications, such as cargo screening at ports and borders and non-destructive examination in a range of applications.

FINANCIAL RATIOS  of  Varex Imaging (VREX)

Valuation Ratios
P/E Ratio 21.3
Price to Sales 1.6
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 14.8
Price to Free Cash Flow 20.1
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31%
Cap. Spend. - 3 Yr. Gr. Rate -2.8%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 122.4%
Total Debt to Equity 127.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 11.4%
Return On Total Capital 7.5%
Ret/ On T. Cap. - 3 Yr. Avg. 13.4%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 14.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 36.4%
Gross Margin - 3 Yr. Avg. 38.7%
EBITDA Margin 16.2%
EBITDA Margin - 3 Yr. Avg. 19.3%
Operating Margin 12%
Oper. Margin - 3 Yr. Avg. 16.6%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 16%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 10.4%
Effective Tax Rate 30.7%
Eff/ Tax Rate - 3 Yr. Avg. 33.9%
Payout Ratio 0%

VREX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VREX stock intrinsic value calculation we used $698 million for the last fiscal year's total revenue generated by Varex Imaging. The default revenue input number comes from 2017 income statement of Varex Imaging. 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 VREX stock valuation model: a) initial revenue growth rate of 12.6% 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 8%, whose default value for VREX is calculated based on our internal credit rating of Varex Imaging, 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 Varex Imaging.
    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 VREX stock the variable cost ratio is equal to 82.4%.

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 VREX 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 Varex Imaging.

Corporate tax rate of 27% is the nominal tax rate for Varex Imaging. 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 VREX stock is equal to 1.2%.

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 VREX are equal to 49.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Varex Imaging 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 VREX is equal to 32.6%. 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 - $379 million for Varex Imaging - 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 38 million for Varex Imaging 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 Varex Imaging at the current share price and the inputted number of shares is $1.1 billion.

RELATED COMPANIES Price Int.Val. Rating
VREX Varex Imaging 29.40 28.56  hold
HOLX Hologic 39.27 22.04  sell
CUTR Cutera 34.40 80.73  str.buy

COMPANY NEWS

▶ Here's Why Varex Imaging Stock Is Plummeting Today   [Aug-03-18 02:20PM  Motley Fool]
▶ Varex Imaging Names Rosebrough To Board Of Directors   [Apr-23-18 08:30AM  PR Newswire]
▶ Varex Imaging To Webcast Annual Meeting Of Stockholders   [Feb-13-18 04:30PM  PR Newswire]
▶ 5 Best Stocks Worth Buying on Upgraded Broker Ratings   [Jan-08-18 03:00PM  InvestorPlace]
▶ Varex Sets Annual Meeting And Record Dates   [Dec-18-17 06:00PM  PR Newswire]
▶ Varian Medical Systems: Better Aligned, More Focused   [Aug-14-17 09:07AM  Market Realist]
▶ ETFs with exposure to Varex Imaging Corp. : June 15, 2017   [Jun-15-17 03:42PM  Capital Cube]
▶ Which Stocks Are Showing Rising Relative Strength?   [May-30-17 03:30PM  Investor's Business Daily]
▶ IPO Stock News And Analysis: Find Today's Top New Issues   [01:23PM  Investor's Business Daily]
▶ 2017 Tech IPO Examines Potential New Buy Zone   [12:01PM  Investor's Business Daily]
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