Intrinsic value of Varex Imaging - VREX

Previous Close

$25.05

  Intrinsic Value

$31.46

stock screener

  Rating & Target

buy

+26%

Previous close

$25.05

 
Intrinsic value

$31.46

 
Up/down potential

+26%

 
Rating

buy

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 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 1.0

 

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, %
  12.40
  11.66
  10.99
  10.39
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
Revenue, $m
  785
  876
  972
  1,074
  1,179
  1,290
  1,405
  1,525
  1,650
  1,780
  1,915
  2,055
  2,200
  2,352
  2,509
  2,673
  2,843
  3,021
  3,205
  3,397
  3,598
  3,807
  4,025
  4,253
  4,490
  4,739
  4,998
  5,270
  5,554
  5,851
Variable operating expenses, $m
  642
  713
  788
  867
  949
  1,035
  1,124
  1,217
  1,314
  1,415
  1,486
  1,595
  1,708
  1,826
  1,948
  2,075
  2,207
  2,345
  2,488
  2,637
  2,793
  2,955
  3,124
  3,301
  3,486
  3,679
  3,880
  4,091
  4,311
  4,542
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
  642
  713
  788
  867
  949
  1,035
  1,124
  1,217
  1,314
  1,415
  1,486
  1,595
  1,708
  1,826
  1,948
  2,075
  2,207
  2,345
  2,488
  2,637
  2,793
  2,955
  3,124
  3,301
  3,486
  3,679
  3,880
  4,091
  4,311
  4,542
Operating income, $m
  142
  163
  184
  207
  231
  255
  281
  308
  336
  365
  428
  460
  492
  526
  561
  598
  636
  676
  717
  760
  805
  852
  901
  951
  1,005
  1,060
  1,118
  1,179
  1,243
  1,309
EBITDA, $m
  197
  220
  244
  269
  296
  323
  352
  382
  414
  446
  480
  515
  552
  590
  629
  670
  713
  757
  804
  852
  902
  955
  1,009
  1,066
  1,126
  1,188
  1,253
  1,322
  1,393
  1,467
Interest expense (income), $m
  10
  26
  31
  35
  40
  45
  51
  56
  62
  68
  75
  82
  88
  96
  103
  111
  119
  127
  136
  145
  154
  164
  175
  185
  196
  208
  220
  233
  246
  260
  275
Earnings before tax, $m
  116
  132
  149
  167
  185
  204
  225
  246
  267
  290
  347
  371
  397
  423
  451
  479
  509
  540
  572
  606
  641
  677
  715
  755
  797
  840
  885
  933
  982
  1,034
Tax expense, $m
  31
  36
  40
  45
  50
  55
  61
  66
  72
  78
  94
  100
  107
  114
  122
  129
  137
  146
  154
  164
  173
  183
  193
  204
  215
  227
  239
  252
  265
  279
Net income, $m
  85
  96
  109
  122
  135
  149
  164
  179
  195
  212
  253
  271
  290
  309
  329
  350
  371
  394
  418
  442
  468
  494
  522
  551
  581
  613
  646
  681
  717
  755

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
  1,169
  1,306
  1,449
  1,600
  1,758
  1,922
  2,094
  2,273
  2,459
  2,652
  2,853
  3,062
  3,279
  3,505
  3,740
  3,984
  4,237
  4,502
  4,777
  5,063
  5,362
  5,673
  5,999
  6,338
  6,692
  7,062
  7,449
  7,854
  8,277
  8,719
Adjusted assets (=assets-cash), $m
  1,169
  1,306
  1,449
  1,600
  1,758
  1,922
  2,094
  2,273
  2,459
  2,652
  2,853
  3,062
  3,279
  3,505
  3,740
  3,984
  4,237
  4,502
  4,777
  5,063
  5,362
  5,673
  5,999
  6,338
  6,692
  7,062
  7,449
  7,854
  8,277
  8,719
Revenue / Adjusted assets
  0.672
  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
  265
  296
  329
  363
  399
  436
  475
  515
  558
  602
  647
  695
  744
  795
  848
  903
  961
  1,021
  1,083
  1,148
  1,216
  1,287
  1,360
  1,437
  1,518
  1,602
  1,689
  1,781
  1,877
  1,978
Working capital, $m
  315
  351
  390
  431
  473
  517
  563
  612
  662
  714
  768
  824
  882
  943
  1,006
  1,072
  1,140
  1,211
  1,285
  1,362
  1,443
  1,527
  1,614
  1,705
  1,801
  1,900
  2,004
  2,113
  2,227
  2,346
Total debt, $m
  567
  653
  745
  840
  941
  1,045
  1,155
  1,268
  1,387
  1,510
  1,638
  1,770
  1,909
  2,052
  2,201
  2,356
  2,518
  2,686
  2,861
  3,043
  3,233
  3,431
  3,638
  3,854
  4,079
  4,314
  4,560
  4,818
  5,087
  5,368
Total liabilities, $m
  744
  830
  922
  1,018
  1,118
  1,223
  1,332
  1,446
  1,564
  1,687
  1,815
  1,948
  2,086
  2,229
  2,378
  2,534
  2,695
  2,863
  3,038
  3,220
  3,410
  3,608
  3,815
  4,031
  4,256
  4,492
  4,738
  4,995
  5,264
  5,546
Total equity, $m
  426
  475
  528
  582
  640
  700
  762
  827
  895
  965
  1,039
  1,115
  1,194
  1,276
  1,361
  1,450
  1,542
  1,639
  1,739
  1,843
  1,952
  2,065
  2,183
  2,307
  2,436
  2,571
  2,711
  2,859
  3,013
  3,174
Total liabilities and equity, $m
  1,170
  1,305
  1,450
  1,600
  1,758
  1,923
  2,094
  2,273
  2,459
  2,652
  2,854
  3,063
  3,280
  3,505
  3,739
  3,984
  4,237
  4,502
  4,777
  5,063
  5,362
  5,673
  5,998
  6,338
  6,692
  7,063
  7,449
  7,854
  8,277
  8,720
Debt-to-equity ratio
  1.330
  1.370
  1.410
  1.440
  1.470
  1.490
  1.510
  1.530
  1.550
  1.560
  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
  1.670
  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
  96
  109
  122
  135
  149
  164
  179
  195
  212
  253
  271
  290
  309
  329
  350
  371
  394
  418
  442
  468
  494
  522
  551
  581
  613
  646
  681
  717
  755
Depreciation, amort., depletion, $m
  55
  57
  60
  62
  65
  68
  71
  75
  78
  81
  52
  56
  60
  64
  68
  72
  77
  82
  87
  92
  97
  103
  109
  115
  121
  128
  135
  142
  150
  158
Funds from operations, $m
  139
  153
  168
  184
  200
  217
  235
  254
  273
  293
  305
  327
  349
  372
  397
  422
  448
  476
  504
  534
  565
  597
  631
  666
  703
  741
  781
  823
  867
  913
Change in working capital, $m
  35
  37
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
Cash from operations, $m
  105
  117
  130
  143
  158
  173
  189
  206
  223
  241
  251
  270
  291
  312
  334
  356
  380
  405
  430
  457
  485
  513
  544
  575
  608
  642
  677
  715
  753
  794
Maintenance CAPEX, $m
  -19
  -21
  -24
  -26
  -29
  -32
  -35
  -38
  -41
  -45
  -48
  -52
  -56
  -60
  -64
  -68
  -72
  -77
  -82
  -87
  -92
  -97
  -103
  -109
  -115
  -121
  -128
  -135
  -142
  -150
New CAPEX, $m
  -29
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -88
  -92
  -96
  -100
Cash from investing activities, $m
  -48
  -52
  -57
  -60
  -65
  -69
  -74
  -79
  -83
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -130
  -137
  -144
  -152
  -160
  -168
  -177
  -186
  -195
  -205
  -216
  -227
  -238
  -250
Free cash flow, $m
  56
  65
  73
  83
  93
  104
  115
  127
  140
  153
  157
  171
  186
  201
  217
  233
  250
  268
  286
  305
  325
  345
  367
  389
  412
  436
  461
  488
  515
  544
Issuance/(repayment) of debt, $m
  83
  87
  91
  96
  100
  105
  109
  114
  118
  123
  128
  133
  138
  144
  149
  155
  161
  168
  175
  182
  190
  198
  207
  216
  225
  235
  246
  257
  269
  282
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  
  83
  87
  91
  96
  100
  105
  109
  114
  118
  123
  128
  133
  138
  144
  149
  155
  161
  168
  175
  182
  190
  198
  207
  216
  225
  235
  246
  257
  269
  282
Total cash flow (excl. dividends), $m
  139
  151
  165
  179
  193
  209
  224
  241
  258
  276
  285
  304
  324
  345
  366
  388
  412
  436
  461
  487
  515
  544
  574
  605
  638
  672
  708
  745
  784
  825
Retained Cash Flow (-), $m
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -109
  -113
  -118
  -123
  -129
  -135
  -141
  -147
  -154
  -161
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
  92
  102
  113
  124
  136
  149
  162
  176
  190
  205
  212
  228
  245
  262
  281
  300
  319
  340
  361
  383
  406
  430
  455
  481
  509
  537
  567
  598
  630
  664
Discount rate, %
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
  86
  87
  89
  89
  88
  86
  83
  79
  74
  68
  60
  54
  47
  41
  35
  29
  24
  20
  15
  12
  9
  7
  5
  3
  2
  1
  1
  1
  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 18.1
Price to Sales 1.4
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 17.1
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 $698.1 million for the last fiscal year's total revenue generated by Varex Imaging. The default revenue input number comes from 0001 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 12.4% 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 7.5%, 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 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 VREX are equal to 33.8%.

Life of production assets of 12.5 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 40.1%. 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 - $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 38.012 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 $1.0 billion.

RELATED COMPANIES Price Int.Val. Rating
VREX Varex Imaging 25.05 35.25  hold
HOLX Hologic 41.34 27.04  sell
CUTR Cutera 21.20 38.15  hold

COMPANY NEWS

▶ VAREX IMAGING (VREX) Q4 Earnings Lag Estimates   [Nov-13-18 05:45PM  Zacks]
▶ 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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