Intrinsic value of Varex Imaging Corporation - VREX

Previous Close

$32.94

  Intrinsic Value

$18.40

stock screener

  Rating & Target

sell

-44%

Previous close

$32.94

 
Intrinsic value

$18.40

 
Up/down potential

-44%

 
Rating

sell

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 1.3

 

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, %
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  815
  858
  904
  952
  1,002
  1,055
  1,109
  1,167
  1,227
  1,291
  1,357
  1,427
  1,500
  1,576
  1,656
  1,740
  1,829
  1,921
  2,019
  2,121
  2,228
  2,340
  2,458
  2,582
  2,712
  2,848
  2,991
  3,142
  3,299
  3,465
Variable operating expenses, $m
  715
  752
  790
  830
  872
  916
  963
  1,011
  1,062
  1,115
  1,139
  1,197
  1,258
  1,322
  1,390
  1,460
  1,534
  1,612
  1,694
  1,779
  1,869
  1,963
  2,062
  2,166
  2,275
  2,390
  2,510
  2,636
  2,768
  2,907
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
  715
  752
  790
  830
  872
  916
  963
  1,011
  1,062
  1,115
  1,139
  1,197
  1,258
  1,322
  1,390
  1,460
  1,534
  1,612
  1,694
  1,779
  1,869
  1,963
  2,062
  2,166
  2,275
  2,390
  2,510
  2,636
  2,768
  2,907
Operating income, $m
  99
  107
  114
  122
  130
  138
  147
  156
  166
  176
  218
  230
  241
  254
  267
  280
  294
  309
  325
  341
  359
  377
  396
  416
  437
  459
  482
  506
  531
  558
EBITDA, $m
  160
  169
  178
  187
  197
  207
  218
  230
  241
  254
  267
  281
  295
  310
  326
  342
  360
  378
  397
  417
  438
  460
  484
  508
  533
  560
  588
  618
  649
  682
Interest expense (income), $m
  10
  21
  23
  24
  26
  28
  30
  32
  34
  37
  39
  41
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  103
  108
  114
  120
Earnings before tax, $m
  78
  84
  89
  95
  102
  108
  115
  122
  129
  137
  177
  186
  195
  204
  214
  224
  235
  247
  259
  271
  285
  299
  313
  328
  344
  361
  379
  398
  417
  438
Tax expense, $m
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  48
  50
  53
  55
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
  93
  98
  102
  107
  113
  118
Net income, $m
  57
  61
  65
  70
  74
  79
  84
  89
  94
  100
  129
  136
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
  240
  251
  264
  277
  290
  304
  319

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
  1,042
  1,098
  1,156
  1,217
  1,281
  1,348
  1,419
  1,492
  1,570
  1,651
  1,735
  1,824
  1,918
  2,015
  2,118
  2,226
  2,339
  2,457
  2,581
  2,712
  2,849
  2,993
  3,143
  3,302
  3,468
  3,642
  3,825
  4,017
  4,219
  4,431
Adjusted assets (=assets-cash), $m
  1,042
  1,098
  1,156
  1,217
  1,281
  1,348
  1,419
  1,492
  1,570
  1,651
  1,735
  1,824
  1,918
  2,015
  2,118
  2,226
  2,339
  2,457
  2,581
  2,712
  2,849
  2,993
  3,143
  3,302
  3,468
  3,642
  3,825
  4,017
  4,219
  4,431
Revenue / Adjusted assets
  0.782
  0.781
  0.782
  0.782
  0.782
  0.783
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
Average production assets, $m
  326
  343
  362
  381
  401
  422
  444
  467
  491
  516
  543
  571
  600
  630
  663
  696
  732
  769
  807
  848
  891
  936
  983
  1,033
  1,085
  1,139
  1,197
  1,257
  1,320
  1,386
Working capital, $m
  294
  310
  326
  344
  362
  381
  401
  421
  443
  466
  490
  515
  541
  569
  598
  628
  660
  694
  729
  766
  804
  845
  887
  932
  979
  1,028
  1,080
  1,134
  1,191
  1,251
Total debt, $m
  421
  453
  486
  521
  557
  595
  635
  677
  721
  767
  816
  866
  919
  975
  1,033
  1,095
  1,159
  1,226
  1,297
  1,371
  1,449
  1,531
  1,617
  1,707
  1,801
  1,900
  2,005
  2,114
  2,229
  2,349
Total liabilities, $m
  593
  625
  658
  693
  729
  767
  807
  849
  893
  939
  987
  1,038
  1,091
  1,147
  1,205
  1,266
  1,331
  1,398
  1,469
  1,543
  1,621
  1,703
  1,789
  1,879
  1,973
  2,072
  2,177
  2,286
  2,401
  2,521
Total equity, $m
  449
  473
  498
  525
  552
  581
  611
  643
  677
  711
  748
  786
  826
  869
  913
  959
  1,008
  1,059
  1,113
  1,169
  1,228
  1,290
  1,355
  1,423
  1,495
  1,570
  1,649
  1,731
  1,818
  1,910
Total liabilities and equity, $m
  1,042
  1,098
  1,156
  1,218
  1,281
  1,348
  1,418
  1,492
  1,570
  1,650
  1,735
  1,824
  1,917
  2,016
  2,118
  2,225
  2,339
  2,457
  2,582
  2,712
  2,849
  2,993
  3,144
  3,302
  3,468
  3,642
  3,826
  4,017
  4,219
  4,431
Debt-to-equity ratio
  0.940
  0.960
  0.980
  0.990
  1.010
  1.020
  1.040
  1.050
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.170
  1.170
  1.180
  1.190
  1.190
  1.200
  1.210
  1.210
  1.220
  1.220
  1.230
  1.230
Adjusted equity ratio
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  57
  61
  65
  70
  74
  79
  84
  89
  94
  100
  129
  136
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
  240
  251
  264
  277
  290
  304
  319
Depreciation, amort., depletion, $m
  61
  62
  64
  66
  67
  69
  71
  73
  76
  78
  48
  51
  54
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  92
  97
  102
  107
  112
  118
  124
Funds from operations, $m
  118
  124
  129
  135
  142
  148
  155
  162
  170
  178
  178
  186
  196
  205
  215
  226
  237
  249
  261
  274
  287
  302
  316
  332
  348
  365
  383
  402
  422
  443
Change in working capital, $m
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
Cash from operations, $m
  103
  108
  113
  118
  124
  129
  135
  142
  148
  155
  154
  161
  169
  178
  186
  196
  205
  215
  226
  237
  249
  261
  274
  287
  301
  316
  332
  348
  365
  383
Maintenance CAPEX, $m
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -118
New CAPEX, $m
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
Cash from investing activities, $m
  -45
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -85
  -88
  -93
  -97
  -102
  -108
  -113
  -119
  -125
  -131
  -138
  -144
  -152
  -159
  -167
  -175
  -184
Free cash flow, $m
  59
  61
  64
  67
  69
  72
  76
  79
  82
  86
  81
  85
  89
  94
  98
  103
  108
  113
  118
  124
  130
  136
  143
  150
  157
  165
  173
  181
  190
  199
Issuance/(repayment) of debt, $m
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  95
  99
  104
  109
  115
  120
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  
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  95
  99
  104
  109
  115
  120
Total cash flow (excl. dividends), $m
  90
  93
  97
  101
  106
  111
  116
  121
  126
  132
  129
  136
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
  240
  252
  264
  277
  291
  305
  320
Retained Cash Flow (-), $m
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
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
  67
  69
  72
  75
  78
  82
  85
  89
  93
  97
  93
  97
  102
  107
  112
  118
  123
  129
  136
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
Discount rate, %
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
  63
  60
  58
  56
  53
  50
  47
  44
  40
  37
  30
  27
  24
  21
  18
  15
  13
  10
  8
  7
  5
  4
  3
  2
  1
  1
  1
  0
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  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 Corporation (VREX)

Valuation Ratios
P/E Ratio 23.8
Price to Sales 1.8
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 22.5
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 $773 million for the last fiscal year's total revenue generated by Varex Imaging Corporation. The default revenue input number comes from 0001 income statement of Varex Imaging Corporation. 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 5.4% 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 6.6%, whose default value for VREX is calculated based on our internal credit rating of Varex Imaging Corporation, 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 Corporation.
    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 88%.

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 Corporation.

Corporate tax rate of 27% is the nominal tax rate for Varex Imaging Corporation. 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 40%.

Life of production assets of 11.2 years is the average useful life of capital assets used in Varex Imaging Corporation 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 36.1%. 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 - $426.2 million for Varex Imaging Corporation - 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 37.971 million for Varex Imaging Corporation 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 Corporation at the current share price and the inputted number of shares is $1.3 billion.

RELATED COMPANIES Price Int.Val. Rating
VREX Varex Imaging 32.94 21.74  sell
HOLX Hologic, Inc. 47.18 28.02  sell
CUTR Cutera, Inc. 17.97 14.27  sell

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