Intrinsic value of ACI Worldwide - ACIW

Previous Close

$27.22

  Intrinsic Value

$18.54

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  Rating & Target

sell

-32%

Previous close

$27.22

 
Intrinsic value

$18.54

 
Up/down potential

-32%

 
Rating

sell

We calculate the intrinsic value of ACIW 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.82
  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
  1,006
  1,044
  1,069
  1,096
  1,127
  1,161
  1,198
  1,239
  1,283
  1,331
  1,382
  1,437
  1,495
  1,557
  1,623
  1,693
  1,767
  1,846
  1,929
  2,017
  2,109
  2,207
  2,310
  2,419
  2,533
  2,654
  2,781
  2,915
  3,055
  3,203
  3,359
Variable operating expenses, $m
 
  812
  828
  846
  866
  889
  913
  940
  969
  1,001
  1,034
  944
  983
  1,024
  1,067
  1,113
  1,162
  1,213
  1,268
  1,326
  1,387
  1,451
  1,519
  1,590
  1,665
  1,745
  1,828
  1,916
  2,008
  2,106
  2,208
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
  785
  812
  828
  846
  866
  889
  913
  940
  969
  1,001
  1,034
  944
  983
  1,024
  1,067
  1,113
  1,162
  1,213
  1,268
  1,326
  1,387
  1,451
  1,519
  1,590
  1,665
  1,745
  1,828
  1,916
  2,008
  2,106
  2,208
Operating income, $m
  221
  232
  241
  250
  261
  272
  285
  299
  314
  330
  348
  492
  512
  534
  556
  580
  606
  633
  661
  691
  723
  756
  792
  829
  868
  909
  953
  999
  1,047
  1,098
  1,151
EBITDA, $m
  325
  496
  508
  521
  535
  552
  569
  589
  610
  632
  657
  683
  710
  740
  771
  805
  840
  877
  917
  958
  1,002
  1,049
  1,098
  1,149
  1,204
  1,261
  1,321
  1,385
  1,452
  1,522
  1,596
Interest expense (income), $m
  35
  38
  39
  40
  42
  44
  46
  48
  50
  53
  56
  59
  62
  65
  69
  73
  77
  81
  86
  91
  96
  102
  107
  113
  120
  127
  134
  141
  149
  157
  166
Earnings before tax, $m
  186
  195
  202
  210
  219
  228
  239
  251
  264
  277
  292
  434
  450
  468
  487
  507
  528
  551
  575
  600
  627
  655
  684
  715
  748
  783
  819
  858
  898
  940
  985
Tax expense, $m
  56
  53
  54
  57
  59
  62
  65
  68
  71
  75
  79
  117
  122
  126
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  221
  232
  242
  254
  266
Net income, $m
  130
  142
  147
  153
  160
  167
  175
  183
  193
  203
  213
  316
  329
  342
  356
  370
  386
  402
  420
  438
  457
  478
  499
  522
  546
  571
  598
  626
  655
  686
  719

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  76
  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
  1,902
  1,899
  1,943
  1,993
  2,049
  2,111
  2,179
  2,253
  2,334
  2,420
  2,513
  2,612
  2,718
  2,831
  2,951
  3,078
  3,213
  3,356
  3,507
  3,667
  3,835
  4,013
  4,200
  4,398
  4,606
  4,826
  5,057
  5,300
  5,555
  5,824
  6,107
Adjusted assets (=assets-cash), $m
  1,826
  1,899
  1,943
  1,993
  2,049
  2,111
  2,179
  2,253
  2,334
  2,420
  2,513
  2,612
  2,718
  2,831
  2,951
  3,078
  3,213
  3,356
  3,507
  3,667
  3,835
  4,013
  4,200
  4,398
  4,606
  4,826
  5,057
  5,300
  5,555
  5,824
  6,107
Revenue / Adjusted assets
  0.551
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
Average production assets, $m
  512
  1,384
  1,416
  1,452
  1,493
  1,538
  1,588
  1,642
  1,701
  1,764
  1,831
  1,904
  1,981
  2,063
  2,151
  2,243
  2,342
  2,446
  2,556
  2,672
  2,795
  2,924
  3,061
  3,205
  3,357
  3,517
  3,685
  3,862
  4,048
  4,244
  4,451
Working capital, $m
  32
  -36
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -114
Total debt, $m
  744
  708
  733
  763
  796
  832
  873
  916
  964
  1,015
  1,069
  1,128
  1,190
  1,257
  1,327
  1,402
  1,482
  1,566
  1,655
  1,749
  1,848
  1,953
  2,063
  2,180
  2,302
  2,431
  2,567
  2,711
  2,861
  3,020
  3,186
Total liabilities, $m
  1,147
  1,119
  1,144
  1,174
  1,207
  1,243
  1,283
  1,327
  1,374
  1,425
  1,480
  1,539
  1,601
  1,668
  1,738
  1,813
  1,893
  1,977
  2,066
  2,160
  2,259
  2,364
  2,474
  2,590
  2,713
  2,842
  2,978
  3,121
  3,272
  3,431
  3,597
Total equity, $m
  755
  781
  798
  819
  842
  868
  896
  926
  959
  995
  1,033
  1,074
  1,117
  1,164
  1,213
  1,265
  1,321
  1,379
  1,441
  1,507
  1,576
  1,649
  1,726
  1,808
  1,893
  1,983
  2,078
  2,178
  2,283
  2,394
  2,510
Total liabilities and equity, $m
  1,902
  1,900
  1,942
  1,993
  2,049
  2,111
  2,179
  2,253
  2,333
  2,420
  2,513
  2,613
  2,718
  2,832
  2,951
  3,078
  3,214
  3,356
  3,507
  3,667
  3,835
  4,013
  4,200
  4,398
  4,606
  4,825
  5,056
  5,299
  5,555
  5,825
  6,107
Debt-to-equity ratio
  0.985
  0.910
  0.920
  0.930
  0.950
  0.960
  0.970
  0.990
  1.000
  1.020
  1.040
  1.050
  1.070
  1.080
  1.090
  1.110
  1.120
  1.140
  1.150
  1.160
  1.170
  1.180
  1.200
  1.210
  1.220
  1.230
  1.240
  1.240
  1.250
  1.260
  1.270
Adjusted equity ratio
  0.372
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  130
  142
  147
  153
  160
  167
  175
  183
  193
  203
  213
  316
  329
  342
  356
  370
  386
  402
  420
  438
  457
  478
  499
  522
  546
  571
  598
  626
  655
  686
  719
Depreciation, amort., depletion, $m
  104
  264
  267
  271
  275
  279
  284
  290
  296
  302
  309
  190
  198
  206
  215
  224
  234
  245
  256
  267
  279
  292
  306
  321
  336
  352
  368
  386
  405
  424
  445
Funds from operations, $m
  51
  406
  414
  424
  434
  446
  459
  473
  488
  505
  522
  507
  527
  548
  571
  595
  620
  647
  675
  705
  737
  770
  806
  843
  882
  923
  967
  1,012
  1,060
  1,111
  1,164
Change in working capital, $m
  -49
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Cash from operations, $m
  100
  407
  415
  425
  435
  447
  460
  474
  490
  506
  524
  509
  529
  550
  573
  597
  622
  649
  678
  708
  740
  774
  809
  846
  886
  927
  971
  1,017
  1,065
  1,116
  1,169
Maintenance CAPEX, $m
  0
  -136
  -138
  -142
  -145
  -149
  -154
  -159
  -164
  -170
  -176
  -183
  -190
  -198
  -206
  -215
  -224
  -234
  -245
  -256
  -267
  -279
  -292
  -306
  -321
  -336
  -352
  -368
  -386
  -405
  -424
New CAPEX, $m
  -63
  -27
  -32
  -36
  -41
  -45
  -50
  -54
  -59
  -63
  -68
  -72
  -77
  -82
  -87
  -93
  -98
  -104
  -110
  -116
  -123
  -130
  -137
  -144
  -152
  -160
  -168
  -177
  -186
  -196
  -206
Cash from investing activities, $m
  130
  -163
  -170
  -178
  -186
  -194
  -204
  -213
  -223
  -233
  -244
  -255
  -267
  -280
  -293
  -308
  -322
  -338
  -355
  -372
  -390
  -409
  -429
  -450
  -473
  -496
  -520
  -545
  -572
  -601
  -630
Free cash flow, $m
  230
  244
  245
  247
  249
  253
  257
  262
  267
  273
  280
  253
  261
  270
  279
  289
  300
  311
  323
  336
  350
  365
  380
  396
  414
  432
  451
  471
  493
  515
  539
Issuance/(repayment) of debt, $m
  -200
  22
  26
  29
  33
  37
  40
  44
  47
  51
  55
  59
  62
  66
  71
  75
  79
  84
  89
  94
  99
  105
  110
  116
  123
  129
  136
  143
  151
  158
  167
Issuance/(repurchase) of shares, $m
  -48
  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  
  -251
  22
  26
  29
  33
  37
  40
  44
  47
  51
  55
  59
  62
  66
  71
  75
  79
  84
  89
  94
  99
  105
  110
  116
  123
  129
  136
  143
  151
  158
  167
Total cash flow (excl. dividends), $m
  -26
  266
  271
  276
  282
  289
  297
  305
  314
  324
  334
  312
  324
  336
  350
  364
  379
  395
  412
  430
  449
  469
  490
  513
  536
  561
  587
  614
  643
  673
  705
Retained Cash Flow (-), $m
  -101
  -16
  -18
  -21
  -23
  -26
  -28
  -30
  -33
  -36
  -38
  -41
  -44
  -46
  -49
  -52
  -55
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -86
  -90
  -95
  -100
  -105
  -111
  -116
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
 
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  35
  36
  38
  40
  42
Cash available for distribution, $m
 
  251
  253
  256
  259
  264
  269
  275
  281
  288
  296
  271
  280
  290
  300
  312
  324
  337
  350
  365
  380
  396
  413
  431
  451
  471
  492
  514
  538
  563
  589
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  234
  220
  205
  191
  176
  162
  148
  134
  120
  107
  84
  73
  63
  54
  46
  38
  31
  25
  20
  15
  12
  9
  6
  4
  3
  2
  1
  1
  1
  0
Current shareholders' claim on cash, %
  100
  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

ACI Worldwide, Inc. develops, markets, installs and supports a line of software products and services primarily focused on facilitating electronic payments. The Company also distributes or acts as a sales agent for software developed by third parties. Its products and services are used principally by financial institutions, retailers, billers and electronic payment processors, both in domestic and international markets. The Company's products are sold and supported through distribution networks covering three geographic regions, including the Americas, Europe/Middle East/Africa (EMEA) and Asia/Pacific. The Company's products and services are used by a range of transaction-generating endpoints, including automated teller machines (ATM), retail merchant point-of-sale (POS) terminals, bank branches, corporations and Internet commerce sites. The Company provides payment solutions to financial institutions globally for both retail banking and transaction banking services.

FINANCIAL RATIOS  of  ACI Worldwide (ACIW)

Valuation Ratios
P/E Ratio 24.6
Price to Sales 3.2
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 31.9
Price to Free Cash Flow 86.3
Growth Rates
Sales Growth Rate -3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.6%
Cap. Spend. - 3 Yr. Gr. Rate 13.8%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 86.6%
Total Debt to Equity 98.5%
Interest Coverage 6
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 6.3%
Return On Total Capital 8.4%
Ret/ On T. Cap. - 3 Yr. Avg. 6.3%
Return On Equity 18.5%
Return On Equity - 3 Yr. Avg. 14.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 55.8%
Gross Margin - 3 Yr. Avg. 55.3%
EBITDA Margin 32.3%
EBITDA Margin - 3 Yr. Avg. 25.8%
Operating Margin 22%
Oper. Margin - 3 Yr. Avg. 15.9%
Pre-Tax Margin 18.5%
Pre-Tax Margin - 3 Yr. Avg. 13%
Net Profit Margin 12.9%
Net Profit Margin - 3 Yr. Avg. 9.2%
Effective Tax Rate 30.1%
Eff/ Tax Rate - 3 Yr. Avg. 28.7%
Payout Ratio 0%

ACIW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ACIW stock intrinsic value calculation we used $1024 million for the last fiscal year's total revenue generated by ACI Worldwide. The default revenue input number comes from 2016 income statement of ACI Worldwide. 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 ACIW 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 6.9%, whose default value for ACIW is calculated based on our internal credit rating of ACI Worldwide, 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 ACI Worldwide.
    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 ACIW stock the variable cost ratio is equal to 78%.

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 ACIW 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 5.5% for ACI Worldwide.

Corporate tax rate of 27% is the nominal tax rate for ACI Worldwide. 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 ACIW stock is equal to 1.3%.

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 ACIW are equal to 132.5%.

Life of production assets of 10 years is the average useful life of capital assets used in ACI Worldwide 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 ACIW is equal to -3.4%. 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 - $765 million for ACI Worldwide - 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 118 million for ACI Worldwide 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 ACI Worldwide at the current share price and the inputted number of shares is $3.2 billion.

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COMPANY NEWS

▶ ACI Worldwide Announces Upsize and Pricing of Senior Notes   [Aug-07-18 07:00PM  Business Wire]
▶ ACI Worldwide: 2Q Earnings Snapshot   [06:23AM  Associated Press]
▶ ACI Worldwide Launches Coding for Girls Camp in the UK   [May-22-18 03:00AM  Business Wire]
▶ ACI Worldwide: 1Q Earnings Snapshot   [06:19AM  Associated Press]
▶ ACI Worldwide to Lower Debit Card Costs for Avid Acceptance   [Mar-20-18 08:00AM  Business Wire]
▶ Why ACI Worldwide Inc (NASDAQ:ACIW) Could Be A Buy   [Feb-22-18 01:03PM  Simply Wall St.]
▶ ACI Worldwide beats Street 4Q forecasts   [06:23AM  Associated Press]
▶ ACI Worldwide beats Street 3Q forecasts   [10:27AM  Associated Press]
Financial statements of ACIW
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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