Intrinsic value of Accuray - ARAY

Previous Close

$4.05

  Intrinsic Value

$0.65

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

+267%

Previous close

$4.05

 
Intrinsic value

$0.65

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

+267%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ARAY 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 2016), $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 0.3

 

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, %
  5.00
  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
  399
  407
  416
  427
  439
  452
  467
  483
  500
  519
  539
  560
  583
  607
  632
  660
  689
  719
  752
  786
  822
  860
  900
  943
  987
  1,034
  1,084
  1,136
  1,191
  1,248
  1,309
Variable operating expenses, $m
 
  107
  109
  112
  115
  118
  122
  126
  130
  135
  140
  139
  145
  151
  157
  164
  171
  179
  187
  195
  204
  214
  224
  234
  245
  257
  269
  282
  296
  310
  325
Fixed operating expenses, $m
 
  314
  321
  330
  338
  346
  355
  364
  373
  382
  392
  401
  412
  422
  432
  443
  454
  466
  477
  489
  501
  514
  527
  540
  553
  567
  581
  596
  611
  626
  642
Total operating expenses, $m
  404
  421
  430
  442
  453
  464
  477
  490
  503
  517
  532
  540
  557
  573
  589
  607
  625
  645
  664
  684
  705
  728
  751
  774
  798
  824
  850
  878
  907
  936
  967
Operating income, $m
  -5
  -14
  -14
  -14
  -14
  -12
  -10
  -7
  -3
  2
  7
  19
  26
  34
  43
  53
  63
  75
  88
  101
  116
  132
  150
  168
  188
  210
  233
  258
  284
  312
  342
EBITDA, $m
  13
  -4
  -4
  -4
  -3
  -1
  1
  4
  8
  13
  19
  25
  32
  41
  50
  60
  71
  82
  96
  110
  125
  141
  159
  178
  199
  221
  244
  269
  296
  325
  356
Interest expense (income), $m
  10
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
Earnings before tax, $m
  -23
  -24
  -25
  -25
  -25
  -24
  -22
  -20
  -17
  -13
  -9
  2
  8
  15
  23
  31
  41
  51
  62
  74
  87
  102
  117
  134
  152
  171
  192
  214
  238
  263
  290
Tax expense, $m
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  4
  6
  8
  11
  14
  17
  20
  24
  27
  32
  36
  41
  46
  52
  58
  64
  71
  78
Net income, $m
  -26
  -24
  -25
  -25
  -25
  -24
  -22
  -20
  -17
  -13
  -9
  2
  6
  11
  17
  23
  30
  37
  45
  54
  64
  74
  85
  98
  111
  125
  140
  156
  173
  192
  212

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  167
  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
  469
  470
  481
  494
  508
  523
  540
  558
  578
  600
  623
  647
  673
  701
  731
  763
  796
  832
  869
  908
  950
  994
  1,041
  1,090
  1,141
  1,196
  1,253
  1,313
  1,376
  1,443
  1,513
Adjusted assets (=assets-cash), $m
  302
  470
  481
  494
  508
  523
  540
  558
  578
  600
  623
  647
  673
  701
  731
  763
  796
  832
  869
  908
  950
  994
  1,041
  1,090
  1,141
  1,196
  1,253
  1,313
  1,376
  1,443
  1,513
Revenue / Adjusted assets
  1.321
  0.866
  0.865
  0.864
  0.864
  0.864
  0.865
  0.866
  0.865
  0.865
  0.865
  0.866
  0.866
  0.866
  0.865
  0.865
  0.866
  0.864
  0.865
  0.866
  0.865
  0.865
  0.865
  0.865
  0.865
  0.865
  0.865
  0.865
  0.866
  0.865
  0.865
Average production assets, $m
  42
  43
  44
  45
  46
  47
  49
  51
  53
  54
  57
  59
  61
  64
  66
  69
  72
  76
  79
  83
  86
  90
  95
  99
  104
  109
  114
  119
  125
  131
  137
Working capital, $m
  152
  26
  26
  27
  28
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  50
  52
  54
  57
  59
  62
  65
  68
  72
  75
  79
  82
Total debt, $m
  210
  210
  220
  231
  243
  256
  271
  287
  304
  323
  343
  364
  387
  411
  437
  465
  494
  524
  557
  591
  628
  666
  706
  749
  794
  841
  891
  943
  998
  1,056
  1,117
Total liabilities, $m
  409
  409
  419
  430
  442
  455
  470
  486
  503
  522
  542
  563
  586
  610
  636
  664
  693
  723
  756
  790
  827
  865
  905
  948
  993
  1,040
  1,090
  1,142
  1,197
  1,255
  1,316
Total equity, $m
  60
  61
  63
  64
  66
  68
  70
  73
  75
  78
  81
  84
  88
  91
  95
  99
  103
  108
  113
  118
  124
  129
  135
  142
  148
  155
  163
  171
  179
  188
  197
Total liabilities and equity, $m
  469
  470
  482
  494
  508
  523
  540
  559
  578
  600
  623
  647
  674
  701
  731
  763
  796
  831
  869
  908
  951
  994
  1,040
  1,090
  1,141
  1,195
  1,253
  1,313
  1,376
  1,443
  1,513
Debt-to-equity ratio
  3.500
  3.440
  3.510
  3.590
  3.680
  3.770
  3.860
  3.950
  4.040
  4.140
  4.230
  4.330
  4.420
  4.510
  4.600
  4.690
  4.770
  4.850
  4.930
  5.010
  5.080
  5.150
  5.220
  5.290
  5.350
  5.410
  5.470
  5.530
  5.580
  5.630
  5.680
Adjusted equity ratio
  -0.354
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -26
  -24
  -25
  -25
  -25
  -24
  -22
  -20
  -17
  -13
  -9
  2
  6
  11
  17
  23
  30
  37
  45
  54
  64
  74
  85
  98
  111
  125
  140
  156
  173
  192
  212
Depreciation, amort., depletion, $m
  18
  10
  10
  10
  10
  11
  11
  11
  11
  11
  11
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Funds from operations, $m
  50
  -13
  -15
  -15
  -14
  -13
  -12
  -9
  -6
  -2
  3
  8
  12
  17
  23
  30
  37
  45
  53
  62
  72
  83
  95
  108
  121
  136
  151
  168
  186
  205
  225
Change in working capital, $m
  16
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
Cash from operations, $m
  34
  -14
  -15
  -16
  -15
  -14
  -12
  -10
  -7
  -3
  2
  6
  11
  16
  22
  28
  35
  43
  51
  60
  70
  81
  92
  105
  118
  133
  148
  165
  182
  201
  222
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
New CAPEX, $m
  -8
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  8
  -5
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -16
  -18
  -19
  -19
Free cash flow, $m
  42
  -19
  -20
  -21
  -21
  -20
  -19
  -17
  -14
  -10
  -6
  -2
  3
  7
  13
  18
  25
  32
  40
  49
  58
  68
  79
  91
  104
  117
  132
  148
  165
  183
  202
Issuance/(repayment) of debt, $m
  -2
  8
  9
  11
  12
  13
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
  61
Issuance/(repurchase) of shares, $m
  4
  25
  26
  27
  27
  26
  24
  22
  19
  16
  12
  1
  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  
  -1
  33
  35
  38
  39
  39
  39
  38
  36
  35
  32
  22
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
  61
Total cash flow (excl. dividends), $m
  40
  14
  15
  16
  18
  19
  20
  22
  23
  24
  26
  21
  25
  32
  38
  46
  54
  63
  73
  83
  94
  107
  120
  134
  149
  165
  182
  200
  220
  241
  263
Retained Cash Flow (-), $m
  16
  -25
  -26
  -27
  -27
  -26
  -24
  -22
  -19
  -16
  -12
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
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
 
  -11
  -11
  -10
  -9
  -7
  -4
  -1
  4
  8
  14
  18
  22
  28
  35
  42
  50
  58
  68
  78
  89
  101
  114
  127
  142
  158
  174
  192
  212
  232
  254
Discount rate, %
 
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
PV of cash for distribution, $m
 
  -11
  -10
  -9
  -7
  -5
  -3
  0
  2
  5
  7
  8
  9
  10
  11
  11
  11
  11
  11
  10
  9
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  92.8
  86.0
  79.6
  73.8
  68.8
  64.4
  60.8
  57.9
  55.7
  54.2
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0
  54.0

Accuray Incorporated designs, develops, and sells radiosurgery and radiation therapy systems for the treatment of tumors in the body. It offers the CyberKnife System, a robotic stereotactic radiosurgery and stereotactic body radiation therapy system used for the treatment of various types of cancer and tumors in the body. The CyberKnife System automatically tracks, detects, and corrects for tumor and patient movement in real-time during the procedure, as well as enables delivery of precise, high dose radiation while patients breathe normally. It also offers the TomoTherapy System, which consists of an integrated and versatile radiation therapy system used for the treatment of a range of cancer types. The company markets its products in the United States directly, as well as through a sales agent and group purchasing organizations; and directly and through distributors and sales agents in Europe, Japan and other countries of Asia, South America, and internationally to hospitals and stand-alone treatment facilities. Accuray Incorporated was incorporated in 1990 and is headquartered in Sunnyvale, California.

FINANCIAL RATIOS  of  Accuray (ARAY)

Valuation Ratios
P/E Ratio -12.7
Price to Sales 0.8
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 9.7
Price to Free Cash Flow 12.7
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -20%
Cap. Spend. - 3 Yr. Gr. Rate -11.8%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 283.3%
Total Debt to Equity 350%
Interest Coverage -1
Management Effectiveness
Return On Assets -3.1%
Ret/ On Assets - 3 Yr. Avg. -5.1%
Return On Total Capital -9.5%
Ret/ On T. Cap. - 3 Yr. Avg. -11.7%
Return On Equity -38.2%
Return On Equity - 3 Yr. Avg. -39.3%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 39.8%
Gross Margin - 3 Yr. Avg. 38.9%
EBITDA Margin 1.3%
EBITDA Margin - 3 Yr. Avg. -0.9%
Operating Margin -1.3%
Oper. Margin - 3 Yr. Avg. -3.8%
Pre-Tax Margin -5.8%
Pre-Tax Margin - 3 Yr. Avg. -8.1%
Net Profit Margin -6.5%
Net Profit Margin - 3 Yr. Avg. -8.8%
Effective Tax Rate -13%
Eff/ Tax Rate - 3 Yr. Avg. -9.2%
Payout Ratio 0%

ARAY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARAY stock intrinsic value calculation we used $399 million for the last fiscal year's total revenue generated by Accuray. The default revenue input number comes from 2016 income statement of Accuray. 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 ARAY 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 4.7%, whose default value for ARAY is calculated based on our internal credit rating of Accuray, 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 Accuray.
    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 ARAY stock the variable cost ratio is equal to 26.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $306 million in the base year in the intrinsic value calculation for ARAY 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 4.9% for Accuray.

Corporate tax rate of 27% is the nominal tax rate for Accuray. 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 ARAY 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 ARAY are equal to 10.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Accuray 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 ARAY is equal to 6.3%. 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 - $60 million for Accuray - 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 79.06 million for Accuray 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 Accuray at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Varians Oncology Business Grows in Emerging Markets   [Aug-15-17 09:05AM  Market Realist]
▶ New Strong Sell Stocks for July 24th   [Jul-24-17 09:49AM  Zacks]
▶ ETFs with exposure to Accuray, Inc. : July 12, 2017   [Jul-12-17 02:11PM  Capital Cube]
▶ New Strong Sell Stocks for July 10th   [Jul-10-17 10:21AM  Zacks]
▶ ETFs with exposure to Accuray, Inc. : June 29, 2017   [Jun-29-17 02:50PM  Capital Cube]
▶ ETFs with exposure to Accuray, Inc. : June 16, 2017   [Jun-16-17 03:23PM  Capital Cube]
▶ Accuray Enters into New Revolving Loan Agreement   [Jun-15-17 07:30AM  PR Newswire]
▶ Accuray reports 3Q loss   [Apr-27-17 05:22PM  Associated Press]
▶ ETFs with exposure to Accuray, Inc. : April 19, 2017   [Apr-19-17 02:09PM  Capital Cube]
▶ Is Accuray (ARAY) a Great Growth Stock?   [Apr-13-17 09:07AM  Zacks]
▶ Accuray Launches New Cancer Patient Websites   [Mar-02-17 07:30AM  PR Newswire]
▶ The Accuray Radixact System Receives Shonin Approval   [Feb-08-17 07:30AM  PR Newswire]
▶ Better Buy: Intuitive Surgical, Inc. vs. Accuray   [Nov-20-16 06:57AM  at Motley Fool]
Stock chart of ARAY Financial statements of ARAY
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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