Intrinsic value of AudioCodes - AUDC

Previous Close

$6.39

  Intrinsic Value

$13.59

stock screener

  Rating & Target

str. buy

+113%

  Value-price divergence*

+972%

Previous close

$6.39

 
Intrinsic value

$13.59

 
Up/down potential

+113%

 
Rating

str. buy

 
Value-price divergence*

+972%

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

We calculate the intrinsic value of AUDC 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 0.2

 

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, %
  4.29
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.11
  5.09
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
Revenue, $m
  146
  154
  163
  172
  182
  191
  202
  213
  224
  236
  248
  261
  275
  289
  304
  320
  336
  354
  372
  391
  411
  432
  453
  476
  501
  526
  552
  580
  610
  640
  673
Variable operating expenses, $m
 
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  46
  48
  50
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  92
  96
  101
  106
  112
  117
Fixed operating expenses, $m
 
  116
  119
  122
  125
  128
  131
  134
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  176
  181
  185
  190
  195
  199
  204
  209
  215
  220
  226
  231
  237
Total operating expenses, $m
  138
  147
  151
  156
  160
  165
  170
  175
  181
  186
  192
  194
  200
  206
  213
  220
  227
  234
  241
  249
  257
  265
  274
  282
  291
  301
  311
  321
  332
  343
  354
Operating income, $m
  8
  8
  12
  17
  22
  27
  32
  38
  44
  50
  57
  68
  75
  83
  92
  101
  110
  120
  131
  142
  154
  167
  180
  194
  209
  225
  241
  259
  278
  297
  318
EBITDA, $m
  11
  12
  16
  21
  26
  31
  36
  42
  48
  54
  61
  68
  76
  84
  93
  102
  111
  121
  132
  143
  155
  168
  181
  196
  211
  227
  243
  261
  280
  300
  321
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
Earnings before tax, $m
  8
  8
  12
  16
  21
  26
  31
  36
  42
  48
  55
  65
  73
  80
  89
  97
  107
  116
  127
  138
  149
  161
  174
  188
  203
  218
  234
  251
  270
  289
  309
Tax expense, $m
  -8
  2
  3
  4
  6
  7
  8
  10
  11
  13
  15
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  44
  47
  51
  55
  59
  63
  68
  73
  78
  83
Net income, $m
  16
  6
  9
  12
  15
  19
  23
  27
  31
  35
  40
  48
  53
  59
  65
  71
  78
  85
  92
  100
  109
  118
  127
  137
  148
  159
  171
  184
  197
  211
  226

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  31
  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
  187
  165
  174
  184
  194
  205
  216
  227
  239
  252
  265
  279
  294
  309
  325
  342
  359
  378
  397
  418
  439
  461
  484
  509
  535
  562
  590
  620
  651
  684
  719
Adjusted assets (=assets-cash), $m
  156
  165
  174
  184
  194
  205
  216
  227
  239
  252
  265
  279
  294
  309
  325
  342
  359
  378
  397
  418
  439
  461
  484
  509
  535
  562
  590
  620
  651
  684
  719
Revenue / Adjusted assets
  0.936
  0.933
  0.937
  0.935
  0.938
  0.932
  0.935
  0.938
  0.937
  0.937
  0.936
  0.935
  0.935
  0.935
  0.935
  0.936
  0.936
  0.937
  0.937
  0.935
  0.936
  0.937
  0.936
  0.935
  0.936
  0.936
  0.936
  0.935
  0.937
  0.936
  0.936
Average production assets, $m
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
Working capital, $m
  35
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
Total debt, $m
  12
  13
  18
  22
  27
  32
  38
  43
  49
  55
  62
  68
  75
  83
  90
  98
  107
  116
  125
  135
  145
  156
  167
  179
  191
  204
  218
  232
  247
  263
  280
Total liabilities, $m
  78
  79
  84
  88
  93
  98
  104
  109
  115
  121
  128
  134
  141
  149
  156
  164
  173
  182
  191
  201
  211
  222
  233
  245
  257
  270
  284
  298
  313
  329
  346
Total equity, $m
  109
  86
  90
  95
  101
  106
  112
  118
  124
  131
  138
  145
  152
  160
  169
  177
  187
  196
  206
  217
  228
  239
  251
  264
  278
  292
  306
  322
  338
  355
  373
Total liabilities and equity, $m
  187
  165
  174
  183
  194
  204
  216
  227
  239
  252
  266
  279
  293
  309
  325
  341
  360
  378
  397
  418
  439
  461
  484
  509
  535
  562
  590
  620
  651
  684
  719
Debt-to-equity ratio
  0.110
  0.160
  0.200
  0.240
  0.270
  0.310
  0.340
  0.370
  0.400
  0.420
  0.450
  0.470
  0.490
  0.520
  0.540
  0.550
  0.570
  0.590
  0.610
  0.620
  0.640
  0.650
  0.660
  0.680
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
Adjusted equity ratio
  0.500
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  6
  9
  12
  15
  19
  23
  27
  31
  35
  40
  48
  53
  59
  65
  71
  78
  85
  92
  100
  109
  118
  127
  137
  148
  159
  171
  184
  197
  211
  226
Depreciation, amort., depletion, $m
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
Funds from operations, $m
  22
  10
  13
  16
  19
  23
  27
  31
  35
  40
  45
  49
  54
  60
  66
  72
  79
  86
  94
  102
  110
  119
  129
  139
  150
  161
  173
  186
  199
  213
  228
Change in working capital, $m
  4
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
Cash from operations, $m
  18
  9
  12
  16
  19
  23
  26
  30
  35
  39
  44
  48
  53
  59
  65
  71
  78
  85
  93
  101
  109
  118
  128
  138
  149
  160
  172
  184
  198
  212
  226
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
New CAPEX, $m
  -1
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
Cash from investing activities, $m
  14
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Free cash flow, $m
  32
  8
  11
  15
  18
  21
  25
  29
  33
  38
  42
  46
  52
  57
  63
  70
  76
  83
  91
  99
  107
  116
  125
  135
  146
  157
  168
  181
  194
  208
  223
Issuance/(repayment) of debt, $m
  1
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
Issuance/(repurchase) of shares, $m
  -27
  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  
  -27
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
Total cash flow (excl. dividends), $m
  5
  13
  16
  19
  23
  27
  30
  35
  39
  44
  49
  53
  59
  65
  71
  78
  85
  92
  100
  108
  117
  127
  137
  147
  158
  170
  182
  195
  209
  224
  239
Retained Cash Flow (-), $m
  8
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Prev. year cash balance distribution, $m
 
  28
  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
 
  36
  11
  14
  17
  21
  25
  29
  33
  37
  42
  46
  51
  57
  63
  69
  76
  83
  90
  98
  106
  115
  124
  134
  145
  156
  167
  180
  193
  207
  221
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  35
  10
  12
  14
  16
  18
  19
  21
  21
  22
  22
  22
  22
  21
  20
  19
  18
  17
  15
  13
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
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
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AudioCodes Ltd. designs, develops, and sells Voice over IP (VoIP), converged VoIP, and data networking products and applications for contact centers, service provider business services, enterprises, mobile VoIPs, and cloud virtualized data centers worldwide. It deploys its products through broadband, mobile, cable, and enterprise networks. The company’s products include chips, boards, subsystems, media and residential gateway systems, media servers, session border controllers, multi-service business routers, mobile communications solutions, life cycle management solutions, and messaging platforms, as well as IP phones, and survivable branch and value added applications. It also provides professional services, which supports networking devices, applications, and infrastructures. The company primarily markets and sells its products to original equipment manufacturers, system integrators, and network equipment providers in the telecommunication and networking industries. AudioCodes Ltd. was incorporated in 1992 and is headquartered in Lod, Israel.


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FINANCIAL RATIOS  of  AudioCodes (AUDC)

Valuation Ratios
P/E Ratio 12.9
Price to Sales 1.4
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 11.5
Price to Free Cash Flow 12.2
Growth Rates
Sales Growth Rate 4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio 10
Current Ratio 0.1
LT Debt to Equity 8.3%
Total Debt to Equity 11%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.5%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital 12.9%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 14.2%
Return On Equity - 3 Yr. Avg. 4.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 60.3%
Gross Margin - 3 Yr. Avg. 59.4%
EBITDA Margin 7.5%
EBITDA Margin - 3 Yr. Avg. 5.3%
Operating Margin 5.5%
Oper. Margin - 3 Yr. Avg. 3.4%
Pre-Tax Margin 5.5%
Pre-Tax Margin - 3 Yr. Avg. 3.2%
Net Profit Margin 11%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate -100%
Eff/ Tax Rate - 3 Yr. Avg. 33.3%
Payout Ratio 0%

AUDC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AUDC stock intrinsic value calculation we used $146 million for the last fiscal year's total revenue generated by AudioCodes. The default revenue input number comes from 2016 income statement of AudioCodes. 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 AUDC stock valuation model: a) initial revenue growth rate of 5.7% 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 4.3%, whose default value for AUDC is calculated based on our internal credit rating of AudioCodes, 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 AudioCodes.
    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 AUDC stock the variable cost ratio is equal to 19.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $113 million in the base year in the intrinsic value calculation for AUDC 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 3.5% for AudioCodes.

Corporate tax rate of 27% is the nominal tax rate for AudioCodes. 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 AUDC 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 AUDC are equal to 5.1%.

Life of production assets of 14.5 years is the average useful life of capital assets used in AudioCodes 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 AUDC is equal to 4.8%. 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 - $109 million for AudioCodes - 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 32.498 million for AudioCodes 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 AudioCodes at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ AudioCodes Announces Second Quarter 2017 Reporting Date   [Jul-06-17 09:00AM  PR Newswire]
▶ ETFs with exposure to AudioCodes Ltd. : May 5, 2017   [May-05-17 03:51PM  Capital Cube]
▶ AudioCodes posts 1Q profit   [Apr-26-17 05:01AM  Associated Press]
▶ ETFs with exposure to AudioCodes Ltd. : April 24, 2017   [Apr-24-17 02:17PM  Capital Cube]
▶ ETFs with exposure to AudioCodes Ltd. : April 12, 2017   [Apr-12-17 01:09PM  Capital Cube]
▶ AudioCodes Announces First Quarter 2017 Reporting Date   [Apr-05-17 09:00AM  PR Newswire]
▶ Is AudioCodes Ltd. (AUDC) A Good Stock to Buy?   [Dec-12-16 05:25PM  at Insider Monkey]
▶ AudioCodes and Genesys Expand Strategic Partnership   [Nov-30-16 09:00AM  PR Newswire]
▶ AudioCodes Announces Third Quarter 2016 Reporting Date   [Oct-05-16 09:00AM  PR Newswire]
▶ AudioCodes Announces Second Quarter 2016 Reporting Date   [Jul-06-16 09:57AM  PR Newswire]
▶ AudioCodes Introduces Innovative Session Routing Manager   [Feb-29-16 09:00AM  PR Newswire]
Stock chart of AUDC Financial statements of AUDC Annual reports of AUDC
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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