Intrinsic value of Capstead Mortgage - CMO

Previous Close

$9.73

  Intrinsic Value

$3.22

stock screener

  Rating & Target

str. sell

-67%

  Value-price divergence*

0%

Previous close

$9.73

 
Intrinsic value

$3.22

 
Up/down potential

-67%

 
Rating

str. sell

 
Value-price divergence*

0%

Our model is not good at valuating stocks of financial companies, such as CMO.

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

We calculate the intrinsic value of CMO 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 0.9

 

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, %
  -1.39
  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
  213
  217
  222
  228
  234
  241
  249
  258
  267
  277
  287
  299
  311
  324
  338
  352
  368
  384
  401
  419
  439
  459
  481
  503
  527
  552
  578
  606
  636
  666
  699
Variable operating expenses, $m
 
  109
  112
  114
  118
  121
  125
  129
  134
  139
  144
  150
  156
  163
  169
  177
  185
  193
  201
  211
  220
  230
  241
  253
  265
  277
  290
  304
  319
  334
  351
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
  130
  109
  112
  114
  118
  121
  125
  129
  134
  139
  144
  150
  156
  163
  169
  177
  185
  193
  201
  211
  220
  230
  241
  253
  265
  277
  290
  304
  319
  334
  351
Operating income, $m
  83
  108
  111
  114
  117
  120
  124
  128
  133
  138
  143
  149
  155
  161
  168
  175
  183
  191
  200
  209
  219
  229
  239
  251
  262
  275
  288
  302
  317
  332
  348
EBITDA, $m
  83
  108
  111
  114
  117
  120
  124
  128
  133
  138
  143
  149
  155
  161
  168
  175
  183
  191
  200
  209
  219
  229
  239
  251
  262
  275
  288
  302
  317
  332
  348
Interest expense (income), $m
  0
  427
  425
  435
  446
  458
  472
  488
  504
  523
  542
  563
  585
  609
  635
  662
  690
  721
  753
  787
  823
  861
  901
  943
  988
  1,034
  1,084
  1,136
  1,191
  1,248
  1,309
Earnings before tax, $m
  83
  -318
  -314
  -321
  -329
  -338
  -348
  -359
  -372
  -385
  -399
  -414
  -430
  -448
  -467
  -486
  -507
  -530
  -553
  -578
  -604
  -632
  -662
  -693
  -725
  -760
  -796
  -834
  -874
  -916
  -961
Tax expense, $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
  0
Net income, $m
  83
  -318
  -314
  -321
  -329
  -338
  -348
  -359
  -372
  -385
  -399
  -414
  -430
  -448
  -467
  -486
  -507
  -530
  -553
  -578
  -604
  -632
  -662
  -693
  -725
  -760
  -796
  -834
  -874
  -916
  -961

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  57
  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
  13,577
  13,579
  13,891
  14,248
  14,649
  15,093
  15,580
  16,111
  16,685
  17,304
  17,968
  18,679
  19,437
  20,244
  21,102
  22,012
  22,976
  23,998
  25,077
  26,218
  27,423
  28,694
  30,035
  31,448
  32,936
  34,504
  36,155
  37,893
  39,722
  41,645
  43,669
Adjusted assets (=assets-cash), $m
  13,520
  13,579
  13,891
  14,248
  14,649
  15,093
  15,580
  16,111
  16,685
  17,304
  17,968
  18,679
  19,437
  20,244
  21,102
  22,012
  22,976
  23,998
  25,077
  26,218
  27,423
  28,694
  30,035
  31,448
  32,936
  34,504
  36,155
  37,893
  39,722
  41,645
  43,669
Revenue / Adjusted assets
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
  0.016
Average production assets, $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
  0
Working capital, $m
  0
  109
  111
  114
  117
  121
  125
  129
  133
  138
  144
  149
  155
  162
  169
  176
  184
  192
  201
  210
  219
  230
  240
  252
  263
  276
  289
  303
  318
  333
  349
Total debt, $m
  12,243
  12,135
  12,416
  12,737
  13,098
  13,498
  13,936
  14,414
  14,931
  15,488
  16,085
  16,725
  17,407
  18,133
  18,905
  19,725
  20,593
  21,512
  22,484
  23,511
  24,595
  25,739
  26,945
  28,217
  29,557
  30,968
  32,454
  34,018
  35,663
  37,395
  39,216
Total liabilities, $m
  12,329
  12,221
  12,502
  12,823
  13,184
  13,584
  14,022
  14,500
  15,017
  15,574
  16,171
  16,811
  17,493
  18,219
  18,991
  19,811
  20,679
  21,598
  22,570
  23,597
  24,681
  25,825
  27,031
  28,303
  29,643
  31,054
  32,540
  34,104
  35,749
  37,481
  39,302
Total equity, $m
  1,248
  1,358
  1,389
  1,425
  1,465
  1,509
  1,558
  1,611
  1,669
  1,730
  1,797
  1,868
  1,944
  2,024
  2,110
  2,201
  2,298
  2,400
  2,508
  2,622
  2,742
  2,869
  3,003
  3,145
  3,294
  3,450
  3,616
  3,789
  3,972
  4,165
  4,367
Total liabilities and equity, $m
  13,577
  13,579
  13,891
  14,248
  14,649
  15,093
  15,580
  16,111
  16,686
  17,304
  17,968
  18,679
  19,437
  20,243
  21,101
  22,012
  22,977
  23,998
  25,078
  26,219
  27,423
  28,694
  30,034
  31,448
  32,937
  34,504
  36,156
  37,893
  39,721
  41,646
  43,669
Debt-to-equity ratio
  9.810
  8.940
  8.940
  8.940
  8.940
  8.940
  8.940
  8.950
  8.950
  8.950
  8.950
  8.950
  8.960
  8.960
  8.960
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
Adjusted equity ratio
  0.092
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  83
  -318
  -314
  -321
  -329
  -338
  -348
  -359
  -372
  -385
  -399
  -414
  -430
  -448
  -467
  -486
  -507
  -530
  -553
  -578
  -604
  -632
  -662
  -693
  -725
  -760
  -796
  -834
  -874
  -916
  -961
Depreciation, amort., depletion, $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
  0
Funds from operations, $m
  216
  -318
  -314
  -321
  -329
  -338
  -348
  -359
  -372
  -385
  -399
  -414
  -430
  -448
  -467
  -486
  -507
  -530
  -553
  -578
  -604
  -632
  -662
  -693
  -725
  -760
  -796
  -834
  -874
  -916
  -961
Change in working capital, $m
  1
  2
  2
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
Cash from operations, $m
  215
  -320
  -317
  -324
  -332
  -342
  -352
  -364
  -376
  -390
  -404
  -420
  -437
  -454
  -473
  -494
  -515
  -538
  -562
  -587
  -614
  -642
  -672
  -704
  -737
  -772
  -809
  -848
  -889
  -932
  -977
Maintenance CAPEX, $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
  0
New CAPEX, $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
  0
Cash from investing activities, $m
  688
  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
Free cash flow, $m
  903
  -320
  -317
  -324
  -332
  -342
  -352
  -364
  -376
  -390
  -404
  -420
  -437
  -454
  -473
  -494
  -515
  -538
  -562
  -587
  -614
  -642
  -672
  -704
  -737
  -772
  -809
  -848
  -889
  -932
  -977
Issuance/(repayment) of debt, $m
  -813
  -51
  281
  321
  361
  400
  439
  478
  517
  557
  598
  639
  682
  726
  772
  819
  868
  919
  972
  1,027
  1,084
  1,144
  1,206
  1,272
  1,340
  1,411
  1,486
  1,564
  1,646
  1,731
  1,821
Issuance/(repurchase) of shares, $m
  2
  428
  345
  357
  369
  383
  397
  412
  429
  447
  465
  485
  506
  529
  552
  577
  604
  632
  661
  692
  725
  759
  796
  834
  874
  916
  961
  1,008
  1,057
  1,109
  1,163
Cash from financing (excl. dividends), $m  
  -790
  377
  626
  678
  730
  783
  836
  890
  946
  1,004
  1,063
  1,124
  1,188
  1,255
  1,324
  1,396
  1,472
  1,551
  1,633
  1,719
  1,809
  1,903
  2,002
  2,106
  2,214
  2,327
  2,447
  2,572
  2,703
  2,840
  2,984
Total cash flow (excl. dividends), $m
  113
  57
  310
  354
  398
  441
  483
  526
  570
  614
  659
  705
  752
  801
  851
  903
  957
  1,013
  1,071
  1,132
  1,195
  1,261
  1,330
  1,402
  1,477
  1,555
  1,638
  1,724
  1,814
  1,908
  2,007
Retained Cash Flow (-), $m
  50
  -428
  -345
  -357
  -369
  -383
  -397
  -412
  -429
  -447
  -465
  -485
  -506
  -529
  -552
  -577
  -604
  -632
  -661
  -692
  -725
  -759
  -796
  -834
  -874
  -916
  -961
  -1,008
  -1,057
  -1,109
  -1,163
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
 
  -372
  -35
  -3
  28
  58
  86
  114
  141
  167
  193
  220
  246
  272
  299
  326
  353
  381
  410
  440
  470
  502
  534
  568
  603
  639
  677
  716
  757
  800
  844
Discount rate, %
 
  14.50
  15.23
  15.99
  16.79
  17.62
  18.51
  19.43
  20.40
  21.42
  22.49
  23.62
  24.80
  26.04
  27.34
  28.71
  30.14
  31.65
  33.23
  34.90
  36.64
  38.47
  40.40
  42.42
  44.54
  46.76
  49.10
  51.56
  54.14
  56.84
  59.68
PV of cash for distribution, $m
 
  -325
  -27
  -2
  15
  26
  31
  33
  32
  29
  25
  21
  17
  13
  10
  7
  5
  4
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  68.7
  51.4
  38.4
  28.6
  21.2
  15.7
  11.6
  8.6
  6.4
  4.7
  3.5
  2.5
  1.9
  1.4
  1.0
  0.7
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Capstead Mortgage Corporation operates as real estate investment trust (REIT) in the United States. It invests in a portfolio of residential mortgage pass-through securities primarily consisting of short-duration adjustable-rate mortgage securities issued and guaranteed by government-sponsored enterprises, or by an agency of the federal government. The company qualifies as a REIT for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 1985 and is headquartered in Dallas, Texas.

FINANCIAL RATIOS  of  Capstead Mortgage (CMO)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 4.4
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 4.3
Price to Free Cash Flow 4.3
Growth Rates
Sales Growth Rate -1.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 7.9%
Total Debt to Equity 981%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.6%
Ret/ On Assets - 3 Yr. Avg. 0.8%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity 6.5%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 0
Profitability Ratios
Gross Margin 46%
Gross Margin - 3 Yr. Avg. 56.6%
EBITDA Margin 39%
EBITDA Margin - 3 Yr. Avg. 50.4%
Operating Margin 39%
Oper. Margin - 3 Yr. Avg. 50.4%
Pre-Tax Margin 39%
Pre-Tax Margin - 3 Yr. Avg. 50.4%
Net Profit Margin 39%
Net Profit Margin - 3 Yr. Avg. 50.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 132.5%

CMO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CMO stock intrinsic value calculation we used $213 million for the last fiscal year's total revenue generated by Capstead Mortgage. The default revenue input number comes from 2016 income statement of Capstead Mortgage. 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 CMO 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 14.5%, whose default value for CMO is calculated based on our internal credit rating of Capstead Mortgage, 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 Capstead Mortgage.
    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 CMO stock the variable cost ratio is equal to 50.2%.

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 CMO 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 Capstead Mortgage.

Corporate tax rate of 27% is the nominal tax rate for Capstead Mortgage. 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 CMO 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 CMO are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Capstead Mortgage 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 CMO is equal to 50%. 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 - $1248 million for Capstead Mortgage - 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 96.805 million for Capstead Mortgage 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 Capstead Mortgage at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Capstead posts 2Q profit   [Jul-27-17 12:30AM  Associated Press]
▶ Capstead posts 2Q profit   [Jul-26-17 07:30PM  Associated Press]
▶ Capstead posts 1Q profit   [Apr-26-17 06:44PM  Associated Press]
▶ New Strong Sell Stocks for February 8th   [Feb-08-17 10:09AM  Zacks]
▶ Capstead posts 4Q profit   [Jan-25-17 06:44PM  Associated Press]
▶ Is Capstead Mortgage Corporation (CMO) A Good Stock To Buy?   [Dec-11-16 05:31AM  at Insider Monkey]
▶ 5 Mortgage REITs that Could Benefit from Higher Libor Rates   [Aug-19-16 05:10PM  at Barrons.com]
▶ Capstead posts 1Q profit   [Apr-27-16 07:23PM  AP]
Stock chart of CMO Financial statements of CMO
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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