Intrinsic value of Comtech Telecommunications - CMTL

Previous Close

$20.57

  Intrinsic Value

$18.60

stock screener

  Rating & Target

hold

-10%

Previous close

$20.57

 
Intrinsic value

$18.60

 
Up/down potential

-10%

 
Rating

hold

We calculate the intrinsic value of CMTL 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 2017), $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 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  33.82
  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
  550
  561
  574
  589
  605
  624
  644
  666
  689
  715
  742
  772
  803
  836
  872
  909
  949
  991
  1,036
  1,083
  1,133
  1,185
  1,241
  1,299
  1,361
  1,426
  1,494
  1,566
  1,641
  1,721
  1,804
Variable operating expenses, $m
 
  407
  416
  426
  437
  449
  463
  478
  494
  511
  530
  520
  541
  564
  588
  613
  640
  668
  698
  730
  764
  799
  836
  876
  917
  961
  1,007
  1,055
  1,106
  1,160
  1,216
Fixed operating expenses, $m
 
  119
  122
  125
  128
  131
  135
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  177
  181
  185
  190
  195
  200
  205
  210
  215
  220
  226
  232
  237
  243
Total operating expenses, $m
  513
  526
  538
  551
  565
  580
  598
  616
  635
  656
  678
  672
  697
  724
  752
  781
  812
  845
  879
  915
  954
  994
  1,036
  1,081
  1,127
  1,176
  1,227
  1,281
  1,338
  1,397
  1,459
Operating income, $m
  37
  35
  36
  38
  40
  43
  46
  50
  54
  59
  64
  99
  106
  113
  120
  128
  137
  147
  157
  168
  179
  192
  205
  219
  234
  250
  266
  284
  303
  323
  345
EBITDA, $m
  74
  83
  85
  87
  90
  94
  98
  102
  107
  113
  119
  126
  134
  142
  150
  160
  170
  181
  193
  205
  218
  233
  248
  264
  281
  299
  318
  339
  360
  383
  407
Interest expense (income), $m
  10
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  19
  20
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
Earnings before tax, $m
  25
  27
  28
  29
  31
  34
  36
  40
  43
  47
  52
  86
  92
  98
  105
  112
  120
  128
  137
  147
  157
  168
  180
  192
  206
  220
  235
  251
  268
  286
  306
Tax expense, $m
  9
  7
  8
  8
  8
  9
  10
  11
  12
  13
  14
  23
  25
  26
  28
  30
  32
  35
  37
  40
  42
  45
  49
  52
  56
  59
  63
  68
  72
  77
  82
Net income, $m
  16
  20
  20
  21
  23
  24
  27
  29
  32
  35
  38
  63
  67
  72
  76
  82
  87
  94
  100
  107
  115
  123
  131
  140
  150
  161
  172
  183
  196
  209
  223

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  42
  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
  832
  806
  825
  846
  870
  896
  925
  956
  990
  1,027
  1,067
  1,109
  1,154
  1,202
  1,253
  1,307
  1,364
  1,424
  1,489
  1,556
  1,628
  1,703
  1,783
  1,867
  1,955
  2,048
  2,146
  2,249
  2,358
  2,472
  2,592
Adjusted assets (=assets-cash), $m
  790
  806
  825
  846
  870
  896
  925
  956
  990
  1,027
  1,067
  1,109
  1,154
  1,202
  1,253
  1,307
  1,364
  1,424
  1,489
  1,556
  1,628
  1,703
  1,783
  1,867
  1,955
  2,048
  2,146
  2,249
  2,358
  2,472
  2,592
Revenue / Adjusted assets
  0.696
  0.696
  0.696
  0.696
  0.695
  0.696
  0.696
  0.697
  0.696
  0.696
  0.695
  0.696
  0.696
  0.696
  0.696
  0.695
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
Average production assets, $m
  309
  315
  323
  331
  340
  350
  362
  374
  387
  402
  417
  434
  451
  470
  490
  511
  533
  557
  582
  609
  637
  666
  697
  730
  765
  801
  839
  880
  922
  967
  1,014
Working capital, $m
  97
  75
  76
  78
  80
  83
  86
  89
  92
  95
  99
  103
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  208
  218
  229
  240
Total debt, $m
  196
  185
  193
  202
  212
  223
  235
  249
  263
  278
  295
  313
  332
  352
  374
  397
  421
  447
  474
  502
  533
  564
  598
  634
  671
  710
  752
  795
  841
  890
  940
Total liabilities, $m
  352
  341
  349
  358
  368
  379
  391
  405
  419
  434
  451
  469
  488
  508
  530
  553
  577
  603
  630
  658
  689
  720
  754
  790
  827
  866
  908
  951
  997
  1,046
  1,096
Total equity, $m
  480
  465
  476
  488
  502
  517
  534
  552
  571
  593
  615
  640
  666
  693
  723
  754
  787
  822
  859
  898
  939
  983
  1,029
  1,077
  1,128
  1,182
  1,238
  1,298
  1,360
  1,426
  1,496
Total liabilities and equity, $m
  832
  806
  825
  846
  870
  896
  925
  957
  990
  1,027
  1,066
  1,109
  1,154
  1,201
  1,253
  1,307
  1,364
  1,425
  1,489
  1,556
  1,628
  1,703
  1,783
  1,867
  1,955
  2,048
  2,146
  2,249
  2,357
  2,472
  2,592
Debt-to-equity ratio
  0.408
  0.400
  0.410
  0.410
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.530
  0.540
  0.550
  0.560
  0.570
  0.570
  0.580
  0.590
  0.590
  0.600
  0.610
  0.610
  0.620
  0.620
  0.630
Adjusted equity ratio
  0.554
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  20
  20
  21
  23
  24
  27
  29
  32
  35
  38
  63
  67
  72
  76
  82
  87
  94
  100
  107
  115
  123
  131
  140
  150
  161
  172
  183
  196
  209
  223
Depreciation, amort., depletion, $m
  37
  49
  49
  50
  50
  51
  51
  52
  53
  54
  55
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
Funds from operations, $m
  70
  68
  69
  71
  73
  75
  78
  81
  85
  89
  93
  90
  95
  101
  107
  113
  120
  128
  136
  145
  154
  164
  174
  186
  197
  210
  223
  238
  253
  269
  286
Change in working capital, $m
  3
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  67
  67
  68
  69
  71
  73
  75
  78
  81
  85
  89
  86
  91
  96
  102
  108
  115
  122
  130
  138
  147
  157
  167
  178
  189
  201
  214
  228
  243
  258
  275
Maintenance CAPEX, $m
  0
  -19
  -19
  -20
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
New CAPEX, $m
  -8
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -45
  -47
Cash from investing activities, $m
  -8
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -51
  -54
  -57
  -59
  -62
  -66
  -69
  -72
  -76
  -80
  -83
  -87
  -92
  -96
  -102
  -107
Free cash flow, $m
  59
  41
  41
  41
  41
  41
  42
  44
  45
  47
  49
  44
  46
  50
  53
  57
  61
  66
  71
  76
  82
  88
  95
  102
  110
  118
  127
  136
  146
  157
  168
Issuance/(repayment) of debt, $m
  -64
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  44
  46
  48
  51
Issuance/(repurchase) of shares, $m
  1
  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  
  -64
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  44
  46
  48
  51
Total cash flow (excl. dividends), $m
  -6
  48
  49
  50
  51
  53
  55
  57
  59
  62
  66
  61
  65
  70
  75
  80
  85
  91
  98
  105
  112
  120
  128
  137
  147
  157
  168
  180
  192
  205
  219
Retained Cash Flow (-), $m
  -10
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
Prev. year cash balance distribution, $m
 
  24
  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
 
  63
  38
  38
  37
  37
  38
  39
  40
  41
  43
  37
  39
  42
  45
  49
  52
  56
  61
  66
  71
  76
  82
  89
  96
  104
  112
  120
  129
  139
  149
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  60
  34
  32
  30
  28
  26
  25
  23
  22
  20
  16
  15
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  1
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

Comtech Telecommunications Corp. designs, develops, produces and markets products, systems and services for communications solutions. The Company operates through two segments: Commercial Solutions and Government Solutions. It offers communications solutions, including command and control technologies, safety and security technologies and enterprise technologies. Its Commercial Solutions segment provides satellite communications (such as satellite earth station modems and traveling wave tube amplifiers), public safety systems (such as next generation 911 technologies) and enterprise application technologies (such as messaging and trusted location-based technologies). The Government Solutions segment includes command and control technologies, troposcatter technologies, and radio frequency power and switching technologies. It serves system and network suppliers in the global satellite, defense, broadcast and aerospace industries, and the United States federal government, among others.

FINANCIAL RATIOS  of  Comtech Telecommunications (CMTL)

Valuation Ratios
P/E Ratio 30.3
Price to Sales 0.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow 7.2
Price to Free Cash Flow 8.2
Growth Rates
Sales Growth Rate 33.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate 9.9%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 37.1%
Total Debt to Equity 40.8%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 2.3%
Ret/ On T. Cap. - 3 Yr. Avg. 2.2%
Return On Equity 3.4%
Return On Equity - 3 Yr. Avg. 2.4%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 39.6%
Gross Margin - 3 Yr. Avg. 42.2%
EBITDA Margin 13.1%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 6.7%
Oper. Margin - 3 Yr. Avg. 5.9%
Pre-Tax Margin 4.5%
Pre-Tax Margin - 3 Yr. Avg. 4.6%
Net Profit Margin 2.9%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 36%
Eff/ Tax Rate - 3 Yr. Avg. 22.8%
Payout Ratio 118.8%

CMTL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CMTL stock intrinsic value calculation we used $550 million for the last fiscal year's total revenue generated by Comtech Telecommunications. The default revenue input number comes from 2017 income statement of Comtech Telecommunications. 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 CMTL 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 5%, whose default value for CMTL is calculated based on our internal credit rating of Comtech Telecommunications, 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 Comtech Telecommunications.
    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 CMTL stock the variable cost ratio is equal to 72.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $116 million in the base year in the intrinsic value calculation for CMTL 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 4.4% for Comtech Telecommunications.

Corporate tax rate of 27% is the nominal tax rate for Comtech Telecommunications. 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 CMTL 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 CMTL are equal to 56.2%.

Life of production assets of 16.2 years is the average useful life of capital assets used in Comtech Telecommunications 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 CMTL is equal to 13.3%. 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 - $480 million for Comtech Telecommunications - 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 23.586 million for Comtech Telecommunications 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 Comtech Telecommunications at the current share price and the inputted number of shares is $0.5 billion.

RELATED COMPANIES Price Int.Val. Rating
VSAT ViaSat 73.77 6.95  str.sell
HRS Harris Corp. 139.84 82.95  sell
GILT Gilat Satellit 7.31 1.66  str.sell
FEIM Frequency Elec 9.39 2.55  str.sell
LLL L3 Technologie 184.39 123.15  sell
NOC Northrop Grumm 296.85 394.19  buy
GD General Dynami 197.77 203.39  hold
SATS EchoStar 59.87 60.14  hold
TDY Teledyne Techn 179.50 249.64  str.buy

COMPANY NEWS

▶ Comtech tops 4Q profit forecasts   [Sep-27-17 09:33PM  Associated Press]
▶ Why Comtech Telecommunications Corp (CMTL) Could Be A Buy   [Sep-17-17 07:43PM  Simply Wall St.]
▶ Comtech misses 3Q revenue forecasts   [05:38PM  Associated Press]
▶ Communications technology firm plans layoffs, plant shutdown in Tampa   [12:55PM  American City Business Journals]
Financial statements of CMTL
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.