Intrinsic value of CRA International - CRAI

Previous Close

$35.76

  Intrinsic Value

$128.53

stock screener

  Rating & Target

str. buy

+259%

  Value-price divergence*

-82%

Previous close

$35.76

 
Intrinsic value

$128.53

 
Up/down potential

+259%

 
Rating

str. buy

 
Value-price divergence*

-82%

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

We calculate the intrinsic value of CRAI 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, %
  6.91
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  325
  353
  382
  412
  444
  476
  510
  546
  582
  620
  660
  701
  744
  789
  836
  885
  935
  988
  1,044
  1,101
  1,162
  1,225
  1,291
  1,360
  1,433
  1,508
  1,588
  1,671
  1,758
  1,849
  1,945
Variable operating expenses, $m
 
  184
  198
  214
  229
  246
  263
  280
  299
  318
  337
  351
  372
  395
  418
  442
  468
  494
  522
  551
  581
  612
  645
  680
  716
  754
  794
  835
  879
  924
  972
Fixed operating expenses, $m
 
  138
  142
  145
  149
  153
  157
  160
  164
  169
  173
  177
  182
  186
  191
  196
  200
  205
  211
  216
  221
  227
  232
  238
  244
  250
  257
  263
  270
  276
  283
Total operating expenses, $m
  302
  322
  340
  359
  378
  399
  420
  440
  463
  487
  510
  528
  554
  581
  609
  638
  668
  699
  733
  767
  802
  839
  877
  918
  960
  1,004
  1,051
  1,098
  1,149
  1,200
  1,255
Operating income, $m
  23
  31
  42
  53
  65
  78
  91
  105
  119
  134
  150
  174
  191
  209
  227
  247
  267
  289
  311
  335
  360
  386
  413
  442
  472
  504
  537
  573
  610
  648
  689
EBITDA, $m
  31
  41
  52
  64
  76
  89
  103
  117
  131
  147
  163
  179
  197
  215
  234
  254
  275
  297
  320
  344
  369
  396
  424
  453
  484
  516
  550
  586
  624
  663
  705
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
Earnings before tax, $m
  22
  31
  41
  53
  64
  76
  89
  103
  116
  131
  146
  169
  186
  203
  221
  240
  260
  281
  303
  326
  350
  375
  402
  430
  459
  490
  523
  557
  593
  630
  670
Tax expense, $m
  8
  8
  11
  14
  17
  21
  24
  28
  31
  35
  39
  46
  50
  55
  60
  65
  70
  76
  82
  88
  95
  101
  109
  116
  124
  132
  141
  150
  160
  170
  181
Net income, $m
  13
  22
  30
  38
  47
  56
  65
  75
  85
  96
  107
  124
  136
  148
  162
  175
  190
  205
  221
  238
  256
  274
  293
  314
  335
  358
  381
  406
  433
  460
  489

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  54
  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
  324
  293
  317
  342
  369
  396
  424
  453
  484
  515
  548
  583
  618
  655
  694
  735
  777
  821
  867
  915
  965
  1,017
  1,072
  1,130
  1,190
  1,253
  1,319
  1,388
  1,460
  1,536
  1,615
Adjusted assets (=assets-cash), $m
  270
  293
  317
  342
  369
  396
  424
  453
  484
  515
  548
  583
  618
  655
  694
  735
  777
  821
  867
  915
  965
  1,017
  1,072
  1,130
  1,190
  1,253
  1,319
  1,388
  1,460
  1,536
  1,615
Revenue / Adjusted assets
  1.204
  1.205
  1.205
  1.205
  1.203
  1.202
  1.203
  1.205
  1.202
  1.204
  1.204
  1.202
  1.204
  1.205
  1.205
  1.204
  1.203
  1.203
  1.204
  1.203
  1.204
  1.205
  1.204
  1.204
  1.204
  1.204
  1.204
  1.204
  1.204
  1.204
  1.204
Average production assets, $m
  37
  40
  44
  47
  51
  54
  58
  62
  66
  71
  75
  80
  85
  90
  95
  101
  107
  113
  119
  126
  132
  140
  147
  155
  163
  172
  181
  190
  200
  211
  222
Working capital, $m
  77
  25
  27
  29
  32
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  87
  92
  97
  102
  107
  113
  119
  125
  131
  138
Total debt, $m
  0
  10
  20
  31
  43
  54
  67
  79
  92
  106
  120
  135
  151
  167
  184
  201
  219
  238
  258
  279
  301
  324
  347
  372
  398
  425
  454
  484
  515
  548
  582
Total liabilities, $m
  116
  127
  137
  148
  160
  171
  184
  196
  209
  223
  237
  252
  268
  284
  301
  318
  336
  355
  375
  396
  418
  441
  464
  489
  515
  542
  571
  601
  632
  665
  699
Total equity, $m
  207
  166
  180
  194
  209
  224
  240
  257
  274
  292
  311
  330
  351
  372
  394
  417
  440
  465
  491
  519
  547
  577
  608
  641
  675
  710
  748
  787
  828
  871
  916
Total liabilities and equity, $m
  323
  293
  317
  342
  369
  395
  424
  453
  483
  515
  548
  582
  619
  656
  695
  735
  776
  820
  866
  915
  965
  1,018
  1,072
  1,130
  1,190
  1,252
  1,319
  1,388
  1,460
  1,536
  1,615
Debt-to-equity ratio
  0.000
  0.060
  0.110
  0.160
  0.200
  0.240
  0.280
  0.310
  0.340
  0.360
  0.390
  0.410
  0.430
  0.450
  0.470
  0.480
  0.500
  0.510
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.610
  0.620
  0.630
  0.640
Adjusted equity ratio
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  22
  30
  38
  47
  56
  65
  75
  85
  96
  107
  124
  136
  148
  162
  175
  190
  205
  221
  238
  256
  274
  293
  314
  335
  358
  381
  406
  433
  460
  489
Depreciation, amort., depletion, $m
  8
  10
  11
  11
  11
  11
  12
  12
  12
  13
  13
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
Funds from operations, $m
  60
  33
  41
  49
  58
  67
  77
  87
  97
  108
  119
  129
  142
  155
  168
  183
  198
  213
  230
  247
  265
  284
  304
  325
  347
  370
  394
  420
  447
  475
  505
Change in working capital, $m
  12
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
Cash from operations, $m
  48
  31
  39
  47
  56
  65
  74
  84
  95
  105
  117
  126
  139
  152
  165
  179
  194
  209
  226
  243
  261
  279
  299
  320
  342
  365
  389
  414
  441
  469
  498
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
New CAPEX, $m
  -13
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
Cash from investing activities, $m
  -12
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -11
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -18
  -18
  -19
  -21
  -21
  -22
  -24
  -24
  -26
Free cash flow, $m
  36
  25
  33
  41
  49
  58
  67
  76
  86
  96
  107
  116
  128
  140
  153
  167
  181
  196
  211
  228
  245
  263
  282
  302
  322
  344
  367
  392
  417
  444
  472
Issuance/(repayment) of debt, $m
  0
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
Issuance/(repurchase) of shares, $m
  -16
  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  
  -18
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
Total cash flow (excl. dividends), $m
  16
  35
  43
  51
  60
  69
  79
  89
  99
  110
  121
  131
  144
  157
  170
  184
  199
  215
  231
  249
  267
  286
  305
  326
  348
  372
  396
  422
  448
  477
  507
Retained Cash Flow (-), $m
  5
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
Prev. year cash balance distribution, $m
 
  54
  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
 
  76
  29
  37
  45
  54
  63
  72
  82
  92
  103
  112
  123
  135
  148
  161
  175
  190
  205
  221
  238
  256
  274
  294
  314
  336
  359
  382
  407
  434
  462
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
 
  72
  27
  32
  37
  42
  46
  49
  51
  53
  54
  53
  53
  52
  50
  47
  45
  41
  38
  34
  30
  26
  23
  19
  16
  13
  10
  8
  6
  5
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
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CRA International, Inc., a consulting company, provides economic, financial, and management consulting services worldwide. The company advises clients on economic and financial matters pertaining to litigation and regulatory proceedings; and guides corporations through critical business strategy and performance-related issues. It provides consulting services, including research and analysis, expert testimony, and support in litigation and regulatory proceedings in the areas of finance, accounting, economics, insurance, and forensic accounting and investigations to corporate clients and attorneys. The company also offers services related to class certification, damages analysis, expert reports and testimony, regulatory analysis, strategy development, valuation of tangible and intangible assets, risk management, and transaction support to law firms, businesses, and government agencies. In addition, it provides management consulting services, such as strategy development, performance improvement, corporate strategy and portfolio analysis, estimation of market demand, new product pricing strategies, valuation of intellectual property and other assets, assessment of competitors' actions, and analysis of new sources of supply. The company serves various industries, including agriculture; banking and capital markets; chemicals; communications and media; consumer products; energy; entertainment; financial services; health care; insurance; life sciences; manufacturing; metals, mining, and materials; oil and gas; real estate; retail; sports; telecommunications; transportation; and technology. Further, it develops and markets neural network software tools, as well as provides complementary application consulting services primarily for electric utilities. CRA International, Inc. was founded in 1965 and is headquartered in Boston, Massachusetts.

FINANCIAL RATIOS  of  CRA International (CRAI)

Valuation Ratios
P/E Ratio 22.9
Price to Sales 0.9
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 8.5
Growth Rates
Sales Growth Rate 6.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -27.8%
Cap. Spend. - 3 Yr. Gr. Rate 34.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 6.2%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 6.2%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 29.8%
Gross Margin - 3 Yr. Avg. 31.4%
EBITDA Margin 9.2%
EBITDA Margin - 3 Yr. Avg. 8.3%
Operating Margin 7.1%
Oper. Margin - 3 Yr. Avg. 6.4%
Pre-Tax Margin 6.8%
Pre-Tax Margin - 3 Yr. Avg. 6.1%
Net Profit Margin 4%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 36.4%
Eff/ Tax Rate - 3 Yr. Avg. 43.3%
Payout Ratio 7.7%

CRAI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CRAI stock intrinsic value calculation we used $325 million for the last fiscal year's total revenue generated by CRA International. The default revenue input number comes from 2016 income statement of CRA International. 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 CRAI stock valuation model: a) initial revenue growth rate of 8.6% 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 CRAI is calculated based on our internal credit rating of CRA International, 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 CRA International.
    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 CRAI stock the variable cost ratio is equal to 52.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $135 million in the base year in the intrinsic value calculation for CRAI 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 CRA International.

Corporate tax rate of 27% is the nominal tax rate for CRA International. 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 CRAI 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 CRAI are equal to 11.4%.

Life of production assets of 14.1 years is the average useful life of capital assets used in CRA International 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 CRAI is equal to 7.1%. 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 - $207 million for CRA International - 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 8.12 million for CRA International 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 CRA International at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ CRA posts 2Q profit   [01:32AM  Associated Press]
▶ CRA posts 1Q profit   [May-04-17 08:31AM  Associated Press]
▶ Is CRA International, Inc. (CRAI) A Good Stock To Buy?   [Dec-10-16 07:16PM  at Insider Monkey]
Stock chart of CRAI Financial statements of CRAI
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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