Intrinsic value of CRA International - CRAI

Previous Close

$42.97

  Intrinsic Value

$103.54

stock screener

  Rating & Target

str. buy

+141%

Previous close

$42.97

 
Intrinsic value

$103.54

 
Up/down potential

+141%

 
Rating

str. buy

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 0.4

 

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
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
Revenue, $m
  325
  347
  371
  395
  420
  446
  474
  502
  532
  563
  595
  629
  664
  701
  739
  779
  821
  865
  911
  960
  1,010
  1,063
  1,118
  1,176
  1,237
  1,301
  1,368
  1,438
  1,511
  1,588
  1,669
Variable operating expenses, $m
 
  181
  193
  205
  218
  231
  244
  259
  273
  289
  305
  314
  332
  350
  370
  390
  411
  433
  456
  480
  505
  531
  559
  588
  618
  650
  684
  719
  755
  794
  834
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
  319
  335
  350
  367
  384
  401
  419
  437
  458
  478
  491
  514
  536
  561
  586
  611
  638
  667
  696
  726
  758
  791
  826
  862
  900
  941
  982
  1,025
  1,070
  1,117
Operating income, $m
  23
  28
  36
  45
  54
  63
  73
  83
  94
  105
  117
  137
  151
  164
  179
  194
  210
  227
  245
  264
  284
  305
  327
  350
  374
  400
  427
  456
  486
  518
  551
EBITDA, $m
  31
  38
  47
  55
  65
  74
  84
  95
  106
  117
  130
  142
  156
  170
  185
  201
  217
  234
  253
  272
  292
  313
  336
  359
  384
  411
  438
  468
  498
  531
  565
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
Earnings before tax, $m
  22
  28
  36
  44
  53
  62
  71
  81
  92
  103
  114
  134
  147
  160
  174
  189
  205
  221
  238
  257
  276
  296
  318
  340
  364
  389
  415
  443
  472
  503
  536
Tax expense, $m
  8
  8
  10
  12
  14
  17
  19
  22
  25
  28
  31
  36
  40
  43
  47
  51
  55
  60
  64
  69
  74
  80
  86
  92
  98
  105
  112
  120
  127
  136
  145
Net income, $m
  13
  20
  26
  32
  39
  45
  52
  59
  67
  75
  83
  98
  107
  117
  127
  138
  149
  161
  174
  187
  201
  216
  232
  248
  266
  284
  303
  323
  345
  367
  391

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
  289
  308
  328
  349
  371
  394
  417
  442
  468
  494
  522
  552
  582
  614
  647
  682
  719
  757
  797
  839
  883
  929
  977
  1,027
  1,080
  1,136
  1,194
  1,255
  1,319
  1,386
Adjusted assets (=assets-cash), $m
  270
  289
  308
  328
  349
  371
  394
  417
  442
  468
  494
  522
  552
  582
  614
  647
  682
  719
  757
  797
  839
  883
  929
  977
  1,027
  1,080
  1,136
  1,194
  1,255
  1,319
  1,386
Revenue / Adjusted assets
  1.204
  1.201
  1.205
  1.204
  1.203
  1.202
  1.203
  1.204
  1.204
  1.203
  1.204
  1.205
  1.203
  1.204
  1.204
  1.204
  1.204
  1.203
  1.203
  1.205
  1.204
  1.204
  1.203
  1.204
  1.204
  1.205
  1.204
  1.204
  1.204
  1.204
  1.204
Average production assets, $m
  37
  40
  42
  45
  48
  51
  54
  57
  61
  64
  68
  72
  76
  80
  84
  89
  94
  99
  104
  109
  115
  121
  127
  134
  141
  148
  156
  164
  172
  181
  190
Working capital, $m
  77
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  65
  68
  72
  75
  79
  84
  88
  92
  97
  102
  107
  113
  118
Total debt, $m
  0
  8
  16
  25
  34
  44
  53
  64
  74
  85
  97
  109
  122
  135
  149
  163
  178
  194
  211
  228
  246
  265
  285
  306
  328
  351
  375
  400
  426
  454
  483
Total liabilities, $m
  116
  125
  133
  142
  151
  161
  170
  181
  191
  202
  214
  226
  239
  252
  266
  280
  295
  311
  328
  345
  363
  382
  402
  423
  445
  468
  492
  517
  543
  571
  600
Total equity, $m
  207
  164
  175
  186
  198
  210
  223
  237
  251
  265
  280
  296
  313
  330
  348
  367
  387
  408
  429
  452
  476
  501
  527
  554
  583
  613
  644
  677
  712
  748
  786
Total liabilities and equity, $m
  323
  289
  308
  328
  349
  371
  393
  418
  442
  467
  494
  522
  552
  582
  614
  647
  682
  719
  757
  797
  839
  883
  929
  977
  1,028
  1,081
  1,136
  1,194
  1,255
  1,319
  1,386
Debt-to-equity ratio
  0.000
  0.050
  0.090
  0.130
  0.170
  0.210
  0.240
  0.270
  0.300
  0.320
  0.350
  0.370
  0.390
  0.410
  0.430
  0.440
  0.460
  0.480
  0.490
  0.500
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.610
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
  20
  26
  32
  39
  45
  52
  59
  67
  75
  83
  98
  107
  117
  127
  138
  149
  161
  174
  187
  201
  216
  232
  248
  266
  284
  303
  323
  345
  367
  391
Depreciation, amort., depletion, $m
  8
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
Funds from operations, $m
  60
  31
  37
  43
  49
  56
  63
  71
  79
  87
  96
  103
  112
  123
  133
  144
  156
  168
  181
  195
  210
  225
  241
  258
  276
  294
  314
  335
  357
  380
  404
Change in working capital, $m
  12
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
Cash from operations, $m
  48
  29
  35
  41
  48
  54
  61
  69
  77
  85
  93
  100
  110
  120
  130
  141
  153
  165
  178
  192
  206
  221
  237
  254
  271
  290
  309
  330
  352
  375
  399
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
New CAPEX, $m
  -13
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -12
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -12
  -14
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -20
  -21
  -22
Free cash flow, $m
  36
  24
  29
  35
  42
  48
  55
  62
  69
  77
  85
  92
  101
  110
  120
  131
  142
  154
  166
  179
  192
  207
  222
  238
  255
  272
  291
  311
  332
  354
  377
Issuance/(repayment) of debt, $m
  0
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
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
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
Total cash flow (excl. dividends), $m
  16
  32
  38
  44
  51
  57
  65
  72
  80
  88
  97
  104
  114
  124
  134
  145
  157
  169
  182
  196
  211
  226
  242
  259
  277
  295
  315
  336
  358
  381
  406
Retained Cash Flow (-), $m
  5
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
  -36
  -38
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
 
  75
  27
  33
  39
  45
  52
  59
  66
  74
  82
  88
  97
  106
  116
  126
  137
  149
  161
  173
  187
  201
  216
  231
  248
  265
  284
  303
  323
  345
  368
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
  25
  28
  32
  35
  38
  40
  41
  42
  43
  42
  41
  40
  39
  37
  35
  32
  30
  27
  24
  21
  18
  15
  13
  10
  8
  7
  5
  4
  3
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
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CRA International, Inc. is a global consulting firm. The Company provides economic, financial and management consulting services. The Company consulting services in two areas: litigation, regulatory, and financial consulting and management consulting. The Company provides services, such as economic capability, analyses and testimony in areas, such as Antitrust & Competition; Damages & Valuation; Financial Accounting & Valuation; Financial Economics; Forensic & Cyber Investigations; Insurance Economics; Intellectual Property; International Arbitration; Labor & Employment; Mergers & Acquisitions; Regulatory Economics & Compliance; Securities & Financial Markets, and Transfer Pricing. It offers management consulting in the areas, including Auctions & Competitive Bidding; Corporate & Business Strategy; Enterprise Risk Management; Environmental & Energy Strategy; Intellectual Property & Technology Management; Organization & Performance Improvement, and Transaction Advisory Services.

FINANCIAL RATIOS  of  CRA International (CRAI)

Valuation Ratios
P/E Ratio 27.5
Price to Sales 1.1
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 10.2
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 6.9% 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 8.224 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 $0.4 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]
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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