Intrinsic value of CYS Investments - CYS

Previous Close

$8.34

  Intrinsic Value

$6.75

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  Rating & Target

hold

-19%

Previous close

$8.34

 
Intrinsic value

$6.75

 
Up/down potential

-19%

 
Rating

hold

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

We calculate the intrinsic value of CYS 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 1.3

 

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, %
  -10.88
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  295
  303
  312
  322
  332
  344
  356
  370
  384
  400
  416
  434
  452
  472
  493
  515
  538
  563
  589
  616
  645
  675
  707
  741
  777
  814
  854
  895
  938
  984
  1,032
Variable operating expenses, $m
 
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  84
  87
  91
  95
  99
  104
  109
  114
  119
  124
  130
  137
  143
  150
  157
  165
  173
  181
  190
  199
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
  94
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  84
  87
  91
  95
  99
  104
  109
  114
  119
  124
  130
  137
  143
  150
  157
  165
  173
  181
  190
  199
Operating income, $m
  201
  244
  252
  260
  268
  278
  288
  299
  310
  323
  336
  350
  365
  381
  398
  415
  434
  454
  475
  497
  520
  545
  571
  598
  627
  657
  689
  722
  757
  794
  833
EBITDA, $m
  201
  244
  252
  260
  268
  278
  288
  299
  310
  323
  336
  350
  365
  381
  398
  415
  434
  454
  475
  497
  520
  545
  571
  598
  627
  657
  689
  722
  757
  794
  833
Interest expense (income), $m
  117
  339
  355
  368
  382
  397
  413
  431
  450
  470
  492
  515
  539
  565
  593
  622
  653
  686
  721
  757
  796
  836
  879
  924
  972
  1,022
  1,074
  1,130
  1,188
  1,249
  1,314
Earnings before tax, $m
  16
  -95
  -104
  -108
  -114
  -119
  -125
  -132
  -139
  -147
  -156
  -165
  -174
  -185
  -195
  -207
  -219
  -232
  -246
  -260
  -275
  -291
  -308
  -326
  -345
  -365
  -386
  -408
  -431
  -455
  -480
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
  16
  -95
  -104
  -108
  -114
  -119
  -125
  -132
  -139
  -147
  -156
  -165
  -174
  -185
  -195
  -207
  -219
  -232
  -246
  -260
  -275
  -291
  -308
  -326
  -345
  -365
  -386
  -408
  -431
  -455
  -480

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  13,245
  13,771
  14,175
  14,619
  15,105
  15,632
  16,202
  16,814
  17,470
  18,170
  18,917
  19,711
  20,554
  21,448
  22,395
  23,397
  24,456
  25,575
  26,755
  28,001
  29,314
  30,698
  32,155
  33,690
  35,306
  37,007
  38,796
  40,678
  42,657
  44,739
  46,927
Adjusted assets (=assets-cash), $m
  13,244
  13,771
  14,175
  14,619
  15,105
  15,632
  16,202
  16,814
  17,470
  18,170
  18,917
  19,711
  20,554
  21,448
  22,395
  23,397
  24,456
  25,575
  26,755
  28,001
  29,314
  30,698
  32,155
  33,690
  35,306
  37,007
  38,796
  40,678
  42,657
  44,739
  46,927
Revenue / Adjusted assets
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
  0.022
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
  151
  156
  161
  166
  172
  178
  185
  192
  200
  208
  217
  226
  236
  246
  257
  269
  281
  294
  308
  322
  338
  354
  371
  388
  407
  427
  447
  469
  492
  516
Total debt, $m
  9,692
  10,157
  10,513
  10,906
  11,336
  11,802
  12,305
  12,846
  13,426
  14,045
  14,705
  15,407
  16,153
  16,943
  17,780
  18,666
  19,602
  20,591
  21,635
  22,736
  23,897
  25,120
  26,408
  27,765
  29,194
  30,697
  32,278
  33,942
  35,692
  37,532
  39,467
Total liabilities, $m
  11,710
  12,174
  12,530
  12,923
  13,353
  13,819
  14,322
  14,863
  15,443
  16,062
  16,722
  17,424
  18,170
  18,960
  19,797
  20,683
  21,619
  22,608
  23,652
  24,753
  25,914
  27,137
  28,425
  29,782
  31,211
  32,714
  34,295
  35,959
  37,709
  39,549
  41,484
Total equity, $m
  1,536
  1,597
  1,644
  1,696
  1,752
  1,813
  1,879
  1,950
  2,026
  2,108
  2,194
  2,286
  2,384
  2,488
  2,598
  2,714
  2,837
  2,967
  3,104
  3,248
  3,400
  3,561
  3,730
  3,908
  4,096
  4,293
  4,500
  4,719
  4,948
  5,190
  5,444
Total liabilities and equity, $m
  13,246
  13,771
  14,174
  14,619
  15,105
  15,632
  16,201
  16,813
  17,469
  18,170
  18,916
  19,710
  20,554
  21,448
  22,395
  23,397
  24,456
  25,575
  26,756
  28,001
  29,314
  30,698
  32,155
  33,690
  35,307
  37,007
  38,795
  40,678
  42,657
  44,739
  46,928
Debt-to-equity ratio
  6.310
  6.360
  6.390
  6.430
  6.470
  6.510
  6.550
  6.590
  6.630
  6.660
  6.700
  6.740
  6.770
  6.810
  6.840
  6.880
  6.910
  6.940
  6.970
  7.000
  7.030
  7.050
  7.080
  7.100
  7.130
  7.150
  7.170
  7.190
  7.210
  7.230
  7.250
Adjusted equity ratio
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  -95
  -104
  -108
  -114
  -119
  -125
  -132
  -139
  -147
  -156
  -165
  -174
  -185
  -195
  -207
  -219
  -232
  -246
  -260
  -275
  -291
  -308
  -326
  -345
  -365
  -386
  -408
  -431
  -455
  -480
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
  167
  -95
  -104
  -108
  -114
  -119
  -125
  -132
  -139
  -147
  -156
  -165
  -174
  -185
  -195
  -207
  -219
  -232
  -246
  -260
  -275
  -291
  -308
  -326
  -345
  -365
  -386
  -408
  -431
  -455
  -480
Change in working capital, $m
  -1
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Cash from operations, $m
  168
  -99
  -108
  -113
  -119
  -125
  -132
  -139
  -147
  -155
  -164
  -173
  -184
  -194
  -206
  -218
  -231
  -244
  -259
  -274
  -290
  -307
  -324
  -343
  -363
  -383
  -405
  -428
  -452
  -478
  -505
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
  1,399
  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
  1,567
  -99
  -108
  -113
  -119
  -125
  -132
  -139
  -147
  -155
  -164
  -173
  -184
  -194
  -206
  -218
  -231
  -244
  -259
  -274
  -290
  -307
  -324
  -343
  -363
  -383
  -405
  -428
  -452
  -478
  -505
Issuance/(repayment) of debt, $m
  -1,396
  466
  357
  393
  429
  466
  503
  541
  580
  619
  660
  702
  745
  790
  837
  886
  936
  989
  1,044
  1,101
  1,161
  1,223
  1,289
  1,357
  1,428
  1,503
  1,582
  1,664
  1,750
  1,840
  1,935
Issuance/(repurchase) of shares, $m
  -6
  156
  151
  160
  170
  180
  191
  203
  216
  229
  242
  257
  272
  288
  305
  323
  342
  362
  383
  405
  428
  452
  477
  504
  532
  562
  593
  626
  660
  696
  734
Cash from financing (excl. dividends), $m  
  -1,402
  622
  508
  553
  599
  646
  694
  744
  796
  848
  902
  959
  1,017
  1,078
  1,142
  1,209
  1,278
  1,351
  1,427
  1,506
  1,589
  1,675
  1,766
  1,861
  1,960
  2,065
  2,175
  2,290
  2,410
  2,536
  2,669
Total cash flow (excl. dividends), $m
  165
  523
  399
  440
  480
  522
  563
  605
  649
  693
  738
  785
  834
  884
  937
  991
  1,047
  1,106
  1,168
  1,232
  1,299
  1,369
  1,442
  1,518
  1,598
  1,682
  1,770
  1,861
  1,958
  2,059
  2,164
Retained Cash Flow (-), $m
  159
  -156
  -151
  -160
  -170
  -180
  -191
  -203
  -216
  -229
  -242
  -257
  -272
  -288
  -305
  -323
  -342
  -362
  -383
  -405
  -428
  -452
  -477
  -504
  -532
  -562
  -593
  -626
  -660
  -696
  -734
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
 
  367
  248
  280
  311
  341
  372
  402
  433
  464
  496
  529
  562
  596
  631
  668
  705
  744
  785
  827
  871
  917
  964
  1,014
  1,066
  1,120
  1,176
  1,236
  1,297
  1,362
  1,430
Discount rate, %
 
  13.90
  14.60
  15.32
  16.09
  16.90
  17.74
  18.63
  19.56
  20.54
  21.56
  22.64
  23.77
  24.96
  26.21
  27.52
  28.90
  30.34
  31.86
  33.45
  35.12
  36.88
  38.72
  40.66
  42.69
  44.83
  47.07
  49.42
  51.90
  54.49
  57.21
PV of cash for distribution, $m
 
  322
  189
  182
  171
  156
  139
  122
  104
  86
  70
  56
  43
  33
  24
  17
  12
  8
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  89.0
  79.8
  71.4
  63.6
  56.6
  50.1
  44.3
  39.1
  34.3
  30.1
  26.4
  23.0
  20.1
  17.5
  15.2
  13.2
  11.4
  9.9
  8.5
  7.3
  6.3
  5.4
  4.7
  4.0
  3.4
  2.9
  2.5
  2.1
  1.8
  1.6

CYS Investments, Inc. is a specialty finance company. The Company's objective is to provide consistent returns to its investors through a combination of dividends and capital appreciation. It invests in agency residential mortgage-backed security (RMBS) collateralized by fixed rate single-family residential mortgage loans; adjustable-rate mortgages (ARMs), which have coupon rates that reset monthly, or hybrid ARMs, which have a coupon rate that is fixed for an initial period. In addition, it has investments in collateralized mortgage obligations issued by a government agency or government-sponsored entity (GSE) that are collateralized by Agency RMBS. Its investments consist of residential mortgage pass-through securities for which the principal and interest payments are guaranteed by a GSE, such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, or by the United States Government agency, such as Government National Mortgage Association.

FINANCIAL RATIOS  of  CYS Investments (CYS)

Valuation Ratios
P/E Ratio 78.9
Price to Sales 4.3
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 7.5
Growth Rates
Sales Growth Rate -10.9%
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 0%
Total Debt to Equity 631%
Interest Coverage 1
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 0.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.1%
Return On Equity 1%
Return On Equity - 3 Yr. Avg. 7.8%
Asset Turnover 0
Profitability Ratios
Gross Margin 75.9%
Gross Margin - 3 Yr. Avg. 84.1%
EBITDA Margin 45.1%
EBITDA Margin - 3 Yr. Avg. 82.4%
Operating Margin 68.1%
Oper. Margin - 3 Yr. Avg. 76.9%
Pre-Tax Margin 5.4%
Pre-Tax Margin - 3 Yr. Avg. 46.1%
Net Profit Margin 5.4%
Net Profit Margin - 3 Yr. Avg. 46.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 1087.5%

CYS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CYS stock intrinsic value calculation we used $295 million for the last fiscal year's total revenue generated by CYS Investments. The default revenue input number comes from 2016 income statement of CYS Investments. 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 CYS stock valuation model: a) initial revenue growth rate of 2.7% 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 13.9%, whose default value for CYS is calculated based on our internal credit rating of CYS Investments, 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 CYS Investments.
    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 CYS stock the variable cost ratio is equal to 19.3%.

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 CYS 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 CYS Investments.

Corporate tax rate of 27% is the nominal tax rate for CYS Investments. 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 CYS 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 CYS are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in CYS Investments 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 CYS 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 - $1536 million for CYS Investments - 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 151.445 million for CYS Investments 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 CYS Investments at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ CYS Investments, Inc. to Host Earnings Call   [Oct-26-17 07:00AM  ACCESSWIRE]
▶ CYS posts 3Q profit   [Oct-25-17 06:15PM  Associated Press]
▶ CYS posts 2Q profit   [Jul-26-17 11:32PM  Associated Press]
▶ 12% Yielder CYS Climbs After Q1 Earnings Beat   [Apr-20-17 01:11PM  Barrons.com]
▶ CYS beats 1Q profit forecasts   [Apr-19-17 05:58PM  Associated Press]
▶ CYS reports 4Q loss   [Feb-15-17 06:37PM  Associated Press]
▶ CYS Investments, Inc. to Host 2017 Analyst and Investor Day   [Jan-06-17 04:20PM  Business Wire]
▶ Hedge Funds Are Crazy About CYS Investments Inc (CYS)   [Dec-14-16 08:42AM  at Insider Monkey]
▶ Mortgage REITs Look Better as Yield Curve Steepens: 5 Picks   [Nov-28-16 05:30PM  at Barrons.com]
Financial statements of CYS
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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