Intrinsic value of Dynex Capital - DX

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$7.12

  Intrinsic Value

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  Value-price divergence*

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$7.12

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

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

We calculate the intrinsic value of DX 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, %
  -8.00
  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
  92
  94
  96
  98
  101
  104
  108
  111
  115
  120
  124
  129
  134
  140
  146
  152
  159
  166
  173
  181
  190
  198
  208
  217
  228
  238
  250
  262
  275
  288
  302
Variable operating expenses, $m
 
  79
  80
  82
  85
  87
  90
  93
  97
  100
  104
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  191
  200
  209
  219
  230
  241
  253
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
  49
  79
  80
  82
  85
  87
  90
  93
  97
  100
  104
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  191
  200
  209
  219
  230
  241
  253
Operating income, $m
  43
  15
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
EBITDA, $m
  45
  15
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Interest expense (income), $m
  24
  99
  100
  102
  105
  108
  111
  115
  119
  123
  128
  133
  138
  143
  149
  156
  163
  170
  177
  185
  194
  203
  212
  222
  233
  244
  255
  268
  281
  294
  308
Earnings before tax, $m
  43
  -84
  -84
  -86
  -88
  -91
  -94
  -97
  -100
  -104
  -107
  -112
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -187
  -196
  -205
  -215
  -225
  -236
  -247
  -259
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
  43
  -84
  -84
  -86
  -88
  -91
  -94
  -97
  -100
  -104
  -107
  -112
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -187
  -196
  -205
  -215
  -225
  -236
  -247
  -259

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  74
  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
  3,398
  3,351
  3,429
  3,517
  3,616
  3,725
  3,845
  3,976
  4,118
  4,271
  4,435
  4,610
  4,797
  4,996
  5,208
  5,433
  5,671
  5,923
  6,189
  6,471
  6,768
  7,082
  7,413
  7,762
  8,129
  8,516
  8,924
  9,353
  9,804
  10,279
  10,778
Adjusted assets (=assets-cash), $m
  3,324
  3,351
  3,429
  3,517
  3,616
  3,725
  3,845
  3,976
  4,118
  4,271
  4,435
  4,610
  4,797
  4,996
  5,208
  5,433
  5,671
  5,923
  6,189
  6,471
  6,768
  7,082
  7,413
  7,762
  8,129
  8,516
  8,924
  9,353
  9,804
  10,279
  10,778
Revenue / Adjusted assets
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
  0.028
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
  47
  48
  49
  51
  52
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
Total debt, $m
  2,905
  2,856
  2,923
  2,998
  3,083
  3,178
  3,281
  3,394
  3,516
  3,647
  3,788
  3,939
  4,100
  4,271
  4,453
  4,646
  4,851
  5,068
  5,297
  5,539
  5,795
  6,065
  6,349
  6,649
  6,965
  7,298
  7,648
  8,017
  8,405
  8,814
  9,243
Total liabilities, $m
  2,931
  2,882
  2,949
  3,024
  3,109
  3,204
  3,307
  3,420
  3,542
  3,673
  3,814
  3,965
  4,126
  4,297
  4,479
  4,672
  4,877
  5,094
  5,323
  5,565
  5,821
  6,091
  6,375
  6,675
  6,991
  7,324
  7,674
  8,043
  8,431
  8,840
  9,269
Total equity, $m
  467
  469
  480
  492
  506
  522
  538
  557
  577
  598
  621
  645
  672
  700
  729
  761
  794
  829
  867
  906
  948
  991
  1,038
  1,087
  1,138
  1,192
  1,249
  1,309
  1,373
  1,439
  1,509
Total liabilities and equity, $m
  3,398
  3,351
  3,429
  3,516
  3,615
  3,726
  3,845
  3,977
  4,119
  4,271
  4,435
  4,610
  4,798
  4,997
  5,208
  5,433
  5,671
  5,923
  6,190
  6,471
  6,769
  7,082
  7,413
  7,762
  8,129
  8,516
  8,923
  9,352
  9,804
  10,279
  10,778
Debt-to-equity ratio
  6.221
  6.090
  6.090
  6.090
  6.090
  6.090
  6.090
  6.100
  6.100
  6.100
  6.100
  6.100
  6.100
  6.110
  6.110
  6.110
  6.110
  6.110
  6.110
  6.110
  6.120
  6.120
  6.120
  6.120
  6.120
  6.120
  6.120
  6.120
  6.120
  6.120
  6.130
Adjusted equity ratio
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  -84
  -84
  -86
  -88
  -91
  -94
  -97
  -100
  -104
  -107
  -112
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -187
  -196
  -205
  -215
  -225
  -236
  -247
  -259
Depreciation, amort., depletion, $m
  2
  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
  214
  -84
  -84
  -86
  -88
  -91
  -94
  -97
  -100
  -104
  -107
  -112
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -187
  -196
  -205
  -215
  -225
  -236
  -247
  -259
Change in working capital, $m
  3
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
Cash from operations, $m
  211
  -85
  -85
  -87
  -90
  -92
  -95
  -99
  -102
  -106
  -110
  -114
  -119
  -123
  -129
  -134
  -140
  -146
  -153
  -160
  -167
  -175
  -183
  -192
  -201
  -210
  -220
  -231
  -242
  -254
  -266
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
  68
  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
  279
  -85
  -85
  -87
  -90
  -92
  -95
  -99
  -102
  -106
  -110
  -114
  -119
  -123
  -129
  -134
  -140
  -146
  -153
  -160
  -167
  -175
  -183
  -192
  -201
  -210
  -220
  -231
  -242
  -254
  -266
Issuance/(repayment) of debt, $m
  -2
  25
  66
  76
  85
  94
  103
  113
  122
  131
  141
  151
  161
  171
  182
  193
  205
  217
  229
  242
  256
  270
  285
  300
  316
  333
  350
  369
  388
  408
  429
Issuance/(repurchase) of shares, $m
  0
  62
  30
  24
  19
  14
  9
  4
  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  
  -186
  87
  96
  100
  104
  108
  112
  117
  122
  131
  141
  151
  161
  171
  182
  193
  205
  217
  229
  242
  256
  270
  285
  300
  316
  333
  350
  369
  388
  408
  429
Total cash flow (excl. dividends), $m
  92
  -59
  -19
  -12
  -5
  2
  8
  14
  20
  26
  31
  37
  42
  48
  53
  59
  65
  70
  76
  82
  89
  95
  101
  108
  115
  122
  130
  138
  146
  154
  163
Retained Cash Flow (-), $m
  25
  -2
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -70
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  4
  8
  12
  16
  20
  24
  28
  31
  35
  39
  43
  47
  51
  55
  59
  64
  68
  73
  78
  83
  88
  93
Discount rate, %
 
  12.80
  13.44
  14.11
  14.82
  15.56
  16.34
  17.15
  18.01
  18.91
  19.86
  20.85
  21.89
  22.99
  24.14
  25.34
  26.61
  27.94
  29.34
  30.80
  32.34
  33.96
  35.66
  37.44
  39.32
  41.28
  43.35
  45.51
  47.79
  50.18
  52.69
PV of cash for distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  85.0
  78.3
  73.4
  69.9
  67.5
  66.0
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3
  65.3

Dynex Capital, Inc., a mortgage real estate investment trust, invests in mortgage-backed securities (MBS) on a leveraged basis in the United States. It invests in residential MBS, commercial MBS (CMBS), and CMBS interest-only securities guaranteed by agency of the U.S. government or a U.S. government-sponsored entity. The company has qualified as a real estate investment trust 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. Dynex Capital, Inc. was founded in 1987 and is headquartered in Glen Allen, Virginia.

FINANCIAL RATIOS  of  Dynex Capital (DX)

Valuation Ratios
P/E Ratio 8.1
Price to Sales 3.8
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 1.7
Price to Free Cash Flow 1.7
Growth Rates
Sales Growth Rate -8%
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 1.3%
Total Debt to Equity 622.1%
Interest Coverage 3
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 1.4%
Return On Total Capital 1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity 9%
Return On Equity - 3 Yr. Avg. 5.6%
Asset Turnover 0
Profitability Ratios
Gross Margin 72.8%
Gross Margin - 3 Yr. Avg. 75.4%
EBITDA Margin 75%
EBITDA Margin - 3 Yr. Avg. 56.3%
Operating Margin 46.7%
Oper. Margin - 3 Yr. Avg. 29.7%
Pre-Tax Margin 46.7%
Pre-Tax Margin - 3 Yr. Avg. 30.1%
Net Profit Margin 46.7%
Net Profit Margin - 3 Yr. Avg. 30.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 120.9%

DX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DX stock intrinsic value calculation we used $92 million for the last fiscal year's total revenue generated by Dynex Capital. The default revenue input number comes from 2016 income statement of Dynex Capital. 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 DX 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 12.8%, whose default value for DX is calculated based on our internal credit rating of Dynex Capital, 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 Dynex Capital.
    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 DX stock the variable cost ratio is equal to 83.7%.

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 DX 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 Dynex Capital.

Corporate tax rate of 27% is the nominal tax rate for Dynex Capital. 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 DX 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 DX are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in Dynex Capital 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 DX 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 - $467 million for Dynex Capital - 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 49.082 million for Dynex Capital 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 Dynex Capital at the current share price and the inputted number of shares is $0.3 billion.


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Stock chart of DX Financial statements of DX Annual reports of DX
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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