Intrinsic value of Harris Corp. - HRS

Previous Close

$115.23

  Intrinsic Value

$728.14

stock screener

  Rating & Target

str. buy

+532%

  Value-price divergence*

+661%

Previous close

$115.23

 
Intrinsic value

$728.14

 
Up/down potential

+532%

 
Rating

str. buy

 
Value-price divergence*

+661%

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

We calculate the intrinsic value of HRS 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 14.2

 

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, %
  46.90
  46.90
  42.71
  38.94
  35.55
  32.49
  29.74
  27.27
  25.04
  23.04
  21.23
  19.61
  18.15
  16.83
  15.65
  14.59
  13.63
  12.76
  11.99
  11.29
  10.66
  10.09
  9.58
  9.13
  8.71
  8.34
  8.01
  7.71
  7.44
  7.19
  6.97
Revenue, $m
  7,467
  10,969
  15,654
  21,749
  29,480
  39,058
  50,675
  64,493
  80,642
  99,219
  120,287
  143,874
  169,986
  198,601
  229,683
  263,183
  299,046
  337,217
  377,642
  420,273
  465,075
  512,020
  561,095
  612,302
  665,655
  721,185
  778,938
  838,972
  901,362
  966,195
  1,033,574
Variable operating expenses, $m
 
  9,413
  13,204
  18,137
  24,394
  32,146
  41,548
  52,731
  65,801
  80,836
  97,886
  116,441
  137,574
  160,732
  185,888
  213,000
  242,025
  272,918
  305,635
  340,138
  376,397
  414,390
  454,108
  495,551
  538,731
  583,673
  630,414
  679,001
  729,495
  781,966
  836,497
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
  6,675
  9,413
  13,204
  18,137
  24,394
  32,146
  41,548
  52,731
  65,801
  80,836
  97,886
  116,441
  137,574
  160,732
  185,888
  213,000
  242,025
  272,918
  305,635
  340,138
  376,397
  414,390
  454,108
  495,551
  538,731
  583,673
  630,414
  679,001
  729,495
  781,966
  836,497
Operating income, $m
  792
  1,556
  2,450
  3,612
  5,086
  6,912
  9,127
  11,762
  14,841
  18,384
  22,401
  27,433
  32,412
  37,868
  43,795
  50,182
  57,021
  64,299
  72,007
  80,136
  88,678
  97,630
  106,987
  116,751
  126,924
  137,512
  148,524
  159,971
  171,868
  184,230
  197,077
EBITDA, $m
  1,153
  2,252
  3,214
  4,465
  6,053
  8,019
  10,404
  13,241
  16,557
  20,371
  24,696
  29,539
  34,900
  40,775
  47,156
  54,034
  61,397
  69,234
  77,534
  86,287
  95,485
  105,123
  115,199
  125,712
  136,666
  148,067
  159,924
  172,250
  185,059
  198,370
  212,204
Interest expense (income), $m
  146
  144
  285
  473
  718
  1,028
  1,412
  1,878
  2,433
  3,081
  3,827
  4,672
  5,619
  6,666
  7,815
  9,062
  10,407
  11,846
  13,378
  15,000
  16,711
  18,509
  20,393
  22,362
  24,417
  26,558
  28,787
  31,104
  33,514
  36,017
  38,619
Earnings before tax, $m
  611
  1,412
  2,165
  3,139
  4,368
  5,884
  7,715
  9,884
  12,408
  15,303
  18,574
  22,761
  26,793
  31,202
  35,980
  41,120
  46,614
  52,453
  58,629
  65,136
  71,968
  79,121
  86,594
  94,389
  102,507
  110,954
  119,738
  128,867
  138,354
  148,212
  158,458
Tax expense, $m
  266
  381
  584
  848
  1,179
  1,589
  2,083
  2,669
  3,350
  4,132
  5,015
  6,146
  7,234
  8,424
  9,715
  11,102
  12,586
  14,162
  15,830
  17,587
  19,431
  21,363
  23,380
  25,485
  27,677
  29,958
  32,329
  34,794
  37,356
  40,017
  42,784
Net income, $m
  324
  1,031
  1,580
  2,291
  3,189
  4,296
  5,632
  7,215
  9,058
  11,171
  13,559
  16,616
  19,559
  22,777
  26,265
  30,018
  34,028
  38,291
  42,799
  47,549
  52,536
  57,758
  63,214
  68,904
  74,830
  80,996
  87,408
  94,073
  100,998
  108,195
  115,674

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  487
  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
  12,009
  16,928
  24,157
  33,564
  45,494
  60,275
  78,202
  99,526
  124,448
  153,116
  185,628
  222,028
  262,324
  306,483
  354,448
  406,146
  461,491
  520,396
  582,780
  648,570
  717,708
  790,154
  865,887
  944,910
  1,027,245
  1,112,940
  1,202,065
  1,294,710
  1,390,991
  1,491,042
  1,595,021
Adjusted assets (=assets-cash), $m
  11,522
  16,928
  24,157
  33,564
  45,494
  60,275
  78,202
  99,526
  124,448
  153,116
  185,628
  222,028
  262,324
  306,483
  354,448
  406,146
  461,491
  520,396
  582,780
  648,570
  717,708
  790,154
  865,887
  944,910
  1,027,245
  1,112,940
  1,202,065
  1,294,710
  1,390,991
  1,491,042
  1,595,021
Revenue / Adjusted assets
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
Average production assets, $m
  2,548
  3,740
  5,338
  7,417
  10,053
  13,319
  17,280
  21,992
  27,499
  33,834
  41,018
  49,061
  57,965
  67,723
  78,322
  89,745
  101,975
  114,991
  128,776
  143,313
  158,591
  174,599
  191,333
  208,795
  226,988
  245,924
  265,618
  286,089
  307,364
  329,473
  352,449
Working capital, $m
  643
  812
  1,158
  1,609
  2,182
  2,890
  3,750
  4,772
  5,968
  7,342
  8,901
  10,647
  12,579
  14,696
  16,997
  19,476
  22,129
  24,954
  27,945
  31,100
  34,416
  37,889
  41,521
  45,310
  49,258
  53,368
  57,641
  62,084
  66,701
  71,498
  76,484
Total debt, $m
  4,517
  8,141
  13,513
  20,502
  29,366
  40,349
  53,668
  69,512
  88,029
  109,330
  133,485
  160,531
  190,470
  223,281
  258,919
  297,331
  338,452
  382,219
  428,570
  477,452
  528,821
  582,648
  638,918
  697,632
  758,807
  822,479
  888,698
  957,534
  1,029,070
  1,103,409
  1,180,665
Total liabilities, $m
  8,953
  12,577
  17,949
  24,938
  33,802
  44,785
  58,104
  73,948
  92,465
  113,766
  137,921
  164,967
  194,906
  227,717
  263,355
  301,767
  342,888
  386,655
  433,006
  481,888
  533,257
  587,084
  643,354
  702,068
  763,243
  826,915
  893,134
  961,970
  1,033,506
  1,107,845
  1,185,101
Total equity, $m
  3,056
  4,350
  6,208
  8,626
  11,692
  15,491
  20,098
  25,578
  31,983
  39,351
  47,706
  57,061
  67,417
  78,766
  91,093
  104,380
  118,603
  133,742
  149,775
  166,683
  184,451
  203,070
  222,533
  242,842
  264,002
  286,026
  308,931
  332,740
  357,485
  383,198
  409,920
Total liabilities and equity, $m
  12,009
  16,927
  24,157
  33,564
  45,494
  60,276
  78,202
  99,526
  124,448
  153,117
  185,627
  222,028
  262,323
  306,483
  354,448
  406,147
  461,491
  520,397
  582,781
  648,571
  717,708
  790,154
  865,887
  944,910
  1,027,245
  1,112,941
  1,202,065
  1,294,710
  1,390,991
  1,491,043
  1,595,021
Debt-to-equity ratio
  1.478
  1.870
  2.180
  2.380
  2.510
  2.600
  2.670
  2.720
  2.750
  2.780
  2.800
  2.810
  2.830
  2.830
  2.840
  2.850
  2.850
  2.860
  2.860
  2.860
  2.870
  2.870
  2.870
  2.870
  2.870
  2.880
  2.880
  2.880
  2.880
  2.880
  2.880
Adjusted equity ratio
  0.224
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  324
  1,031
  1,580
  2,291
  3,189
  4,296
  5,632
  7,215
  9,058
  11,171
  13,559
  16,616
  19,559
  22,777
  26,265
  30,018
  34,028
  38,291
  42,799
  47,549
  52,536
  57,758
  63,214
  68,904
  74,830
  80,996
  87,408
  94,073
  100,998
  108,195
  115,674
Depreciation, amort., depletion, $m
  361
  696
  764
  854
  967
  1,107
  1,277
  1,479
  1,715
  1,987
  2,296
  2,106
  2,488
  2,907
  3,361
  3,852
  4,377
  4,935
  5,527
  6,151
  6,806
  7,494
  8,212
  8,961
  9,742
  10,555
  11,400
  12,279
  13,192
  14,140
  15,127
Funds from operations, $m
  1,048
  1,727
  2,345
  3,145
  4,156
  5,402
  6,909
  8,694
  10,774
  13,158
  15,855
  18,721
  22,047
  25,684
  29,627
  33,870
  38,405
  43,226
  48,326
  53,700
  59,343
  65,252
  71,426
  77,865
  84,572
  91,551
  98,808
  106,351
  114,190
  122,335
  130,801
Change in working capital, $m
  124
  259
  347
  451
  572
  709
  860
  1,023
  1,195
  1,375
  1,559
  1,745
  1,932
  2,118
  2,300
  2,479
  2,654
  2,825
  2,991
  3,155
  3,315
  3,474
  3,632
  3,789
  3,948
  4,109
  4,274
  4,443
  4,617
  4,798
  4,986
Cash from operations, $m
  924
  1,467
  1,998
  2,694
  3,583
  4,694
  6,049
  7,672
  9,578
  11,783
  14,296
  16,976
  20,115
  23,566
  27,327
  31,391
  35,751
  40,401
  45,335
  50,545
  56,027
  61,778
  67,794
  74,076
  80,624
  87,442
  94,535
  101,909
  109,573
  117,538
  125,815
Maintenance CAPEX, $m
  0
  -109
  -161
  -229
  -318
  -431
  -572
  -742
  -944
  -1,180
  -1,452
  -1,760
  -2,106
  -2,488
  -2,907
  -3,361
  -3,852
  -4,377
  -4,935
  -5,527
  -6,151
  -6,806
  -7,494
  -8,212
  -8,961
  -9,742
  -10,555
  -11,400
  -12,279
  -13,192
  -14,140
New CAPEX, $m
  -152
  -1,193
  -1,598
  -2,079
  -2,636
  -3,266
  -3,961
  -4,712
  -5,507
  -6,335
  -7,184
  -8,043
  -8,904
  -9,758
  -10,599
  -11,424
  -12,229
  -13,016
  -13,785
  -14,537
  -15,277
  -16,008
  -16,735
  -17,461
  -18,193
  -18,936
  -19,694
  -20,472
  -21,275
  -22,108
  -22,976
Cash from investing activities, $m
  -1
  -1,302
  -1,759
  -2,308
  -2,954
  -3,697
  -4,533
  -5,454
  -6,451
  -7,515
  -8,636
  -9,803
  -11,010
  -12,246
  -13,506
  -14,785
  -16,081
  -17,393
  -18,720
  -20,064
  -21,428
  -22,814
  -24,229
  -25,673
  -27,154
  -28,678
  -30,249
  -31,872
  -33,554
  -35,300
  -37,116
Free cash flow, $m
  923
  165
  240
  386
  629
  996
  1,516
  2,218
  3,128
  4,268
  5,660
  7,172
  9,105
  11,321
  13,821
  16,606
  19,670
  23,009
  26,615
  30,481
  34,599
  38,963
  43,566
  48,402
  53,469
  58,764
  64,286
  70,037
  76,020
  82,238
  88,698
Issuance/(repayment) of debt, $m
  -669
  4,021
  5,372
  6,989
  8,864
  10,983
  13,320
  15,844
  18,517
  21,301
  24,156
  27,046
  29,939
  32,810
  35,639
  38,411
  41,121
  43,767
  46,351
  48,882
  51,370
  53,827
  56,270
  58,714
  61,175
  63,671
  66,219
  68,836
  71,537
  74,338
  77,256
Issuance/(repurchase) of shares, $m
  44
  354
  278
  126
  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  
  -641
  4,375
  5,650
  7,115
  8,864
  10,983
  13,320
  15,844
  18,517
  21,301
  24,156
  27,046
  29,939
  32,810
  35,639
  38,411
  41,121
  43,767
  46,351
  48,882
  51,370
  53,827
  56,270
  58,714
  61,175
  63,671
  66,219
  68,836
  71,537
  74,338
  77,256
Total cash flow (excl. dividends), $m
  258
  4,540
  5,889
  7,501
  9,493
  11,979
  14,836
  18,062
  21,645
  25,569
  29,815
  34,218
  39,045
  44,131
  49,460
  55,017
  60,791
  66,775
  72,966
  79,363
  85,969
  92,790
  99,836
  107,116
  114,644
  122,435
  130,506
  138,873
  147,556
  156,576
  165,954
Retained Cash Flow (-), $m
  341
  -1,384
  -1,858
  -2,417
  -3,066
  -3,799
  -4,607
  -5,480
  -6,405
  -7,368
  -8,355
  -9,355
  -10,356
  -11,349
  -12,327
  -13,286
  -14,224
  -15,139
  -16,033
  -16,908
  -17,768
  -18,619
  -19,464
  -20,309
  -21,160
  -22,024
  -22,905
  -23,810
  -24,744
  -25,713
  -26,722
Prev. year cash balance distribution, $m
 
  90
  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
 
  3,245
  4,031
  5,084
  6,427
  8,180
  10,229
  12,581
  15,240
  18,201
  21,460
  24,863
  28,689
  32,782
  37,133
  41,731
  46,567
  51,637
  56,933
  62,455
  68,200
  74,172
  80,372
  86,807
  93,484
  100,412
  107,601
  115,063
  122,812
  130,863
  139,232
Discount rate, %
 
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
 
  2,997
  3,411
  3,909
  4,453
  5,059
  5,591
  6,013
  6,298
  6,427
  6,392
  6,163
  5,833
  5,385
  4,849
  4,259
  3,647
  3,045
  2,477
  1,963
  1,513
  1,135
  827
  585
  402
  267
  172
  107
  64
  37
  21
Current shareholders' claim on cash, %
  100
  97.5
  96.2
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7
  95.7

Harris Corporation provides technology-based solutions that solve government and commercial customersÂ’ mission-critical challenges. The company operates in four segments: Communication Systems, Space and Intelligence Systems, Electronic Systems, and Critical Networks. It designs, develops, and manufactures radio communications products and systems, including single channel ground and airborne radio systems, 2-channel vehicular radio systems, multiband manpack and handheld radios, multi-channel manpack and airborne radios, and single-channel airborne radios, as well as wideband rifleman team, ground, and high frequency manpack radios. The company also offers secure communications systems and equipment, including Internet protocol based voice and data communications systems, as well as single-band land mobile radio terminals and multiband radios comprising a handheld radio and a full-spectrum mobile radio for vehicles. In addition, it provides earth observation, environmental, geospatial, space protection, and intelligence solutions, such as sensors and payloads, as well as ground processing and information analytics for security, defense, civil, and commercial customers; and positioning, navigation, and timing products, systems, and solutions. Further, the company offers electronic warfare, avionics, wireless technology, command, control, communications, computers and intelligence, and undersea systems solutions for aviation, defense, and maritime applications. Additionally, it provides managed services that support air traffic management, energy and maritime communications, and ground network operation and sustainment; and information technology and engineering services to government and commercial customers. The company has a collaboration with Boeing for the development of avionics technology for military aircraft. The company was founded in 1895 and is headquartered in Melbourne, Florida.

FINANCIAL RATIOS  of  Harris Corp. (HRS)

Valuation Ratios
P/E Ratio 44.3
Price to Sales 1.9
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 15.5
Price to Free Cash Flow 18.6
Growth Rates
Sales Growth Rate 46.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.7%
Cap. Spend. - 3 Yr. Gr. Rate -3.1%
Financial Strength
Quick Ratio 1
Current Ratio 0.3
LT Debt to Equity 134.8%
Total Debt to Equity 147.8%
Interest Coverage 5
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 6.6%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. 8.5%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 18.1%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 31.3%
Gross Margin - 3 Yr. Avg. 33%
EBITDA Margin 15%
EBITDA Margin - 3 Yr. Avg. 17.6%
Operating Margin 10.6%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 8.2%
Pre-Tax Margin - 3 Yr. Avg. 11.1%
Net Profit Margin 4.3%
Net Profit Margin - 3 Yr. Avg. 7.2%
Effective Tax Rate 43.5%
Eff/ Tax Rate - 3 Yr. Avg. 35.2%
Payout Ratio 77.8%

HRS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HRS stock intrinsic value calculation we used $7467 million for the last fiscal year's total revenue generated by Harris Corp.. The default revenue input number comes from 2016 income statement of Harris Corp.. 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 HRS stock valuation model: a) initial revenue growth rate of 46.9% 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 8.3%, whose default value for HRS is calculated based on our internal credit rating of Harris Corp., 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 Harris Corp..
    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 HRS stock the variable cost ratio is equal to 88.1%.

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 HRS 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 Harris Corp..

Corporate tax rate of 27% is the nominal tax rate for Harris Corp.. 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 HRS 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 HRS are equal to 34.1%.

Life of production assets of 23.3 years is the average useful life of capital assets used in Harris Corp. 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 HRS is equal to 7.4%. 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 - $3056 million for Harris Corp. - 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 122.802 million for Harris Corp. 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 Harris Corp. at the current share price and the inputted number of shares is $14.2 billion.

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COMPANY NEWS

▶ Harris Corp. Value Analysis (NYSE:HRS) : June 29, 2017   [Jun-29-17 03:39PM  Capital Cube]
▶ Harris IT spinoff names three executives   [Jun-20-17 02:45PM  American City Business Journals]
▶ ETFs with exposure to Harris Corp. : June 15, 2017   [Jun-15-17 02:12PM  Capital Cube]
▶ Rochester-based firm awarded $255M Pentagon radio contract   [Jun-13-17 07:22AM  Associated Press]
▶ Industry vet named CEO of Harris IT spinoff   [Jun-06-17 09:20AM  American City Business Journals]
▶ ETFs with exposure to Harris Corp. : May 31, 2017   [May-31-17 12:35PM  Capital Cube]
▶ ETFs with exposure to Harris Corp. : May 19, 2017   [May-19-17 01:57PM  Capital Cube]
▶ Harris tops Street 3Q forecasts   [06:40AM  Associated Press]
▶ Harris Corp. Value Analysis (NYSE:HRS) : April 20, 2017   [Apr-20-17 03:03PM  Capital Cube]
▶ Manufacturing Giants Back US Tax Reforms   [Mar-15-17 12:16PM  Investopedia]
▶ Harris Corporation Declares Quarterly Dividend   [Mar-03-17 01:47PM  Business Wire]
▶ Harris quiets speculation, sheds Herndon government IT division   [Jan-27-17 02:33PM  at bizjournals.com]
Stock chart of HRS Financial statements of HRS Annual reports of HRS
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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