Intrinsic value of Harris Corp. - HRS

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$110.27

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$110.27

 
Intrinsic value

$748.78

 
Up/down potential

+579%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 13.7

 

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
 
  9,390
  13,151
  18,044
  24,251
  31,940
  41,266
  52,359
  65,324
  80,238
  97,150
  115,503
  136,465
  159,437
  184,390
  211,284
  240,075
  270,719
  303,172
  337,397
  373,363
  411,051
  450,449
  491,557
  534,390
  578,970
  625,333
  673,529
  723,616
  775,664
  829,756
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
  9,390
  13,151
  18,044
  24,251
  31,940
  41,266
  52,359
  65,324
  80,238
  97,150
  115,503
  136,465
  159,437
  184,390
  211,284
  240,075
  270,719
  303,172
  337,397
  373,363
  411,051
  450,449
  491,557
  534,390
  578,970
  625,333
  673,529
  723,616
  775,664
  829,756
Operating income, $m
  792
  1,579
  2,503
  3,705
  5,230
  7,118
  9,409
  12,134
  15,319
  18,982
  23,136
  28,372
  33,521
  39,164
  45,293
  51,899
  58,971
  66,498
  74,470
  82,877
  91,712
  100,969
  110,646
  120,744
  131,265
  142,216
  153,605
  165,443
  177,746
  190,531
  203,818
EBITDA, $m
  1,153
  2,326
  3,319
  4,612
  6,251
  8,282
  10,745
  13,675
  17,099
  21,038
  25,505
  30,506
  36,043
  42,110
  48,700
  55,804
  63,408
  71,501
  80,073
  89,112
  98,611
  108,565
  118,971
  129,828
  141,141
  152,915
  165,161
  177,890
  191,119
  204,866
  219,152
Interest expense (income), $m
  146
  144
  284
  472
  716
  1,025
  1,408
  1,873
  2,426
  3,072
  3,816
  4,659
  5,602
  6,647
  7,792
  9,036
  10,377
  11,812
  13,339
  14,957
  16,663
  18,455
  20,334
  22,298
  24,347
  26,482
  28,704
  31,015
  33,417
  35,914
  38,508
Earnings before tax, $m
  611
  1,435
  2,219
  3,233
  4,514
  6,093
  8,001
  10,261
  12,893
  15,910
  19,321
  23,713
  27,918
  32,516
  37,500
  42,863
  48,594
  54,687
  61,131
  67,920
  75,049
  82,514
  90,313
  98,447
  106,919
  115,734
  124,901
  134,428
  144,329
  154,618
  165,310
Tax expense, $m
  266
  387
  599
  873
  1,219
  1,645
  2,160
  2,770
  3,481
  4,296
  5,217
  6,403
  7,538
  8,779
  10,125
  11,573
  13,121
  14,765
  16,505
  18,338
  20,263
  22,279
  24,384
  26,581
  28,868
  31,248
  33,723
  36,296
  38,969
  41,747
  44,634
Net income, $m
  324
  1,048
  1,620
  2,360
  3,295
  4,448
  5,841
  7,490
  9,412
  11,614
  14,104
  17,311
  20,380
  23,737
  27,375
  31,290
  35,474
  39,921
  44,625
  49,582
  54,786
  60,235
  65,928
  71,866
  78,051
  84,486
  91,178
  98,133
  105,360
  112,871
  120,676

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
  11,993
  16,901
  24,120
  33,512
  45,424
  60,183
  78,082
  99,373
  124,256
  152,881
  185,342
  221,686
  261,919
  306,010
  353,902
  405,520
  460,780
  519,595
  581,882
  647,571
  716,602
  788,936
  864,553
  943,454
  1,025,663
  1,111,226
  1,200,212
  1,292,715
  1,388,848
  1,488,745
  1,592,563
Adjusted assets (=assets-cash), $m
  11,506
  16,901
  24,120
  33,512
  45,424
  60,183
  78,082
  99,373
  124,256
  152,881
  185,342
  221,686
  261,919
  306,010
  353,902
  405,520
  460,780
  519,595
  581,882
  647,571
  716,602
  788,936
  864,553
  943,454
  1,025,663
  1,111,226
  1,200,212
  1,292,715
  1,388,848
  1,488,745
  1,592,563
Revenue / Adjusted assets
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
Average production assets, $m
  2,701
  3,971
  5,667
  7,873
  10,672
  14,139
  18,344
  23,346
  29,192
  35,917
  43,544
  52,083
  61,535
  71,893
  83,145
  95,272
  108,255
  122,073
  136,706
  152,139
  168,357
  185,351
  203,116
  221,653
  240,967
  261,069
  281,976
  303,708
  326,293
  349,763
  374,154
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
  8,121
  13,477
  20,446
  29,285
  40,235
  53,517
  69,314
  87,778
  109,017
  133,103
  160,071
  189,924
  222,640
  258,176
  296,476
  337,479
  381,119
  427,337
  476,077
  527,299
  580,971
  637,079
  695,623
  756,622
  820,109
  886,138
  954,775
  1,026,105
  1,100,229
  1,177,262
Total liabilities, $m
  8,937
  12,541
  17,897
  24,866
  33,705
  44,655
  57,937
  73,734
  92,198
  113,437
  137,523
  164,491
  194,344
  227,060
  262,596
  300,896
  341,899
  385,539
  431,757
  480,497
  531,719
  585,391
  641,499
  700,043
  761,042
  824,529
  890,558
  959,195
  1,030,525
  1,104,649
  1,181,682
Total equity, $m
  3,056
  4,361
  6,223
  8,646
  11,719
  15,527
  20,145
  25,638
  32,058
  39,443
  47,818
  57,195
  67,575
  78,951
  91,307
  104,624
  118,881
  134,055
  150,126
  167,073
  184,883
  203,546
  223,055
  243,411
  264,621
  286,696
  309,655
  333,521
  358,323
  384,096
  410,881
Total liabilities and equity, $m
  11,993
  16,902
  24,120
  33,512
  45,424
  60,182
  78,082
  99,372
  124,256
  152,880
  185,341
  221,686
  261,919
  306,011
  353,903
  405,520
  460,780
  519,594
  581,883
  647,570
  716,602
  788,937
  864,554
  943,454
  1,025,663
  1,111,225
  1,200,213
  1,292,716
  1,388,848
  1,488,745
  1,592,563
Debt-to-equity ratio
  1.478
  1.860
  2.170
  2.360
  2.500
  2.590
  2.660
  2.700
  2.740
  2.760
  2.780
  2.800
  2.810
  2.820
  2.830
  2.830
  2.840
  2.840
  2.850
  2.850
  2.850
  2.850
  2.860
  2.860
  2.860
  2.860
  2.860
  2.860
  2.860
  2.860
  2.870
Adjusted equity ratio
  0.225
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  324
  1,048
  1,620
  2,360
  3,295
  4,448
  5,841
  7,490
  9,412
  11,614
  14,104
  17,311
  20,380
  23,737
  27,375
  31,290
  35,474
  39,921
  44,625
  49,582
  54,786
  60,235
  65,928
  71,866
  78,051
  84,486
  91,178
  98,133
  105,360
  112,871
  120,676
Depreciation, amort., depletion, $m
  361
  747
  816
  907
  1,021
  1,163
  1,336
  1,541
  1,780
  2,056
  2,368
  2,135
  2,522
  2,946
  3,408
  3,905
  4,437
  5,003
  5,603
  6,235
  6,900
  7,596
  8,324
  9,084
  9,876
  10,700
  11,556
  12,447
  13,373
  14,335
  15,334
Funds from operations, $m
  1,048
  1,794
  2,436
  3,267
  4,316
  5,612
  7,176
  9,031
  11,192
  13,670
  16,473
  19,445
  22,902
  26,683
  30,783
  35,194
  39,911
  44,924
  50,228
  55,817
  61,686
  67,831
  74,253
  80,950
  87,926
  95,185
  102,734
  110,580
  118,733
  127,205
  136,010
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
  1,296
  2,089
  2,816
  3,744
  4,903
  6,317
  8,009
  9,997
  12,295
  14,914
  17,700
  20,970
  24,566
  28,483
  32,715
  37,257
  42,100
  47,237
  52,662
  58,370
  64,357
  70,621
  77,161
  83,978
  91,076
  98,460
  106,137
  114,116
  122,408
  131,024
Maintenance CAPEX, $m
  0
  -111
  -163
  -232
  -323
  -437
  -579
  -752
  -957
  -1,196
  -1,472
  -1,785
  -2,135
  -2,522
  -2,946
  -3,408
  -3,905
  -4,437
  -5,003
  -5,603
  -6,235
  -6,900
  -7,596
  -8,324
  -9,084
  -9,876
  -10,700
  -11,556
  -12,447
  -13,373
  -14,335
New CAPEX, $m
  -152
  -1,270
  -1,696
  -2,207
  -2,799
  -3,467
  -4,205
  -5,002
  -5,846
  -6,725
  -7,626
  -8,539
  -9,452
  -10,359
  -11,252
  -12,127
  -12,983
  -13,818
  -14,634
  -15,433
  -16,218
  -16,994
  -17,765
  -18,537
  -19,314
  -20,102
  -20,906
  -21,732
  -22,585
  -23,470
  -24,391
Cash from investing activities, $m
  -1
  -1,381
  -1,859
  -2,439
  -3,122
  -3,904
  -4,784
  -5,754
  -6,803
  -7,921
  -9,098
  -10,324
  -11,587
  -12,881
  -14,198
  -15,535
  -16,888
  -18,255
  -19,637
  -21,036
  -22,453
  -23,894
  -25,361
  -26,861
  -28,398
  -29,978
  -31,606
  -33,288
  -35,032
  -36,843
  -38,726
Free cash flow, $m
  923
  -85
  231
  377
  623
  998
  1,532
  2,255
  3,194
  4,374
  5,815
  7,376
  9,383
  11,685
  14,285
  17,181
  20,370
  23,845
  27,600
  31,627
  35,917
  40,463
  45,259
  50,300
  55,580
  61,099
  66,854
  72,848
  79,084
  85,565
  92,299
Issuance/(repayment) of debt, $m
  -669
  4,001
  5,356
  6,969
  8,839
  10,951
  13,281
  15,798
  18,464
  21,239
  24,086
  26,968
  29,853
  32,716
  35,536
  38,301
  41,003
  43,640
  46,217
  48,741
  51,221
  53,672
  56,108
  58,544
  60,999
  63,488
  66,028
  68,637
  71,330
  74,124
  77,033
Issuance/(repurchase) of shares, $m
  44
  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  
  -641
  4,001
  5,356
  6,969
  8,839
  10,951
  13,281
  15,798
  18,464
  21,239
  24,086
  26,968
  29,853
  32,716
  35,536
  38,301
  41,003
  43,640
  46,217
  48,741
  51,221
  53,672
  56,108
  58,544
  60,999
  63,488
  66,028
  68,637
  71,330
  74,124
  77,033
Total cash flow (excl. dividends), $m
  258
  3,915
  5,587
  7,346
  9,462
  11,949
  14,813
  18,053
  21,657
  25,613
  29,901
  34,344
  39,236
  44,401
  49,821
  55,481
  61,372
  67,486
  73,817
  80,367
  87,138
  94,135
  101,367
  108,844
  116,579
  124,586
  132,883
  141,485
  150,414
  159,689
  169,332
Retained Cash Flow (-), $m
  341
  -1,395
  -1,862
  -2,423
  -3,073
  -3,808
  -4,618
  -5,493
  -6,420
  -7,385
  -8,375
  -9,377
  -10,380
  -11,375
  -12,356
  -13,317
  -14,257
  -15,174
  -16,070
  -16,948
  -17,810
  -18,662
  -19,509
  -20,356
  -21,210
  -22,075
  -22,959
  -23,866
  -24,802
  -25,774
  -26,785
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
 
  2,611
  3,724
  4,923
  6,388
  8,141
  10,195
  12,560
  15,238
  18,228
  21,526
  24,967
  28,856
  33,025
  37,464
  42,164
  47,115
  52,311
  57,747
  63,420
  69,328
  75,473
  81,858
  88,488
  95,369
  102,511
  109,924
  117,620
  125,612
  133,916
  142,547
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
 
  2,411
  3,151
  3,786
  4,426
  5,035
  5,572
  6,003
  6,297
  6,436
  6,411
  6,188
  5,867
  5,425
  4,893
  4,303
  3,690
  3,085
  2,513
  1,993
  1,538
  1,155
  842
  597
  410
  273
  175
  109
  66
  38
  21
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
  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

Harris Corporation provides technology-based solutions that solve government and commercial customersĀ’ 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 42.4
Price to Sales 1.8
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 17.8
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 0.1
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 36.2%.

Life of production assets of 24.4 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 123.843 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 $13.7 billion.


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COMPANY NEWS

▶ 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]
▶ 5 largest Central Florida defense contracts in 2016   [Dec-20-16 04:25PM  at bizjournals.com]
▶ Should You Follow the Smart Money Away From Hasbro, Inc. (HAS)?   [Nov-30-16 03:43PM  at Insider Monkey]
▶ Harris Corp. on the hunt for 200-plus new workers   [Nov-07-16 05:00PM  at bizjournals.com]
Stock chart of HRS Financial statements of HRS
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