Intrinsic value of KEYW Holding - KEYW

Previous Close

$7.64

  Intrinsic Value

$7.19

stock screener

  Rating & Target

hold

-6%

  Value-price divergence*

-45%

Previous close

$7.64

 
Intrinsic value

$7.19

 
Up/down potential

-6%

 
Rating

hold

 
Value-price divergence*

-45%

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

We calculate the intrinsic value of KEYW 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, %
  -3.36
  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
  288
  294
  301
  308
  317
  327
  337
  349
  361
  374
  389
  404
  420
  438
  457
  476
  497
  519
  543
  567
  593
  621
  650
  680
  713
  746
  782
  820
  859
  901
  945
Variable operating expenses, $m
 
  234
  239
  244
  250
  257
  264
  272
  281
  290
  300
  282
  293
  306
  319
  332
  347
  362
  379
  396
  414
  433
  454
  475
  497
  521
  546
  572
  600
  629
  659
Fixed operating expenses, $m
 
  46
  47
  48
  50
  51
  52
  53
  55
  56
  58
  59
  61
  62
  64
  65
  67
  68
  70
  72
  74
  76
  77
  79
  81
  83
  86
  88
  90
  92
  94
Total operating expenses, $m
  274
  280
  286
  292
  300
  308
  316
  325
  336
  346
  358
  341
  354
  368
  383
  397
  414
  430
  449
  468
  488
  509
  531
  554
  578
  604
  632
  660
  690
  721
  753
Operating income, $m
  14
  14
  14
  16
  17
  19
  21
  23
  25
  28
  31
  63
  66
  70
  74
  79
  83
  88
  94
  99
  105
  112
  119
  126
  134
  142
  151
  160
  170
  180
  191
EBITDA, $m
  28
  44
  45
  47
  48
  50
  52
  54
  57
  59
  62
  66
  69
  73
  77
  82
  87
  92
  97
  103
  109
  116
  123
  130
  138
  147
  156
  165
  175
  186
  197
Interest expense (income), $m
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
Earnings before tax, $m
  4
  9
  10
  11
  12
  13
  15
  17
  19
  21
  24
  56
  59
  62
  66
  70
  74
  78
  83
  88
  94
  99
  106
  112
  119
  126
  134
  143
  151
  161
  171
Tax expense, $m
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  39
  41
  43
  46
Net income, $m
  -26
  6
  7
  8
  9
  10
  11
  12
  14
  16
  17
  41
  43
  45
  48
  51
  54
  57
  61
  64
  68
  73
  77
  82
  87
  92
  98
  104
  111
  117
  125

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  42
  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
  445
  411
  420
  431
  443
  457
  471
  487
  505
  524
  544
  565
  588
  613
  638
  666
  695
  726
  759
  793
  830
  868
  909
  952
  997
  1,044
  1,094
  1,147
  1,202
  1,260
  1,321
Adjusted assets (=assets-cash), $m
  403
  411
  420
  431
  443
  457
  471
  487
  505
  524
  544
  565
  588
  613
  638
  666
  695
  726
  759
  793
  830
  868
  909
  952
  997
  1,044
  1,094
  1,147
  1,202
  1,260
  1,321
Revenue / Adjusted assets
  0.715
  0.715
  0.717
  0.715
  0.716
  0.716
  0.715
  0.717
  0.715
  0.714
  0.715
  0.715
  0.714
  0.715
  0.716
  0.715
  0.715
  0.715
  0.715
  0.715
  0.714
  0.715
  0.715
  0.714
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
Average production assets, $m
  45
  46
  47
  48
  49
  51
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  101
  105
  110
  116
  121
  127
  133
  140
  146
Working capital, $m
  67
  26
  26
  27
  28
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  71
  75
  78
  82
Total debt, $m
  132
  136
  141
  147
  153
  160
  168
  176
  186
  195
  206
  217
  229
  242
  256
  270
  286
  302
  319
  337
  356
  377
  398
  420
  444
  469
  495
  523
  552
  583
  615
Total liabilities, $m
  213
  216
  221
  227
  233
  240
  248
  256
  266
  275
  286
  297
  309
  322
  336
  350
  366
  382
  399
  417
  436
  457
  478
  500
  524
  549
  575
  603
  632
  663
  695
Total equity, $m
  233
  195
  199
  204
  210
  216
  223
  231
  239
  248
  258
  268
  279
  290
  303
  316
  330
  344
  360
  376
  393
  412
  431
  451
  472
  495
  519
  543
  570
  597
  626
Total liabilities and equity, $m
  446
  411
  420
  431
  443
  456
  471
  487
  505
  523
  544
  565
  588
  612
  639
  666
  696
  726
  759
  793
  829
  869
  909
  951
  996
  1,044
  1,094
  1,146
  1,202
  1,260
  1,321
Debt-to-equity ratio
  0.567
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.920
  0.930
  0.940
  0.950
  0.960
  0.960
  0.970
  0.980
  0.980
Adjusted equity ratio
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -26
  6
  7
  8
  9
  10
  11
  12
  14
  16
  17
  41
  43
  45
  48
  51
  54
  57
  61
  64
  68
  73
  77
  82
  87
  92
  98
  104
  111
  117
  125
Depreciation, amort., depletion, $m
  14
  31
  31
  31
  31
  31
  31
  31
  31
  31
  32
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
Funds from operations, $m
  39
  37
  38
  39
  40
  41
  42
  44
  45
  47
  49
  43
  46
  48
  51
  54
  57
  61
  64
  68
  72
  77
  81
  86
  92
  97
  103
  109
  116
  123
  131
Change in working capital, $m
  16
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
Cash from operations, $m
  23
  37
  37
  38
  39
  40
  41
  43
  44
  46
  48
  42
  44
  47
  49
  52
  55
  59
  62
  66
  70
  74
  79
  84
  89
  94
  100
  106
  113
  119
  127
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
New CAPEX, $m
  -18
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
Cash from investing activities, $m
  -5
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -11
  -12
  -13
Free cash flow, $m
  18
  34
  35
  35
  36
  37
  38
  39
  40
  41
  43
  37
  39
  41
  44
  46
  49
  52
  55
  59
  62
  66
  70
  75
  79
  84
  90
  95
  101
  108
  114
Issuance/(repayment) of debt, $m
  0
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  2
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
Total cash flow (excl. dividends), $m
  21
  38
  40
  41
  42
  44
  45
  47
  49
  51
  54
  48
  51
  54
  57
  61
  64
  68
  72
  77
  81
  86
  92
  97
  103
  109
  116
  123
  130
  138
  146
Retained Cash Flow (-), $m
  19
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
Prev. year cash balance distribution, $m
 
  42
  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
 
  76
  35
  36
  36
  37
  38
  39
  41
  42
  44
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
  68
  72
  77
  82
  87
  92
  98
  104
  111
  117
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  71
  30
  28
  27
  25
  23
  21
  19
  18
  16
  12
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
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
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The KEYW Holding Corporation, through its subsidiaries, provides mission-critical cybersecurity, cyber superiority, and geospatial intelligence solutions in the United States. It operates in two segments, Government Solutions and Commercial Cyber Solutions. The company offers solutions, services, and products to support the intelligence process, including the collection, processing, analysis, and dissemination of intelligence information in the domains of cyberspace and geospace, as well as the protection of networks and related infrastructure. Its solutions are designed to respond to meet the critical needs for agile intelligence in the cyber age and to assist the U.S. government in national security priorities. The company offers engineering services, cybersecurity and analytic products, and fully integrated platforms that support the entire intelligence process, such as collection, processing, analysis, and impact. It serves the U.S. Government defense, intelligence, and national security agencies, as well as commercial enterprises. The company was founded in 2008 and is headquartered in Hanover, Maryland.

FINANCIAL RATIOS  of  KEYW Holding (KEYW)

Valuation Ratios
P/E Ratio -12
Price to Sales 1.1
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 13.6
Price to Free Cash Flow 62.6
Growth Rates
Sales Growth Rate -3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.6%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 56.7%
Total Debt to Equity 56.7%
Interest Coverage 2
Management Effectiveness
Return On Assets -5.3%
Ret/ On Assets - 3 Yr. Avg. -8.4%
Return On Total Capital -7%
Ret/ On T. Cap. - 3 Yr. Avg. -8.4%
Return On Equity -10.7%
Return On Equity - 3 Yr. Avg. -12.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 31.6%
Gross Margin - 3 Yr. Avg. 30.9%
EBITDA Margin 7.6%
EBITDA Margin - 3 Yr. Avg. 9.7%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 5.6%
Pre-Tax Margin 1.4%
Pre-Tax Margin - 3 Yr. Avg. 2.3%
Net Profit Margin -9%
Net Profit Margin - 3 Yr. Avg. -11.3%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 226.7%
Payout Ratio 0%

KEYW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KEYW stock intrinsic value calculation we used $288 million for the last fiscal year's total revenue generated by KEYW Holding. The default revenue input number comes from 2016 income statement of KEYW Holding. 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 KEYW 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 7%, whose default value for KEYW is calculated based on our internal credit rating of KEYW Holding, 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 KEYW Holding.
    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 KEYW stock the variable cost ratio is equal to 79.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $45 million in the base year in the intrinsic value calculation for KEYW 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 KEYW Holding.

Corporate tax rate of 27% is the nominal tax rate for KEYW Holding. 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 KEYW 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 KEYW are equal to 15.5%.

Life of production assets of 24.2 years is the average useful life of capital assets used in KEYW Holding 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 KEYW is equal to 8.7%. 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 - $233 million for KEYW Holding - 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 48.811 million for KEYW Holding 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 KEYW Holding at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ KEYW reports 2Q loss   [Aug-09-17 10:39PM  Associated Press]
▶ KeyW Schedules Q2 2017 Financial Results Conference Call   [Jul-07-17 09:15AM  GlobeNewswire]
▶ KeyW Wins Aviation Collection Services Contract   [Jun-23-17 09:15AM  GlobeNewswire]
▶ KeyW Achieves ISO 9001:2015 Quality Certification   [May-17-17 02:00PM  GlobeNewswire]
▶ KeyW Announces Changes to Executive Leadership Team   [May-10-17 04:05PM  GlobeNewswire]
▶ KEYW reports 1Q loss   [May-03-17 07:45PM  Associated Press]
▶ KeyW Completes Acquisition of Sotera Defense Solutions   [Apr-04-17 04:15PM  GlobeNewswire]
▶ KeyW Launches Mobile Persistent Cyber Training Environment   [Mar-22-17 04:15PM  GlobeNewswire]
▶ KEYW reports 4Q loss   [Mar-08-17 06:14PM  Associated Press]
▶ [$$] KeyW to Buy Ares-Backed Sotera Defense   [06:08PM  at The Wall Street Journal]
▶ Why KEYW Holding Corp. Shares Plunged Today   [Jan-27-17 12:33PM  at Motley Fool]
▶ KeyW Announces Public Offering of Common Stock   [Jan-26-17 05:06PM  GlobeNewswire]
▶ Is KEYW Holding Corp. (KEYW) A Good Stock To Buy?   [Dec-12-16 11:17AM  at Insider Monkey]
▶ Why Shares of KEYW Holding Corp. Popped 11% in September   [Oct-05-16 09:46AM  at Motley Fool]
▶ Baron Funds Comments on The KEYW Holding Corp   [Aug-10-16 03:46PM  Gurufocus]
▶ KEYW Schedules Q2 2016 Financial Results Conference Call   [Jul-13-16 04:15PM  GlobeNewswire]
Stock chart of KEYW Financial statements of KEYW
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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