Intrinsic value of KVH Industries - KVHI

Previous Close

$10.40

  Intrinsic Value

$3.56

stock screener

  Rating & Target

str. sell

-66%

Previous close

$10.40

 
Intrinsic value

$3.56

 
Up/down potential

-66%

 
Rating

str. sell

We calculate the intrinsic value of KVHI 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 0.2

 

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, %
  -4.86
  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
  176
  180
  184
  188
  194
  200
  206
  213
  221
  229
  238
  247
  257
  268
  279
  291
  304
  317
  332
  347
  363
  379
  397
  416
  435
  456
  478
  501
  525
  551
  577
Variable operating expenses, $m
 
  79
  81
  83
  85
  88
  91
  94
  97
  100
  104
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  169
  177
  185
  194
  203
  213
  223
  234
  246
Fixed operating expenses, $m
 
  104
  106
  109
  111
  114
  117
  120
  123
  126
  129
  133
  136
  139
  143
  146
  150
  154
  158
  161
  166
  170
  174
  178
  183
  187
  192
  197
  202
  207
  212
Total operating expenses, $m
  177
  183
  187
  192
  196
  202
  208
  214
  220
  226
  233
  238
  245
  253
  262
  270
  279
  289
  299
  308
  320
  331
  343
  355
  368
  381
  395
  410
  425
  441
  458
Operating income, $m
  -1
  -3
  -4
  -4
  -3
  -3
  -2
  -1
  1
  2
  4
  9
  12
  15
  18
  21
  25
  29
  33
  38
  43
  48
  54
  61
  68
  75
  83
  91
  100
  110
  120
EBITDA, $m
  12
  8
  8
  8
  9
  10
  11
  12
  14
  16
  18
  21
  24
  27
  31
  35
  39
  44
  49
  54
  60
  66
  73
  80
  88
  96
  105
  115
  125
  136
  147
Interest expense (income), $m
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
Earnings before tax, $m
  -2
  -5
  -5
  -6
  -5
  -5
  -4
  -3
  -2
  0
  1
  7
  9
  11
  14
  17
  21
  25
  29
  33
  38
  43
  49
  55
  62
  69
  76
  84
  93
  102
  112
Tax expense, $m
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  2
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  28
  30
Net income, $m
  -8
  -5
  -5
  -6
  -5
  -5
  -4
  -3
  -2
  0
  1
  5
  6
  8
  10
  13
  15
  18
  21
  24
  28
  32
  36
  40
  45
  50
  56
  62
  68
  74
  82

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  52
  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
  200
  151
  154
  158
  163
  168
  173
  179
  186
  192
  200
  208
  216
  225
  235
  245
  255
  267
  279
  292
  305
  319
  334
  350
  366
  384
  402
  421
  442
  463
  486
Adjusted assets (=assets-cash), $m
  148
  151
  154
  158
  163
  168
  173
  179
  186
  192
  200
  208
  216
  225
  235
  245
  255
  267
  279
  292
  305
  319
  334
  350
  366
  384
  402
  421
  442
  463
  486
Revenue / Adjusted assets
  1.189
  1.192
  1.195
  1.190
  1.190
  1.190
  1.191
  1.190
  1.188
  1.193
  1.190
  1.188
  1.190
  1.191
  1.187
  1.188
  1.192
  1.187
  1.190
  1.188
  1.190
  1.188
  1.189
  1.189
  1.189
  1.188
  1.189
  1.190
  1.188
  1.190
  1.187
Average production assets, $m
  61
  62
  63
  65
  67
  69
  71
  73
  76
  79
  82
  85
  88
  92
  96
  100
  104
  109
  114
  119
  125
  130
  137
  143
  150
  157
  164
  172
  181
  189
  199
Working capital, $m
  69
  25
  26
  27
  28
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
Total debt, $m
  58
  52
  54
  56
  58
  61
  64
  68
  71
  75
  80
  84
  89
  94
  100
  105
  112
  118
  125
  132
  140
  148
  157
  166
  175
  185
  196
  207
  219
  231
  244
Total liabilities, $m
  93
  87
  89
  91
  93
  96
  99
  103
  106
  110
  115
  119
  124
  129
  135
  140
  147
  153
  160
  167
  175
  183
  192
  201
  210
  220
  231
  242
  254
  266
  279
Total equity, $m
  107
  64
  66
  67
  69
  71
  74
  76
  79
  82
  85
  88
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  207
Total liabilities and equity, $m
  200
  151
  155
  158
  162
  167
  173
  179
  185
  192
  200
  207
  216
  225
  235
  244
  256
  267
  279
  291
  305
  319
  334
  350
  366
  383
  402
  421
  442
  463
  486
Debt-to-equity ratio
  0.542
  0.800
  0.820
  0.830
  0.840
  0.860
  0.870
  0.890
  0.900
  0.920
  0.940
  0.950
  0.970
  0.980
  1.000
  1.010
  1.030
  1.040
  1.050
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
Adjusted equity ratio
  0.372
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8
  -5
  -5
  -6
  -5
  -5
  -4
  -3
  -2
  0
  1
  5
  6
  8
  10
  13
  15
  18
  21
  24
  28
  32
  36
  40
  45
  50
  56
  62
  68
  74
  82
Depreciation, amort., depletion, $m
  13
  12
  12
  12
  12
  13
  13
  13
  13
  14
  14
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  21
  23
  24
  25
  26
  27
Funds from operations, $m
  24
  6
  6
  6
  7
  8
  9
  10
  12
  14
  15
  16
  19
  21
  24
  26
  30
  33
  37
  41
  45
  50
  55
  60
  66
  72
  78
  85
  93
  100
  109
Change in working capital, $m
  5
  0
  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
  19
  6
  6
  6
  6
  7
  8
  9
  11
  12
  14
  15
  17
  19
  22
  25
  28
  31
  35
  39
  43
  47
  52
  57
  63
  69
  75
  82
  89
  97
  105
Maintenance CAPEX, $m
  0
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -23
  -24
  -25
  -26
New CAPEX, $m
  -6
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -9
  -9
  -9
  -11
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
Free cash flow, $m
  10
  -4
  -4
  -4
  -4
  -4
  -4
  -3
  -2
  -1
  0
  1
  2
  4
  5
  7
  10
  12
  15
  18
  21
  24
  28
  32
  36
  41
  46
  51
  57
  63
  70
Issuance/(repayment) of debt, $m
  -7
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Issuance/(repurchase) of shares, $m
  3
  7
  7
  7
  7
  7
  6
  6
  4
  3
  2
  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  
  -4
  9
  9
  9
  10
  10
  9
  9
  8
  7
  6
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Total cash flow (excl. dividends), $m
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  5
  7
  9
  11
  13
  16
  19
  22
  25
  29
  32
  37
  41
  46
  51
  57
  63
  69
  76
  83
Retained Cash Flow (-), $m
  11
  -7
  -7
  -7
  -7
  -7
  -6
  -6
  -4
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
Prev. year cash balance distribution, $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
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
 
  42
  -2
  -2
  -2
  -1
  -1
  0
  2
  3
  3
  2
  3
  5
  7
  9
  11
  14
  17
  20
  23
  26
  30
  34
  39
  44
  49
  54
  60
  66
  73
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  40
  -2
  -2
  -2
  -1
  0
  0
  1
  2
  2
  1
  1
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  94.1
  88.4
  82.9
  77.9
  73.5
  69.8
  66.8
  64.5
  63.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0
  62.0

KVH Industries, Inc. is a manufacturer of solutions that provide high-speed Internet, television and voice services through satellite to mobile users at sea and on land. The Company also provides commercially licensed entertainment, including news, sports, music and movies, to commercial and leisure customers in the maritime, hotel and retail markets. It operates in two geographic segments, in the mobile communications, navigation and guidance and stabilization equipment industry. The Company develops and distributes training films and e-learning computer-based training courses to commercial maritime customers. It is also a manufacturer of navigational sensors and integrated inertial systems for defense and commercial guidance and stabilization applications. It designs, develops, manufactures and markets mobile communications products and services for the marine and land mobile markets, and navigation, guidance and stabilization products for both the commercial and defense markets.

FINANCIAL RATIOS  of  KVH Industries (KVHI)

Valuation Ratios
P/E Ratio -21.8
Price to Sales 1
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 9.2
Price to Free Cash Flow 13.4
Growth Rates
Sales Growth Rate -4.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 46.7%
Total Debt to Equity 54.2%
Interest Coverage -1
Management Effectiveness
Return On Assets -1.9%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -4.6%
Ret/ On T. Cap. - 3 Yr. Avg. -1.2%
Return On Equity -7.1%
Return On Equity - 3 Yr. Avg. -1.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 43.8%
Gross Margin - 3 Yr. Avg. 44.4%
EBITDA Margin 6.8%
EBITDA Margin - 3 Yr. Avg. 7.6%
Operating Margin -0.6%
Oper. Margin - 3 Yr. Avg. 0.9%
Pre-Tax Margin -1.1%
Pre-Tax Margin - 3 Yr. Avg. 0.4%
Net Profit Margin -4.5%
Net Profit Margin - 3 Yr. Avg. -1.2%
Effective Tax Rate -300%
Eff/ Tax Rate - 3 Yr. Avg. -55.6%
Payout Ratio 0%

KVHI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KVHI stock intrinsic value calculation we used $176 million for the last fiscal year's total revenue generated by KVH Industries. The default revenue input number comes from 2016 income statement of KVH Industries. 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 KVHI 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 4.3%, whose default value for KVHI is calculated based on our internal credit rating of KVH Industries, 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 KVH Industries.
    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 KVHI stock the variable cost ratio is equal to 44.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $101 million in the base year in the intrinsic value calculation for KVHI 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 KVH Industries.

Corporate tax rate of 27% is the nominal tax rate for KVH Industries. 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 KVHI 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 KVHI are equal to 34.4%.

Life of production assets of 7.3 years is the average useful life of capital assets used in KVH Industries 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 KVHI is equal to 14.2%. 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 - $107 million for KVH Industries - 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 17.089 million for KVH Industries 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 KVH Industries at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ KVH reports 3Q loss   [Nov-02-17 10:11AM  Associated Press]
▶ Hello Nautilus Crew, Youre Connected   [05:00AM  GlobeNewswire]
▶ KVH reports 2Q loss   [Aug-02-17 09:49PM  Associated Press]
▶ KVH reports 1Q loss   [09:51AM  Associated Press]
▶ New Strong Sell Stocks for April 24th   [Apr-24-17 10:26AM  Zacks]
▶ New Strong Sell Stocks for April 18th   [Apr-18-17 10:30AM  Zacks]
▶ KVH Announces New Connectivity as a Service (CaaS) Offering   [Apr-12-17 02:00AM  GlobeNewswire]
▶ New Strong Sell Stocks for March 31st   [Mar-31-17 10:37AM  Zacks]
▶ KVH reports 4Q loss   [07:19AM  Associated Press]
▶ KVH posts 3Q profit   [07:30AM  AP]
Financial statements of KVHI
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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