Intrinsic value of L3 Technologies - LLL

Previous Close

$164.18

  Intrinsic Value

$733.72

stock screener

  Rating & Target

str. buy

+347%

  Value-price divergence*

+401%

Previous close

$164.18

 
Intrinsic value

$733.72

 
Up/down potential

+347%

 
Rating

str. buy

 
Value-price divergence*

+401%

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

We calculate the intrinsic value of LLL 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 12.7

 

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, %
  0.43
  39.50
  36.05
  32.95
  30.15
  27.64
  25.37
  23.33
  21.50
  19.85
  18.37
  17.03
  15.83
  14.74
  13.77
  12.89
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.62
Revenue, $m
  10,511
  14,663
  19,949
  26,521
  34,517
  44,056
  55,234
  68,123
  82,770
  99,201
  117,420
  137,416
  159,164
  182,631
  207,778
  234,565
  262,956
  292,914
  324,413
  357,432
  391,962
  428,000
  465,557
  504,652
  545,316
  587,588
  631,521
  677,174
  724,618
  773,932
  825,205
Variable operating expenses, $m
 
  13,744
  18,462
  24,328
  31,466
  39,980
  49,957
  61,462
  74,535
  89,201
  105,464
  122,656
  142,068
  163,014
  185,460
  209,371
  234,711
  261,452
  289,567
  319,040
  349,861
  382,028
  415,551
  450,447
  486,743
  524,475
  563,688
  604,438
  646,786
  690,803
  736,569
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
  9,510
  13,744
  18,462
  24,328
  31,466
  39,980
  49,957
  61,462
  74,535
  89,201
  105,464
  122,656
  142,068
  163,014
  185,460
  209,371
  234,711
  261,452
  289,567
  319,040
  349,861
  382,028
  415,551
  450,447
  486,743
  524,475
  563,688
  604,438
  646,786
  690,803
  736,569
Operating income, $m
  1,001
  919
  1,487
  2,193
  3,052
  4,076
  5,277
  6,661
  8,234
  9,999
  11,956
  14,760
  17,096
  19,616
  22,318
  25,195
  28,244
  31,462
  34,845
  38,392
  42,101
  45,972
  50,006
  54,205
  58,573
  63,113
  67,832
  72,736
  77,832
  83,129
  88,636
EBITDA, $m
  1,207
  1,637
  2,227
  2,960
  3,852
  4,917
  6,165
  7,603
  9,238
  11,072
  13,105
  15,337
  17,764
  20,384
  23,190
  26,180
  29,349
  32,692
  36,208
  39,893
  43,747
  47,769
  51,961
  56,325
  60,863
  65,581
  70,485
  75,580
  80,875
  86,379
  92,102
Interest expense (income), $m
  162
  154
  287
  456
  666
  922
  1,227
  1,585
  1,998
  2,467
  2,992
  3,576
  4,216
  4,912
  5,663
  6,468
  7,325
  8,234
  9,193
  10,201
  11,258
  12,363
  13,517
  14,719
  15,970
  17,272
  18,625
  20,031
  21,493
  23,011
  24,590
Earnings before tax, $m
  850
  765
  1,200
  1,737
  2,385
  3,154
  4,049
  5,076
  6,237
  7,533
  8,964
  11,184
  12,880
  14,705
  16,655
  18,727
  20,919
  23,228
  25,652
  28,191
  30,843
  33,608
  36,489
  39,486
  42,602
  45,841
  49,207
  52,704
  56,339
  60,117
  64,046
Tax expense, $m
  189
  207
  324
  469
  644
  852
  1,093
  1,371
  1,684
  2,034
  2,420
  3,020
  3,478
  3,970
  4,497
  5,056
  5,648
  6,272
  6,926
  7,612
  8,328
  9,074
  9,852
  10,661
  11,503
  12,377
  13,286
  14,230
  15,212
  16,232
  17,292
Net income, $m
  710
  559
  876
  1,268
  1,741
  2,302
  2,956
  3,705
  4,553
  5,499
  6,543
  8,165
  9,403
  10,734
  12,158
  13,671
  15,271
  16,956
  18,726
  20,579
  22,515
  24,534
  26,637
  28,825
  31,100
  33,464
  35,921
  38,474
  41,128
  43,886
  46,754

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  363
  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
  11,865
  16,043
  21,826
  29,016
  37,765
  48,201
  60,431
  74,532
  90,558
  108,535
  128,468
  150,345
  174,140
  199,815
  227,328
  256,636
  287,697
  320,475
  354,937
  391,064
  428,842
  468,272
  509,362
  552,136
  596,625
  642,875
  690,942
  740,890
  792,798
  846,752
  902,850
Adjusted assets (=assets-cash), $m
  11,502
  16,043
  21,826
  29,016
  37,765
  48,201
  60,431
  74,532
  90,558
  108,535
  128,468
  150,345
  174,140
  199,815
  227,328
  256,636
  287,697
  320,475
  354,937
  391,064
  428,842
  468,272
  509,362
  552,136
  596,625
  642,875
  690,942
  740,890
  792,798
  846,752
  902,850
Revenue / Adjusted assets
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
Average production assets, $m
  1,328
  1,848
  2,514
  3,342
  4,349
  5,551
  6,959
  8,583
  10,429
  12,499
  14,795
  17,314
  20,055
  23,011
  26,180
  29,555
  33,132
  36,907
  40,876
  45,036
  49,387
  53,928
  58,660
  63,586
  68,710
  74,036
  79,572
  85,324
  91,302
  97,515
  103,976
Working capital, $m
  1,562
  1,672
  2,274
  3,023
  3,935
  5,022
  6,297
  7,766
  9,436
  11,309
  13,386
  15,665
  18,145
  20,820
  23,687
  26,740
  29,977
  33,392
  36,983
  40,747
  44,684
  48,792
  53,074
  57,530
  62,166
  66,985
  71,993
  77,198
  82,606
  88,228
  94,073
Total debt, $m
  3,338
  6,229
  9,907
  14,480
  20,044
  26,682
  34,460
  43,429
  53,621
  65,054
  77,732
  91,646
  106,779
  123,108
  140,607
  159,247
  179,002
  199,848
  221,766
  244,743
  268,770
  293,847
  319,980
  347,184
  375,480
  404,895
  435,465
  467,232
  500,246
  534,561
  570,238
Total liabilities, $m
  7,312
  10,203
  13,881
  18,454
  24,018
  30,656
  38,434
  47,403
  57,595
  69,028
  81,706
  95,620
  110,753
  127,082
  144,581
  163,221
  182,976
  203,822
  225,740
  248,717
  272,744
  297,821
  323,954
  351,158
  379,454
  408,869
  439,439
  471,206
  504,220
  538,535
  574,212
Total equity, $m
  4,553
  5,839
  7,945
  10,562
  13,746
  17,545
  21,997
  27,130
  32,963
  39,507
  46,762
  54,726
  63,387
  72,733
  82,747
  93,416
  104,722
  116,653
  129,197
  142,347
  156,099
  170,451
  185,408
  200,977
  217,172
  234,007
  251,503
  269,684
  288,579
  308,218
  328,637
Total liabilities and equity, $m
  11,865
  16,042
  21,826
  29,016
  37,764
  48,201
  60,431
  74,533
  90,558
  108,535
  128,468
  150,346
  174,140
  199,815
  227,328
  256,637
  287,698
  320,475
  354,937
  391,064
  428,843
  468,272
  509,362
  552,135
  596,626
  642,876
  690,942
  740,890
  792,799
  846,753
  902,849
Debt-to-equity ratio
  0.733
  1.070
  1.250
  1.370
  1.460
  1.520
  1.570
  1.600
  1.630
  1.650
  1.660
  1.670
  1.680
  1.690
  1.700
  1.700
  1.710
  1.710
  1.720
  1.720
  1.720
  1.720
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.740
Adjusted equity ratio
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  710
  559
  876
  1,268
  1,741
  2,302
  2,956
  3,705
  4,553
  5,499
  6,543
  8,165
  9,403
  10,734
  12,158
  13,671
  15,271
  16,956
  18,726
  20,579
  22,515
  24,534
  26,637
  28,825
  31,100
  33,464
  35,921
  38,474
  41,128
  43,886
  46,754
Depreciation, amort., depletion, $m
  206
  718
  740
  767
  801
  841
  888
  942
  1,004
  1,073
  1,149
  577
  668
  767
  873
  985
  1,104
  1,230
  1,363
  1,501
  1,646
  1,798
  1,955
  2,120
  2,290
  2,468
  2,652
  2,844
  3,043
  3,251
  3,466
Funds from operations, $m
  998
  1,276
  1,616
  2,035
  2,542
  3,143
  3,844
  4,648
  5,556
  6,571
  7,693
  8,742
  10,071
  11,501
  13,031
  14,656
  16,375
  18,187
  20,089
  22,081
  24,161
  26,332
  28,592
  30,944
  33,390
  35,932
  38,573
  41,318
  44,171
  47,136
  50,220
Change in working capital, $m
  -43
  473
  603
  749
  912
  1,087
  1,274
  1,469
  1,670
  1,873
  2,077
  2,280
  2,479
  2,675
  2,867
  3,054
  3,236
  3,415
  3,591
  3,764
  3,936
  4,108
  4,281
  4,457
  4,636
  4,819
  5,008
  5,204
  5,409
  5,622
  5,845
Cash from operations, $m
  1,041
  835
  1,013
  1,286
  1,631
  2,056
  2,570
  3,178
  3,887
  4,698
  5,616
  6,462
  7,592
  8,826
  10,164
  11,602
  13,139
  14,771
  16,498
  18,316
  20,225
  22,223
  24,311
  26,487
  28,754
  31,113
  33,565
  36,114
  38,762
  41,514
  44,374
Maintenance CAPEX, $m
  0
  -44
  -62
  -84
  -111
  -145
  -185
  -232
  -286
  -348
  -417
  -493
  -577
  -668
  -767
  -873
  -985
  -1,104
  -1,230
  -1,363
  -1,501
  -1,646
  -1,798
  -1,955
  -2,120
  -2,290
  -2,468
  -2,652
  -2,844
  -3,043
  -3,251
New CAPEX, $m
  -216
  -520
  -666
  -828
  -1,008
  -1,202
  -1,408
  -1,624
  -1,846
  -2,070
  -2,296
  -2,519
  -2,740
  -2,957
  -3,169
  -3,375
  -3,577
  -3,775
  -3,969
  -4,160
  -4,351
  -4,541
  -4,732
  -4,926
  -5,124
  -5,326
  -5,535
  -5,752
  -5,978
  -6,214
  -6,460
Cash from investing activities, $m
  -16
  -564
  -728
  -912
  -1,119
  -1,347
  -1,593
  -1,856
  -2,132
  -2,418
  -2,713
  -3,012
  -3,317
  -3,625
  -3,936
  -4,248
  -4,562
  -4,879
  -5,199
  -5,523
  -5,852
  -6,187
  -6,530
  -6,881
  -7,244
  -7,616
  -8,003
  -8,404
  -8,822
  -9,257
  -9,711
Free cash flow, $m
  1,025
  270
  286
  374
  512
  709
  976
  1,322
  1,755
  2,280
  2,903
  3,449
  4,274
  5,201
  6,228
  7,354
  8,576
  9,892
  11,299
  12,793
  14,373
  16,036
  17,781
  19,606
  21,511
  23,496
  25,562
  27,709
  29,940
  32,257
  34,664
Issuance/(repayment) of debt, $m
  -309
  2,891
  3,678
  4,573
  5,564
  6,638
  7,778
  8,968
  10,192
  11,433
  12,678
  13,914
  15,133
  16,329
  17,498
  18,640
  19,755
  20,846
  21,918
  22,976
  24,027
  25,077
  26,134
  27,204
  28,295
  29,415
  30,570
  31,767
  33,013
  34,315
  35,678
Issuance/(repurchase) of shares, $m
  -310
  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  
  -636
  2,891
  3,678
  4,573
  5,564
  6,638
  7,778
  8,968
  10,192
  11,433
  12,678
  13,914
  15,133
  16,329
  17,498
  18,640
  19,755
  20,846
  21,918
  22,976
  24,027
  25,077
  26,134
  27,204
  28,295
  29,415
  30,570
  31,767
  33,013
  34,315
  35,678
Total cash flow (excl. dividends), $m
  376
  3,161
  3,964
  4,947
  6,076
  7,347
  8,754
  10,291
  11,947
  13,714
  15,581
  17,363
  19,408
  21,530
  23,727
  25,994
  28,331
  30,739
  33,217
  35,770
  38,400
  41,113
  43,915
  46,810
  49,807
  52,911
  56,132
  59,477
  62,954
  66,572
  70,341
Retained Cash Flow (-), $m
  -198
  -1,649
  -2,105
  -2,617
  -3,184
  -3,799
  -4,452
  -5,133
  -5,833
  -6,544
  -7,256
  -7,963
  -8,661
  -9,346
  -10,015
  -10,668
  -11,306
  -11,931
  -12,544
  -13,150
  -13,751
  -14,352
  -14,957
  -15,570
  -16,194
  -16,835
  -17,496
  -18,181
  -18,895
  -19,639
  -20,419
Prev. year cash balance distribution, $m
 
  363
  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
 
  1,875
  1,859
  2,330
  2,891
  3,548
  4,303
  5,158
  6,114
  7,170
  8,325
  9,400
  10,746
  12,184
  13,712
  15,326
  17,025
  18,808
  20,673
  22,620
  24,649
  26,761
  28,958
  31,241
  33,612
  36,076
  38,636
  41,295
  44,059
  46,933
  49,922
Discount rate, %
 
  6.00
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
PV of cash for distribution, $m
 
  1,769
  1,645
  1,923
  2,210
  2,495
  2,764
  3,002
  3,197
  3,338
  3,419
  3,370
  3,328
  3,221
  3,058
  2,846
  2,596
  2,321
  2,033
  1,744
  1,464
  1,203
  966
  758
  580
  433
  315
  223
  153
  103
  66
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

L3 Technologies, Inc. provides aerospace systems, and a range of communication and electronic systems and products used on military and commercial platforms in the United States and internationally. The company operates in three segments: Electronic Systems, Aerospace Systems, and Communication Systems. It offers a range of products and services, including components, products, subsystems, and systems, as well as related services to military and commercial customers in business areas, including precision engagement and training, power and propulsion systems, aviation products and security systems, sensor systems, warrior systems, and optics, telescopes, and precision optical subsystems. The company also provides fleet management sustainment and support, such as procurement, systems integration, sensor development, modifications, and periodic depot maintenance for intelligence, surveillance, and reconnaissance, as well as special mission aircraft and airborne systems; strategic and tactical signals intelligence systems; secure data links; microwave products; secure terminal and communication network equipment and encryption management; and communication systems for surface and undersea vessels, and manned space flights. In addition, it offers modernization, upgrades and sustainment, maintenance, and logistics support services for military and government aircraft, and other platforms. Further, the company provides night vision and image intensification equipment, and security and detection systems. It serves the United States (U.S.) Department of Defense and its prime contractors, the U.S. Government intelligence agencies, the U.S. Department of Homeland Security, foreign governments, and domestic and international commercial customers. The company was formerly known as L-3 Communications Holdings, Inc. and changed its name to L3 Technologies, Inc. in December 2016. L3 Technologies, Inc. was founded in 1997 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  L3 Technologies (LLL)

Valuation Ratios
P/E Ratio 17.9
Price to Sales 1.2
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 12.2
Price to Free Cash Flow 15.4
Growth Rates
Sales Growth Rate 0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.6%
Cap. Spend. - 3 Yr. Gr. Rate 1.1%
Financial Strength
Quick Ratio NaN
Current Ratio 1.1
LT Debt to Equity 73.3%
Total Debt to Equity 73.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 7%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 8.9%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 15.9%
Return On Equity - 3 Yr. Avg. 7.6%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 9.6%
Gross Margin - 3 Yr. Avg. 9.1%
EBITDA Margin 11.6%
EBITDA Margin - 3 Yr. Avg. 10%
Operating Margin 9.5%
Oper. Margin - 3 Yr. Avg. 7.8%
Pre-Tax Margin 8.1%
Pre-Tax Margin - 3 Yr. Avg. 6.4%
Net Profit Margin 6.8%
Net Profit Margin - 3 Yr. Avg. 3.5%
Effective Tax Rate 22.2%
Eff/ Tax Rate - 3 Yr. Avg. 18.7%
Payout Ratio 31%

LLL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LLL stock intrinsic value calculation we used $10511 million for the last fiscal year's total revenue generated by L3 Technologies. The default revenue input number comes from 2016 income statement of L3 Technologies. 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 LLL stock valuation model: a) initial revenue growth rate of 39.5% 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 6%, whose default value for LLL is calculated based on our internal credit rating of L3 Technologies, 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 L3 Technologies.
    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 LLL stock the variable cost ratio is equal to 95.5%.

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 LLL 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 4.6% for L3 Technologies.

Corporate tax rate of 27% is the nominal tax rate for L3 Technologies. 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 LLL 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 LLL are equal to 12.6%.

Life of production assets of 37.6 years is the average useful life of capital assets used in L3 Technologies 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 LLL is equal to 11.4%. 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 - $4553 million for L3 Technologies - 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 77.198 million for L3 Technologies 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 L3 Technologies at the current share price and the inputted number of shares is $12.7 billion.

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COMPANY NEWS

▶ Defense in the Trader Blitz   [May-22-17 01:26PM  CNBC Videos]
▶ L3 Acquires Open Water Power, Inc.   [09:00AM  Business Wire]
▶ ETFs with exposure to L3 Technologies, Inc. : May 2, 2017   [May-02-17 04:17PM  Capital Cube]
▶ L-3 tops Street 1Q forecasts   [07:04AM  Associated Press]
▶ L3 Announces First Quarter 2017 Results   [06:55AM  Business Wire]
▶ Defense Stock Roundup: TXT, HON, LMT and COL   [Apr-26-17 04:03PM  Zacks]
▶ L3 Acquires OceanServer Technology   [Apr-04-17 03:45PM  Business Wire]
▶ Trading Nation: Great potential in defense space   [Mar-02-17 02:50PM  CNBC Videos]
▶ Aerojet Rocketdyne Makes a Small But Brilliant Buy   [Feb-24-17 03:05PM  at Motley Fool]
▶ L3 to Present at the Barclays Industrial Select Conference   [Feb-21-17 06:20PM  Business Wire]
▶ Who Is Canada's Biggest Defense Contractor?   [08:54AM  at Motley Fool]
▶ Boeing Training Jet Rivals Are Dropping Like Flies   [Feb-19-17 08:13AM  at Motley Fool]
▶ L3 Increases Quarterly Dividend   [Feb-13-17 02:05PM  Business Wire]
▶ 10 Biggest Defense Contractors In The World   [Jan-27-17 03:57PM  at Insider Monkey]
▶ L3 Announces Fourth Quarter 2016 Results   [06:55AM  Business Wire]
▶ L3 Receives Contract Modification for M783 Mortar Fuze   [Jan-19-17 09:20AM  Business Wire]
▶ [$$] L3 Technologies to Pay $1.6 Million to Settle SEC Accounting Complaint   [Jan-11-17 05:19PM  at The Wall Street Journal]
▶ L3 Completes Acquisition of Implant Sciences   [Jan-05-17 04:30PM  Business Wire]
▶ [$$] Implant Sciences Cancels Bankruptcy Auction   [Dec-09-16 04:52PM  at The Wall Street Journal]
▶ L-3 to Webcast Investor Conference   [08:30AM  Business Wire]
▶ L-3 Announces Pricing of Senior Note Offering   [Nov-29-16 05:40PM  Business Wire]
Stock chart of LLL Financial statements of LLL Annual reports of LLL
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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