Intrinsic value of Lumos Networks - LMOS

Previous Close

$17.87

  Intrinsic Value

$9.71

stock screener

  Rating & Target

sell

-46%

  Value-price divergence*

-10%

Previous close

$17.87

 
Intrinsic value

$9.71

 
Up/down potential

-46%

 
Rating

sell

 
Value-price divergence*

-10%

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

We calculate the intrinsic value of LMOS 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, %
  1.47
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
Revenue, $m
  207
  223
  240
  257
  275
  294
  314
  334
  355
  378
  400
  424
  449
  475
  503
  531
  561
  591
  624
  658
  693
  730
  769
  809
  852
  896
  943
  992
  1,043
  1,097
  1,153
Variable operating expenses, $m
 
  182
  195
  209
  223
  237
  253
  268
  285
  302
  319
  328
  347
  367
  388
  410
  433
  457
  482
  508
  535
  564
  594
  625
  658
  692
  728
  766
  806
  847
  891
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
  177
  182
  195
  209
  223
  237
  253
  268
  285
  302
  319
  328
  347
  367
  388
  410
  433
  457
  482
  508
  535
  564
  594
  625
  658
  692
  728
  766
  806
  847
  891
Operating income, $m
  30
  41
  45
  49
  53
  57
  61
  66
  71
  76
  81
  96
  102
  108
  114
  121
  127
  134
  142
  149
  158
  166
  175
  184
  194
  204
  214
  225
  237
  249
  262
EBITDA, $m
  82
  98
  105
  113
  121
  129
  138
  146
  156
  165
  175
  186
  197
  208
  220
  233
  246
  259
  273
  288
  304
  320
  337
  355
  373
  393
  413
  434
  457
  480
  505
Interest expense (income), $m
  0
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  82
  86
  91
  96
  101
  107
Earnings before tax, $m
  2
  25
  27
  29
  32
  34
  37
  39
  42
  45
  48
  61
  64
  67
  71
  75
  78
  83
  87
  91
  96
  100
  106
  111
  116
  122
  128
  134
  141
  148
  155
Tax expense, $m
  2
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
Net income, $m
  -1
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  44
  47
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  94
  98
  103
  108
  113

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  72
  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
  753
  791
  851
  913
  977
  1,044
  1,113
  1,185
  1,260
  1,339
  1,420
  1,505
  1,594
  1,686
  1,782
  1,883
  1,988
  2,097
  2,212
  2,332
  2,457
  2,588
  2,726
  2,870
  3,020
  3,178
  3,343
  3,516
  3,698
  3,888
  4,088
Adjusted assets (=assets-cash), $m
  681
  791
  851
  913
  977
  1,044
  1,113
  1,185
  1,260
  1,339
  1,420
  1,505
  1,594
  1,686
  1,782
  1,883
  1,988
  2,097
  2,212
  2,332
  2,457
  2,588
  2,726
  2,870
  3,020
  3,178
  3,343
  3,516
  3,698
  3,888
  4,088
Revenue / Adjusted assets
  0.304
  0.282
  0.282
  0.281
  0.281
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
Average production assets, $m
  528
  569
  612
  657
  703
  751
  801
  853
  907
  963
  1,022
  1,083
  1,146
  1,213
  1,282
  1,354
  1,430
  1,509
  1,591
  1,677
  1,768
  1,862
  1,961
  2,064
  2,173
  2,286
  2,405
  2,530
  2,660
  2,797
  2,941
Working capital, $m
  54
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Total debt, $m
  468
  500
  549
  600
  653
  708
  765
  824
  886
  950
  1,017
  1,087
  1,160
  1,236
  1,315
  1,398
  1,484
  1,574
  1,668
  1,767
  1,870
  1,978
  2,091
  2,209
  2,333
  2,462
  2,598
  2,741
  2,890
  3,046
  3,210
Total liabilities, $m
  618
  650
  699
  750
  803
  858
  915
  974
  1,036
  1,100
  1,167
  1,237
  1,310
  1,386
  1,465
  1,548
  1,634
  1,724
  1,818
  1,917
  2,020
  2,128
  2,241
  2,359
  2,483
  2,612
  2,748
  2,891
  3,040
  3,196
  3,360
Total equity, $m
  135
  141
  151
  162
  174
  186
  198
  211
  224
  238
  253
  268
  284
  300
  317
  335
  354
  373
  394
  415
  437
  461
  485
  511
  538
  566
  595
  626
  658
  692
  728
Total liabilities and equity, $m
  753
  791
  850
  912
  977
  1,044
  1,113
  1,185
  1,260
  1,338
  1,420
  1,505
  1,594
  1,686
  1,782
  1,883
  1,988
  2,097
  2,212
  2,332
  2,457
  2,589
  2,726
  2,870
  3,021
  3,178
  3,343
  3,517
  3,698
  3,888
  4,088
Debt-to-equity ratio
  3.467
  3.550
  3.630
  3.690
  3.760
  3.810
  3.860
  3.910
  3.950
  3.990
  4.020
  4.060
  4.090
  4.120
  4.150
  4.170
  4.190
  4.220
  4.240
  4.260
  4.280
  4.290
  4.310
  4.320
  4.340
  4.350
  4.370
  4.380
  4.390
  4.400
  4.410
Adjusted equity ratio
  0.093
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  44
  47
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  94
  98
  103
  108
  113
Depreciation, amort., depletion, $m
  52
  57
  61
  64
  68
  72
  76
  80
  85
  90
  94
  89
  95
  100
  106
  112
  118
  125
  132
  139
  146
  154
  162
  171
  180
  189
  199
  209
  220
  231
  243
Funds from operations, $m
  61
  75
  80
  86
  91
  97
  103
  109
  116
  122
  129
  134
  142
  149
  158
  166
  175
  185
  195
  205
  216
  227
  239
  251
  264
  278
  292
  307
  323
  339
  356
Change in working capital, $m
  -4
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  65
  75
  81
  86
  92
  97
  103
  109
  116
  123
  130
  134
  142
  150
  158
  167
  176
  186
  195
  206
  217
  228
  240
  252
  265
  279
  293
  308
  324
  340
  358
Maintenance CAPEX, $m
  0
  -44
  -47
  -51
  -54
  -58
  -62
  -66
  -70
  -75
  -80
  -84
  -89
  -95
  -100
  -106
  -112
  -118
  -125
  -132
  -139
  -146
  -154
  -162
  -171
  -180
  -189
  -199
  -209
  -220
  -231
New CAPEX, $m
  -84
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -66
  -69
  -72
  -76
  -79
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -113
  -119
  -125
  -131
  -137
  -144
Cash from investing activities, $m
  -33
  -85
  -90
  -95
  -100
  -106
  -112
  -118
  -124
  -131
  -139
  -145
  -153
  -161
  -169
  -178
  -188
  -197
  -207
  -218
  -229
  -240
  -253
  -265
  -279
  -293
  -308
  -324
  -340
  -357
  -375
Free cash flow, $m
  32
  -9
  -9
  -9
  -9
  -9
  -9
  -9
  -9
  -8
  -8
  -11
  -11
  -11
  -11
  -11
  -11
  -12
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
Issuance/(repayment) of debt, $m
  -11
  46
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  94
  99
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
Issuance/(repurchase) of shares, $m
  -1
  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  
  -12
  46
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  94
  99
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
Total cash flow (excl. dividends), $m
  20
  37
  40
  42
  44
  46
  48
  51
  53
  56
  59
  59
  62
  65
  68
  71
  75
  79
  82
  87
  91
  95
  100
  105
  110
  116
  121
  127
  133
  140
  147
Retained Cash Flow (-), $m
  -4
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
Prev. year cash balance distribution, $m
 
  4
  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
 
  31
  29
  31
  32
  34
  36
  38
  40
  42
  44
  44
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
  79
  83
  87
  92
  96
  101
  106
  111
Discount rate, %
 
  9.70
  10.19
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.38
  29.79
  31.28
  32.85
  34.49
  36.21
  38.03
  39.93
PV of cash for distribution, $m
 
  28
  24
  23
  21
  20
  18
  16
  14
  13
  11
  9
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  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
  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

Lumos Networks Corp., through its subsidiaries, provides fiber-based bandwidth infrastructure and service in the Mid-Atlantic region. It operates in three segments: Data, Residential and Small Business, and RLEC Access. The company provides data services, such as multiprotocol label switching based Ethernet, metro Ethernet, fiber to the cell site wireless backhaul, private line service and wavelength transport services, and dedicated Internet access, as well as dark fiber and data center/collocation services to carriers and enterprise customers, including healthcare providers, state and local government agencies, financial institutions, educational institutions, and other enterprises. It also offers fiber-to-the-premise broadband XL and DSL Internet, voice, video, and IP services to residential and small business customers. In addition, the company provides voice services, such as local lines, primary rate interface, long distance, toll and directory advertising, and other voice services. Further, it offers carrier customers with access to its network, which primarily includes switched access services. As of March 7, 2016, it had a fiber network of 8,607 fiber route miles and approximately 384,000 total fiber strand miles connecting 1,099 fiber to the cell sites, 1,440 total FTTC connections, 34 data centers, 1,732 on-net buildings, and approximately 2,800 total on-net locations. The company is headquartered in Waynesboro, Virginia.

FINANCIAL RATIOS  of  Lumos Networks (LMOS)

Valuation Ratios
P/E Ratio -421.9
Price to Sales 2
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 6.5
Price to Free Cash Flow -22.2
Growth Rates
Sales Growth Rate 1.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -27.6%
Cap. Spend. - 3 Yr. Gr. Rate 4.3%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 336.3%
Total Debt to Equity 346.7%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.1%
Ret/ On Assets - 3 Yr. Avg. 1.7%
Return On Total Capital -0.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.2%
Return On Equity -0.8%
Return On Equity - 3 Yr. Avg. 10.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 81.2%
Gross Margin - 3 Yr. Avg. 80.7%
EBITDA Margin 26.1%
EBITDA Margin - 3 Yr. Avg. 32.7%
Operating Margin 14.5%
Oper. Margin - 3 Yr. Avg. 19%
Pre-Tax Margin 1%
Pre-Tax Margin - 3 Yr. Avg. 9.1%
Net Profit Margin -0.5%
Net Profit Margin - 3 Yr. Avg. 5.1%
Effective Tax Rate 100%
Eff/ Tax Rate - 3 Yr. Avg. 60%
Payout Ratio 0%

LMOS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LMOS stock intrinsic value calculation we used $207 million for the last fiscal year's total revenue generated by Lumos Networks. The default revenue input number comes from 2016 income statement of Lumos Networks. 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 LMOS stock valuation model: a) initial revenue growth rate of 7.8% 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 9.7%, whose default value for LMOS is calculated based on our internal credit rating of Lumos Networks, 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 Lumos Networks.
    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 LMOS stock the variable cost ratio is equal to 82.1%.

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 LMOS 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 Lumos Networks.

Corporate tax rate of 27% is the nominal tax rate for Lumos Networks. 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 LMOS 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 LMOS are equal to 255.1%.

Life of production assets of 12.1 years is the average useful life of capital assets used in Lumos Networks 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 LMOS is equal to -1.9%. 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 - $135 million for Lumos Networks - 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 23.55 million for Lumos Networks 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 Lumos Networks at the current share price and the inputted number of shares is $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
LVLT Level 3 Commun 55.18 27.89  str.sell
VZ Verizon Commun 48.41 42.08  hold
ZAYO Zayo Group Hol 33.80 12.83  str.sell
T AT&T 38.23 38.66  hold
CTL CenturyLink 20.89 39.74  str.buy
FTR Frontier Commu 14.35 101.00  str.buy
CMCSA Comcast Cl A 41.24 31.05  sell
SHEN Shenandoah Tel 36.55 163.67  str.buy
ALSK Alaska Communi 2.10 3.21  str.buy

COMPANY NEWS

▶ Lumos Networks posts 2Q profit   [Aug-07-17 11:59PM  Associated Press]
▶ ETFs with exposure to Lumos Networks Corp. : May 12, 2017   [May-12-17 04:10PM  Capital Cube]
▶ Lumos Networks reports 1Q loss   [May-08-17 08:06AM  Associated Press]
▶ [$$] EQT to Buy Telecommunications Company Lumos Networks   [01:39PM  at The Wall Street Journal]
▶ Why Shares of Lumos Networks Surged Today   [12:18PM  at Motley Fool]
▶ Here is What Hedge Funds Think About Lumos Networks Corp (LMOS)   [Dec-14-16 01:24AM  at Insider Monkey]
Stock chart of LMOS Financial statements of LMOS
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.