Intrinsic value of MFA Financial - MFA

Previous Close

$8.74

  Intrinsic Value

$5.77

stock screener

  Rating & Target

sell

-34%

  Value-price divergence*

-59%

Previous close

$8.74

 
Intrinsic value

$5.77

 
Up/down potential

-34%

 
Rating

sell

 
Value-price divergence*

-59%

Our model is not good at valuating stocks of financial companies, such as MFA.

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

We calculate the intrinsic value of MFA 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 3.4

 

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, %
  4.24
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  566
  590
  615
  642
  670
  700
  732
  765
  801
  838
  877
  919
  962
  1,008
  1,057
  1,107
  1,161
  1,217
  1,277
  1,339
  1,404
  1,473
  1,546
  1,622
  1,702
  1,786
  1,874
  1,967
  2,064
  2,166
  2,274
Variable operating expenses, $m
 
  250
  261
  272
  284
  297
  310
  324
  339
  355
  372
  389
  408
  427
  448
  470
  492
  516
  541
  568
  595
  625
  655
  688
  721
  757
  794
  834
  875
  918
  964
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
  254
  250
  261
  272
  284
  297
  310
  324
  339
  355
  372
  389
  408
  427
  448
  470
  492
  516
  541
  568
  595
  625
  655
  688
  721
  757
  794
  834
  875
  918
  964
Operating income, $m
  313
  340
  354
  370
  386
  403
  422
  441
  461
  483
  505
  529
  554
  581
  609
  638
  669
  701
  735
  771
  809
  849
  890
  934
  980
  1,028
  1,079
  1,133
  1,189
  1,248
  1,310
EBITDA, $m
  314
  340
  354
  370
  386
  403
  422
  441
  461
  483
  505
  529
  554
  581
  609
  638
  669
  701
  735
  771
  809
  849
  890
  934
  980
  1,028
  1,079
  1,133
  1,189
  1,248
  1,310
Interest expense (income), $m
  195
  298
  314
  329
  344
  360
  377
  395
  415
  435
  456
  479
  502
  527
  554
  581
  610
  641
  673
  707
  743
  780
  820
  861
  905
  950
  998
  1,049
  1,102
  1,158
  1,216
Earnings before tax, $m
  313
  41
  40
  41
  42
  43
  44
  45
  47
  48
  49
  51
  52
  53
  55
  57
  58
  60
  62
  64
  66
  68
  71
  73
  76
  78
  81
  84
  87
  90
  94
Tax expense, $m
  0
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  23
  24
  25
Net income, $m
  313
  30
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  43
  44
  45
  47
  48
  50
  52
  53
  55
  57
  59
  61
  63
  66
  68

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  260
  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
  12,484
  12,821
  13,370
  13,952
  14,568
  15,220
  15,909
  16,637
  17,405
  18,215
  19,070
  19,970
  20,918
  21,917
  22,968
  24,075
  25,239
  26,463
  27,751
  29,105
  30,529
  32,026
  33,599
  35,253
  36,990
  38,816
  40,735
  42,750
  44,868
  47,092
  49,429
Adjusted assets (=assets-cash), $m
  12,224
  12,821
  13,370
  13,952
  14,568
  15,220
  15,909
  16,637
  17,405
  18,215
  19,070
  19,970
  20,918
  21,917
  22,968
  24,075
  25,239
  26,463
  27,751
  29,105
  30,529
  32,026
  33,599
  35,253
  36,990
  38,816
  40,735
  42,750
  44,868
  47,092
  49,429
Revenue / Adjusted assets
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
Average production assets, $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
  0
Working capital, $m
  0
  295
  308
  321
  335
  350
  366
  383
  400
  419
  439
  459
  481
  504
  528
  554
  580
  609
  638
  669
  702
  737
  773
  811
  851
  893
  937
  983
  1,032
  1,083
  1,137
Total debt, $m
  8,784
  8,975
  9,388
  9,826
  10,289
  10,779
  11,298
  11,845
  12,423
  13,032
  13,674
  14,351
  15,065
  15,816
  16,606
  17,438
  18,313
  19,234
  20,203
  21,221
  22,292
  23,417
  24,600
  25,844
  27,151
  28,524
  29,966
  31,482
  33,075
  34,748
  36,505
Total liabilities, $m
  9,450
  9,641
  10,054
  10,492
  10,955
  11,445
  11,964
  12,511
  13,089
  13,698
  14,340
  15,017
  15,731
  16,482
  17,272
  18,104
  18,979
  19,900
  20,869
  21,887
  22,958
  24,083
  25,266
  26,510
  27,817
  29,190
  30,632
  32,148
  33,741
  35,414
  37,171
Total equity, $m
  3,034
  3,180
  3,316
  3,460
  3,613
  3,775
  3,945
  4,126
  4,316
  4,517
  4,729
  4,953
  5,188
  5,435
  5,696
  5,970
  6,259
  6,563
  6,882
  7,218
  7,571
  7,942
  8,333
  8,743
  9,174
  9,626
  10,102
  10,602
  11,127
  11,679
  12,258
Total liabilities and equity, $m
  12,484
  12,821
  13,370
  13,952
  14,568
  15,220
  15,909
  16,637
  17,405
  18,215
  19,069
  19,970
  20,919
  21,917
  22,968
  24,074
  25,238
  26,463
  27,751
  29,105
  30,529
  32,025
  33,599
  35,253
  36,991
  38,816
  40,734
  42,750
  44,868
  47,093
  49,429
Debt-to-equity ratio
  2.895
  2.820
  2.830
  2.840
  2.850
  2.860
  2.860
  2.870
  2.880
  2.880
  2.890
  2.900
  2.900
  2.910
  2.920
  2.920
  2.930
  2.930
  2.940
  2.940
  2.940
  2.950
  2.950
  2.960
  2.960
  2.960
  2.970
  2.970
  2.970
  2.980
  2.980
Adjusted equity ratio
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  313
  30
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  43
  44
  45
  47
  48
  50
  52
  53
  55
  57
  59
  61
  63
  66
  68
Depreciation, amort., depletion, $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
Funds from operations, $m
  -34
  30
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  43
  44
  45
  47
  48
  50
  52
  53
  55
  57
  59
  61
  63
  66
  68
Change in working capital, $m
  -120
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
Cash from operations, $m
  86
  18
  17
  17
  17
  17
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  15
  15
  15
  15
  15
  15
  15
  15
  15
  15
Maintenance CAPEX, $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
  0
New CAPEX, $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 investing activities, $m
  1,027
  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
Free cash flow, $m
  1,113
  18
  17
  17
  17
  17
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  15
  15
  15
  15
  15
  15
  15
  15
  15
  15
Issuance/(repayment) of debt, $m
  -724
  451
  413
  438
  463
  490
  518
  547
  578
  609
  642
  677
  713
  751
  791
  832
  875
  921
  968
  1,018
  1,071
  1,126
  1,183
  1,243
  1,307
  1,373
  1,443
  1,516
  1,592
  1,673
  1,757
Issuance/(repurchase) of shares, $m
  5
  115
  107
  114
  122
  130
  139
  147
  156
  166
  176
  186
  197
  209
  221
  233
  246
  260
  274
  289
  305
  321
  339
  357
  376
  396
  417
  439
  462
  486
  511
Cash from financing (excl. dividends), $m  
  -704
  566
  520
  552
  585
  620
  657
  694
  734
  775
  818
  863
  910
  960
  1,012
  1,065
  1,121
  1,181
  1,242
  1,307
  1,376
  1,447
  1,522
  1,600
  1,683
  1,769
  1,860
  1,955
  2,054
  2,159
  2,268
Total cash flow (excl. dividends), $m
  408
  585
  536
  568
  602
  637
  673
  711
  751
  792
  835
  880
  927
  976
  1,027
  1,081
  1,137
  1,196
  1,258
  1,323
  1,391
  1,462
  1,537
  1,615
  1,698
  1,784
  1,874
  1,969
  2,069
  2,173
  2,283
Retained Cash Flow (-), $m
  -67
  -146
  -136
  -144
  -153
  -162
  -171
  -180
  -191
  -201
  -212
  -223
  -235
  -248
  -261
  -274
  -289
  -304
  -319
  -336
  -353
  -371
  -390
  -410
  -431
  -453
  -476
  -500
  -525
  -552
  -580
Prev. year cash balance distribution, $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 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
 
  440
  400
  424
  449
  475
  502
  531
  560
  591
  623
  656
  691
  728
  766
  807
  849
  893
  939
  987
  1,038
  1,091
  1,147
  1,205
  1,267
  1,331
  1,399
  1,469
  1,544
  1,622
  1,704
Discount rate, %
 
  12.00
  12.60
  13.23
  13.89
  14.59
  15.32
  16.08
  16.89
  17.73
  18.62
  19.55
  20.52
  21.55
  22.63
  23.76
  24.95
  26.19
  27.50
  28.88
  30.32
  31.84
  33.43
  35.10
  36.86
  38.70
  40.64
  42.67
  44.80
  47.04
  49.39
PV of cash for distribution, $m
 
  393
  316
  292
  267
  241
  214
  187
  161
  136
  113
  92
  74
  58
  44
  33
  24
  17
  12
  8
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  96.7
  93.9
  91.2
  88.4
  85.7
  83.0
  80.3
  77.7
  75.1
  72.6
  70.2
  67.8
  65.5
  63.2
  61.0
  58.8
  56.8
  54.7
  52.8
  50.9
  49.0
  47.2
  45.5
  43.8
  42.2
  40.7
  39.2
  37.7
  36.3
  35.0

MFA Financial, Inc. is engaged in the real estate finance business. The Company's subsidiaries invest in residential mortgage assets, including Non-Agency mortgage-backed securities (MBS), Agency MBS, residential whole loans and credit risk transfer (CRT) securities. The Company's Non-Agency MBS portfolio primarily consists of Legacy Non-Agency MBS and 3 Year Step-up securities. In addition to Non-Agency MBS investments, the Company invests in re-performing and non-performing residential whole loans through its interests in certain consolidated trusts. The mortgages collateralizing its Agency MBS portfolio are predominantly Hybrids, 15-year fixed-rate mortgages and adjustable-rate mortgages (ARMs).

FINANCIAL RATIOS  of  MFA Financial (MFA)

Valuation Ratios
P/E Ratio 10.4
Price to Sales 5.7
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 37.8
Price to Free Cash Flow 38.2
Growth Rates
Sales Growth Rate 4.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 3.2%
Total Debt to Equity 289.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 2.6%
Return On Equity 10.4%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 0
Profitability Ratios
Gross Margin 65.9%
Gross Margin - 3 Yr. Avg. 67.5%
EBITDA Margin 89.9%
EBITDA Margin - 3 Yr. Avg. 90.5%
Operating Margin 55.1%
Oper. Margin - 3 Yr. Avg. 57.7%
Pre-Tax Margin 55.3%
Pre-Tax Margin - 3 Yr. Avg. 57.9%
Net Profit Margin 55.3%
Net Profit Margin - 3 Yr. Avg. 57.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 100%

MFA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MFA stock intrinsic value calculation we used $566 million for the last fiscal year's total revenue generated by MFA Financial. The default revenue input number comes from 2016 income statement of MFA Financial. 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 MFA stock valuation model: a) initial revenue growth rate of 4.2% 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 12%, whose default value for MFA is calculated based on our internal credit rating of MFA Financial, 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 MFA Financial.
    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 MFA stock the variable cost ratio is equal to 42.4%.

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 MFA 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 MFA Financial.

Corporate tax rate of 27% is the nominal tax rate for MFA Financial. 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 MFA 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 MFA are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in MFA Financial 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 MFA is equal to 50%. 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 - $3034 million for MFA Financial - 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 392 million for MFA Financial 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 MFA Financial at the current share price and the inputted number of shares is $3.4 billion.

RELATED COMPANIES Price Int.Val. Rating
MTGE MTGE Investmen 19.65 5.09  str.sell
OAKS Five Oaks Inve 4.50 1.59  str.sell
AGNC AGNC Investmen 21.76 191.11  str.buy
SFR Starwood Waypo 36.46 4.26  str.sell
PMT PennyMac Mortg 16.91 14.44  hold
CHMI Cherry Hill Mo 18.66 8.18  str.sell
CIM Chimera Invest 19.18 57.98  str.buy

COMPANY NEWS

▶ MFA Financial posts 2Q profit   [Aug-02-17 09:59PM  Associated Press]
▶ Explosive Stocks Under $10   [May-23-17 05:15PM  Zacks]
▶ MFA Financial beats 1Q profit forecasts   [08:54AM  Associated Press]
▶ MFA Financial misses 4Q profit forecasts   [08:49AM  Associated Press]
▶ Hedge Funds Are Selling MFA Financial, Inc. (MFA)   [Dec-11-16 08:54AM  at Insider Monkey]
▶ Is FireEye Inc (FEYE) a Good Stock to Buy?   [Dec-01-16 12:31PM  at Insider Monkey]
Financial statements of MFA
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.