Intrinsic value of MFA Financial - MFA

Previous Close

$8.84

  Intrinsic Value

$5.49

stock screener

  Rating & Target

sell

-38%

  Value-price divergence*

+21%

Previous close

$8.84

 
Intrinsic value

$5.49

 
Up/down potential

-38%

 
Rating

sell

 
Value-price divergence*

+21%

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 3.3

 

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
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  566
  586
  608
  632
  657
  684
  712
  743
  775
  809
  845
  883
  923
  966
  1,011
  1,058
  1,108
  1,160
  1,216
  1,274
  1,335
  1,400
  1,467
  1,539
  1,614
  1,693
  1,776
  1,863
  1,955
  2,051
  2,152
Variable operating expenses, $m
 
  249
  258
  268
  279
  290
  302
  315
  329
  343
  358
  374
  391
  410
  429
  449
  470
  492
  515
  540
  566
  593
  622
  652
  684
  718
  753
  790
  829
  870
  912
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
  249
  258
  268
  279
  290
  302
  315
  329
  343
  358
  374
  391
  410
  429
  449
  470
  492
  515
  540
  566
  593
  622
  652
  684
  718
  753
  790
  829
  870
  912
Operating income, $m
  313
  338
  350
  364
  378
  394
  410
  428
  446
  466
  487
  509
  532
  556
  582
  609
  638
  668
  700
  734
  769
  806
  845
  886
  930
  975
  1,023
  1,073
  1,126
  1,181
  1,240
EBITDA, $m
  314
  338
  350
  364
  378
  394
  410
  428
  446
  466
  487
  509
  532
  556
  582
  609
  638
  668
  700
  734
  769
  806
  845
  886
  930
  975
  1,023
  1,073
  1,126
  1,181
  1,240
Interest expense (income), $m
  195
  298
  312
  325
  338
  353
  368
  384
  402
  420
  439
  460
  482
  505
  529
  555
  582
  611
  641
  672
  706
  741
  778
  816
  857
  900
  945
  993
  1,043
  1,095
  1,150
Earnings before tax, $m
  313
  39
  38
  39
  40
  41
  42
  43
  45
  46
  47
  49
  50
  51
  53
  54
  56
  58
  60
  62
  63
  66
  68
  70
  72
  75
  78
  80
  83
  86
  89
Tax expense, $m
  0
  11
  10
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
Net income, $m
  313
  29
  28
  29
  29
  30
  31
  32
  33
  34
  34
  35
  36
  37
  39
  40
  41
  42
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  63
  65

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
  12,747
  13,224
  13,735
  14,282
  14,865
  15,485
  16,144
  16,843
  17,584
  18,368
  19,196
  20,072
  20,996
  21,971
  23,000
  24,083
  25,225
  26,427
  27,693
  29,025
  30,427
  31,902
  33,453
  35,084
  36,799
  38,602
  40,497
  42,489
  44,583
  46,782
Adjusted assets (=assets-cash), $m
  12,224
  12,747
  13,224
  13,735
  14,282
  14,865
  15,485
  16,144
  16,843
  17,584
  18,368
  19,196
  20,072
  20,996
  21,971
  23,000
  24,083
  25,225
  26,427
  27,693
  29,025
  30,427
  31,902
  33,453
  35,084
  36,799
  38,602
  40,497
  42,489
  44,583
  46,782
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
  293
  304
  316
  328
  342
  356
  371
  387
  404
  422
  442
  462
  483
  505
  529
  554
  580
  608
  637
  668
  700
  734
  769
  807
  846
  888
  931
  977
  1,025
  1,076
Total debt, $m
  8,784
  8,920
  9,278
  9,663
  10,074
  10,512
  10,979
  11,474
  12,000
  12,557
  13,147
  13,770
  14,428
  15,123
  15,856
  16,630
  17,445
  18,303
  19,207
  20,159
  21,161
  22,215
  23,324
  24,491
  25,717
  27,007
  28,363
  29,788
  31,286
  32,860
  34,514
Total liabilities, $m
  9,450
  9,586
  9,944
  10,329
  10,740
  11,178
  11,645
  12,140
  12,666
  13,223
  13,813
  14,436
  15,094
  15,789
  16,522
  17,296
  18,111
  18,969
  19,873
  20,825
  21,827
  22,881
  23,990
  25,157
  26,383
  27,673
  29,029
  30,454
  31,952
  33,526
  35,180
Total equity, $m
  3,034
  3,161
  3,280
  3,406
  3,542
  3,686
  3,840
  4,004
  4,177
  4,361
  4,555
  4,761
  4,978
  5,207
  5,449
  5,704
  5,973
  6,256
  6,554
  6,868
  7,198
  7,546
  7,912
  8,296
  8,701
  9,126
  9,573
  10,043
  10,537
  11,056
  11,602
Total liabilities and equity, $m
  12,484
  12,747
  13,224
  13,735
  14,282
  14,864
  15,485
  16,144
  16,843
  17,584
  18,368
  19,197
  20,072
  20,996
  21,971
  23,000
  24,084
  25,225
  26,427
  27,693
  29,025
  30,427
  31,902
  33,453
  35,084
  36,799
  38,602
  40,497
  42,489
  44,582
  46,782
Debt-to-equity ratio
  2.895
  2.820
  2.830
  2.840
  2.840
  2.850
  2.860
  2.870
  2.870
  2.880
  2.890
  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
  2.970
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
  29
  28
  29
  29
  30
  31
  32
  33
  34
  34
  35
  36
  37
  39
  40
  41
  42
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  63
  65
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
  29
  28
  29
  29
  30
  31
  32
  33
  34
  34
  35
  36
  37
  39
  40
  41
  42
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  63
  65
Change in working capital, $m
  -120
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  39
  41
  44
  46
  48
  51
Cash from operations, $m
  86
  19
  17
  17
  17
  17
  17
  17
  17
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  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
  19
  17
  17
  17
  17
  17
  17
  17
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  15
  15
  15
  15
  15
  15
  15
  15
Issuance/(repayment) of debt, $m
  -724
  396
  359
  384
  411
  438
  467
  496
  526
  557
  589
  623
  658
  695
  733
  773
  815
  859
  904
  952
  1,002
  1,054
  1,109
  1,166
  1,227
  1,290
  1,356
  1,425
  1,498
  1,574
  1,654
Issuance/(repurchase) of shares, $m
  5
  99
  90
  98
  106
  114
  123
  132
  141
  150
  160
  170
  181
  192
  203
  215
  228
  241
  255
  269
  284
  300
  316
  334
  352
  371
  391
  411
  433
  456
  480
Cash from financing (excl. dividends), $m  
  -704
  495
  449
  482
  517
  552
  590
  628
  667
  707
  749
  793
  839
  887
  936
  988
  1,043
  1,100
  1,159
  1,221
  1,286
  1,354
  1,425
  1,500
  1,579
  1,661
  1,747
  1,836
  1,931
  2,030
  2,134
Total cash flow (excl. dividends), $m
  408
  513
  466
  499
  534
  570
  606
  644
  683
  724
  766
  810
  855
  903
  953
  1,005
  1,059
  1,115
  1,175
  1,237
  1,302
  1,370
  1,441
  1,515
  1,594
  1,676
  1,762
  1,852
  1,946
  2,045
  2,149
Retained Cash Flow (-), $m
  -67
  -127
  -118
  -127
  -136
  -145
  -154
  -163
  -173
  -184
  -194
  -206
  -217
  -229
  -242
  -255
  -269
  -283
  -298
  -314
  -330
  -348
  -366
  -385
  -405
  -425
  -447
  -470
  -494
  -519
  -546
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
 
  386
  348
  373
  398
  425
  452
  480
  510
  540
  571
  604
  638
  674
  711
  750
  790
  832
  877
  923
  971
  1,022
  1,075
  1,131
  1,189
  1,250
  1,314
  1,382
  1,452
  1,526
  1,604
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
 
  344
  274
  257
  237
  215
  192
  169
  146
  124
  104
  85
  68
  53
  41
  31
  22
  16
  11
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  97.1
  94.6
  92.1
  89.5
  86.9
  84.3
  81.7
  79.2
  76.6
  74.1
  71.6
  69.2
  66.8
  64.5
  62.3
  60.0
  57.9
  55.8
  53.8
  51.8
  49.9
  48.0
  46.2
  44.5
  42.8
  41.2
  39.6
  38.1
  36.6
  35.2

MFA Financial, Inc. operates as a real estate investment trust (REIT) in the United States. The company invests in residential mortgage assets, including agency and non-agency mortgage-backed securities (MBS), residential whole loans, and credit risk transfer securities. Its MBS are secured by hybrid mortgages, adjustable-rate mortgages, and 15 year and longer-term fixed rate mortgages, as well as by mortgages that have interest rates that reset more frequently. The company has elected to be taxed as a REIT and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. MFA Financial, Inc. was founded in 1997 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  MFA Financial (MFA)

Valuation Ratios
P/E Ratio 10.5
Price to Sales 5.8
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 38.2
Price to Free Cash Flow 38.7
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 3.6% 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 10 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 372.208 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 $3.3 billion.

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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]
Stock chart of MFA 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.

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