Intrinsic value of MRV Communications - MRVC

Previous Close

$9.97

  Intrinsic Value

$20.01

stock screener

  Rating & Target

str. buy

+101%

  Value-price divergence*

+11%

Previous close

$9.97

 
Intrinsic value

$20.01

 
Up/down potential

+101%

 
Rating

str. buy

 
Value-price divergence*

+11%

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

We calculate the intrinsic value of MRVC 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 0.1

 

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, %
  -9.09
  10.50
  9.95
  9.45
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.36
  5.32
  5.29
  5.26
Revenue, $m
  80
  88
  97
  106
  116
  126
  136
  147
  158
  170
  182
  195
  208
  221
  236
  250
  266
  282
  298
  316
  334
  353
  373
  393
  415
  437
  461
  486
  512
  539
  567
Variable operating expenses, $m
 
  19
  21
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  57
  60
  64
  67
  71
  75
  79
  84
  88
  93
  98
  103
  109
  115
  121
Fixed operating expenses, $m
 
  78
  80
  82
  84
  86
  88
  90
  93
  95
  97
  100
  102
  105
  107
  110
  113
  116
  119
  121
  125
  128
  131
  134
  137
  141
  144
  148
  152
  156
  159
Total operating expenses, $m
  91
  97
  101
  105
  109
  113
  117
  121
  127
  131
  136
  141
  146
  152
  157
  163
  170
  176
  183
  188
  196
  203
  210
  218
  225
  234
  242
  251
  261
  271
  280
Operating income, $m
  -11
  -8
  -3
  2
  7
  13
  19
  25
  32
  39
  46
  54
  61
  70
  78
  87
  96
  106
  116
  127
  138
  150
  162
  175
  189
  203
  218
  234
  251
  268
  287
EBITDA, $m
  -9
  -8
  -3
  2
  8
  13
  19
  26
  32
  39
  46
  54
  62
  70
  78
  87
  97
  106
  117
  127
  139
  151
  163
  176
  190
  204
  219
  235
  252
  269
  288
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
Earnings before tax, $m
  -11
  -8
  -3
  2
  7
  13
  19
  25
  31
  38
  45
  52
  60
  68
  76
  85
  94
  104
  114
  124
  136
  147
  159
  172
  185
  199
  214
  230
  246
  263
  281
Tax expense, $m
  1
  0
  0
  0
  2
  3
  5
  7
  8
  10
  12
  14
  16
  18
  21
  23
  25
  28
  31
  34
  37
  40
  43
  46
  50
  54
  58
  62
  66
  71
  76
Net income, $m
  -12
  -8
  -3
  1
  5
  9
  14
  18
  23
  28
  33
  38
  44
  50
  56
  62
  69
  76
  83
  91
  99
  107
  116
  126
  135
  146
  156
  168
  180
  192
  205

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  25
  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
  56
  34
  38
  41
  45
  49
  53
  57
  61
  66
  71
  75
  81
  86
  91
  97
  103
  109
  116
  122
  129
  137
  144
  152
  161
  169
  179
  188
  198
  209
  220
Adjusted assets (=assets-cash), $m
  31
  34
  38
  41
  45
  49
  53
  57
  61
  66
  71
  75
  81
  86
  91
  97
  103
  109
  116
  122
  129
  137
  144
  152
  161
  169
  179
  188
  198
  209
  220
Revenue / Adjusted assets
  2.581
  2.588
  2.553
  2.585
  2.578
  2.571
  2.566
  2.579
  2.590
  2.576
  2.563
  2.600
  2.568
  2.570
  2.593
  2.577
  2.583
  2.587
  2.569
  2.590
  2.589
  2.577
  2.590
  2.586
  2.578
  2.586
  2.575
  2.585
  2.586
  2.579
  2.577
Average production assets, $m
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Working capital, $m
  28
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  22
Total debt, $m
  0
  3
  6
  9
  12
  16
  19
  23
  26
  30
  34
  39
  43
  48
  53
  58
  63
  68
  74
  80
  86
  92
  99
  106
  113
  121
  129
  137
  146
  155
  164
Total liabilities, $m
  28
  30
  33
  36
  39
  43
  46
  50
  53
  57
  61
  66
  70
  75
  80
  85
  90
  95
  101
  107
  113
  119
  126
  133
  140
  148
  156
  164
  173
  182
  191
Total equity, $m
  29
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
Total liabilities and equity, $m
  57
  34
  38
  41
  45
  49
  53
  57
  61
  65
  70
  76
  80
  86
  92
  98
  103
  109
  116
  123
  130
  137
  145
  153
  161
  170
  179
  188
  199
  209
  219
Debt-to-equity ratio
  0.000
  0.640
  1.190
  1.670
  2.090
  2.460
  2.790
  3.080
  3.340
  3.570
  3.790
  3.980
  4.150
  4.310
  4.460
  4.590
  4.720
  4.830
  4.940
  5.040
  5.130
  5.220
  5.300
  5.380
  5.450
  5.520
  5.580
  5.640
  5.700
  5.750
  5.800
Adjusted equity ratio
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -12
  -8
  -3
  1
  5
  9
  14
  18
  23
  28
  33
  38
  44
  50
  56
  62
  69
  76
  83
  91
  99
  107
  116
  126
  135
  146
  156
  168
  180
  192
  205
Depreciation, amort., depletion, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
Funds from operations, $m
  -6
  -8
  -3
  1
  5
  9
  14
  18
  23
  28
  33
  38
  44
  50
  56
  62
  69
  76
  84
  91
  99
  108
  117
  126
  136
  146
  157
  168
  180
  193
  206
Change in working capital, $m
  1
  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
  1
Cash from operations, $m
  -7
  -9
  -4
  1
  5
  9
  13
  18
  23
  28
  33
  38
  44
  49
  56
  62
  69
  76
  83
  91
  99
  107
  116
  125
  135
  145
  156
  167
  179
  192
  205
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
  -1
  -1
  -1
  -1
  -1
  -1
  -1
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
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Free cash flow, $m
  2
  -9
  -4
  1
  5
  9
  13
  18
  22
  27
  32
  38
  43
  49
  55
  61
  68
  75
  82
  90
  98
  106
  115
  125
  134
  144
  155
  166
  178
  191
  204
Issuance/(repayment) of debt, $m
  0
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Issuance/(repurchase) of shares, $m
  -3
  9
  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
Cash from financing (excl. dividends), $m  
  -3
  12
  7
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Total cash flow (excl. dividends), $m
  -1
  3
  3
  4
  8
  12
  17
  21
  26
  31
  36
  42
  48
  54
  60
  66
  73
  80
  88
  96
  104
  113
  122
  131
  142
  152
  163
  175
  187
  200
  214
Retained Cash Flow (-), $m
  12
  -9
  -4
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Prev. year cash balance distribution, $m
 
  25
  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
 
  19
  -1
  3
  7
  12
  16
  21
  25
  31
  36
  41
  47
  53
  59
  66
  73
  80
  87
  95
  103
  112
  121
  130
  140
  151
  162
  174
  186
  199
  212
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
 
  18
  -1
  3
  6
  9
  12
  14
  16
  18
  19
  20
  20
  20
  20
  19
  18
  17
  16
  15
  13
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  51.1
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8
  36.8

MRV Communications, Inc. designs, manufactures, distributes, and services optical networking solutions and Internet infrastructure products worldwide. It offers optical transport, packet/carrier Ethernet, network management, and infrastructure management products and services. The company also provides out-of-band network equipment, as well as designs and manufactures fiber optic modules for the fiber-optic communications industry. Its portfolio of packet and optical solutions enable the access, aggregation, transport, and management of various communications traffic for fixed line, cable, content delivery, cloud-based, and mobile communications networks. The company markets and sells its products to service providers, data center operators, network equipment manufacturers, government entities, and enterprises through direct sales force, manufacturers' representatives, value-added-resellers, distributors, and systems integrators. The company was formerly known as MRV Technologies, Inc. and changed its name to MRV Communications, Inc. in April 1992. MRV Communications, Inc. was founded in 1988 and is headquartered in Chatsworth, California.

FINANCIAL RATIOS  of  MRV Communications (MRVC)

Valuation Ratios
P/E Ratio -5.6
Price to Sales 0.8
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow -9.7
Price to Free Cash Flow -8.5
Growth Rates
Sales Growth Rate -9.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -24.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -19.2%
Ret/ On Assets - 3 Yr. Avg. -12.2%
Return On Total Capital -34.3%
Ret/ On T. Cap. - 3 Yr. Avg. -23.2%
Return On Equity -34.3%
Return On Equity - 3 Yr. Avg. -23.5%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 48.8%
Gross Margin - 3 Yr. Avg. 50.1%
EBITDA Margin -11.3%
EBITDA Margin - 3 Yr. Avg. -8.7%
Operating Margin -13.8%
Oper. Margin - 3 Yr. Avg. -11.1%
Pre-Tax Margin -13.8%
Pre-Tax Margin - 3 Yr. Avg. -11.1%
Net Profit Margin -15%
Net Profit Margin - 3 Yr. Avg. -12.2%
Effective Tax Rate -9.1%
Eff/ Tax Rate - 3 Yr. Avg. -33.2%
Payout Ratio 0%

MRVC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MRVC stock intrinsic value calculation we used $80 million for the last fiscal year's total revenue generated by MRV Communications. The default revenue input number comes from 2016 income statement of MRV Communications. 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 MRVC stock valuation model: a) initial revenue growth rate of 10.5% 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 4.3%, whose default value for MRVC is calculated based on our internal credit rating of MRV Communications, 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 MRV Communications.
    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 MRVC stock the variable cost ratio is equal to 21.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $76 million in the base year in the intrinsic value calculation for MRVC 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 MRV Communications.

Corporate tax rate of 27% is the nominal tax rate for MRV Communications. 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 MRVC 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 MRVC are equal to 1.3%.

Life of production assets of 10 years is the average useful life of capital assets used in MRV Communications 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 MRVC is equal to 3.8%. 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 - $29 million for MRV Communications - 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 6.636 million for MRV Communications 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 MRV Communications at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ MRV Communications reports 2Q loss   [Aug-02-17 10:50PM  Associated Press]
▶ MRV Reports Second-Quarter Results   [09:05AM  PR Newswire]
▶ MRV Communications reports 1Q loss   [May-03-17 06:27PM  Associated Press]
▶ MRV Reports First-Quarter Results   [04:07PM  PR Newswire]
▶ MRV to Announce First-Quarter 2017 Results   [Apr-25-17 07:05AM  PR Newswire]
▶ MRV to Announce Fourth-Quarter and Full-Year 2016 Results   [Mar-03-17 02:52PM  Business Wire]
▶ MRV to Present at the 9th Annual LD Micro Main Event   [Nov-29-16 07:05AM  Accesswire]
▶ MRV Reports Third-Quarter Results   [04:05PM  Business Wire]
▶ MRV to Announce Third Quarter 2016 Results   [Oct-31-16 07:05AM  Business Wire]
▶ MRV to Participate at the 5th Annual Gateway Conference   [Aug-23-16 08:30AM  GlobeNewswire]
▶ MRV Communications reports 2Q loss   [Aug-04-16 06:19PM  AP]
▶ MRV Reports Second-Quarter Results   [04:05PM  Business Wire]
▶ MRV to Announce Second Quarter 2016 Results   [Jul-29-16 07:05AM  Business Wire]
▶ MRV Communications reports 1Q loss   [May-05-16 06:54PM  AP]
▶ MRV Reports First-Quarter Results   [04:07PM  Business Wire]
▶ MRV to Announce First Quarter 2016 Results   [Apr-29-16 07:05AM  Business Wire]
▶ MRV Joins the NTCA The Rural Broadband Association   [Apr-06-16 08:00AM  Business Wire]
Stock chart of MRVC Financial statements of MRVC
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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