Intrinsic value of Nationstar Mortgage Holdings - NSM

Previous Close

$16.81

  Intrinsic Value

$189.13

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+1488%

Previous close

$16.81

 
Intrinsic value

$189.13

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+1488%

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

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

We calculate the intrinsic value of NSM 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 1.6

 

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, %
  -3.72
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,915
  3,064
  4,734
  7,080
  10,272
  14,492
  19,924
  26,743
  35,116
  45,185
  57,073
  70,871
  86,647
  104,439
  124,262
  146,110
  169,961
  195,780
  223,527
  253,156
  284,623
  317,886
  352,911
  389,671
  428,149
  468,340
  510,249
  553,894
  599,304
  646,519
  695,594
Variable operating expenses, $m
 
  1,819
  2,806
  4,192
  6,080
  8,574
  11,785
  15,816
  20,766
  26,718
  33,745
  41,895
  51,220
  61,738
  73,456
  86,371
  100,470
  115,733
  132,135
  149,650
  168,251
  187,914
  208,618
  230,348
  253,094
  276,853
  301,627
  327,427
  354,270
  382,181
  411,190
Fixed operating expenses, $m
 
  531
  544
  558
  572
  586
  601
  616
  631
  647
  663
  680
  697
  714
  732
  750
  769
  788
  808
  828
  849
  870
  892
  914
  937
  960
  984
  1,009
  1,034
  1,060
  1,087
Total operating expenses, $m
  1,644
  2,350
  3,350
  4,750
  6,652
  9,160
  12,386
  16,432
  21,397
  27,365
  34,408
  42,575
  51,917
  62,452
  74,188
  87,121
  101,239
  116,521
  132,943
  150,478
  169,100
  188,784
  209,510
  231,262
  254,031
  277,813
  302,611
  328,436
  355,304
  383,241
  412,277
Operating income, $m
  271
  714
  1,384
  2,329
  3,621
  5,332
  7,538
  10,311
  13,719
  17,820
  22,665
  28,297
  34,730
  41,987
  50,074
  58,989
  68,722
  79,259
  90,584
  102,678
  115,523
  129,102
  143,401
  158,408
  174,118
  190,527
  207,638
  225,459
  244,000
  263,279
  283,317
EBITDA, $m
  334
  906
  1,675
  2,761
  4,244
  6,208
  8,740
  11,922
  15,832
  20,537
  26,094
  32,547
  39,926
  48,250
  57,526
  67,751
  78,914
  91,000
  103,989
  117,859
  132,591
  148,165
  164,564
  181,776
  199,793
  218,612
  238,236
  258,674
  279,938
  302,048
  325,029
Interest expense (income), $m
  694
  773
  1,295
  2,077
  3,175
  4,671
  6,647
  9,191
  12,385
  16,307
  21,023
  26,591
  33,053
  40,442
  48,775
  58,060
  68,293
  79,464
  91,557
  104,552
  118,430
  133,168
  148,747
  165,151
  182,369
  200,391
  219,215
  238,844
  259,285
  280,554
  302,668
Earnings before tax, $m
  29
  -59
  89
  253
  445
  661
  891
  1,120
  1,334
  1,514
  1,642
  1,707
  1,677
  1,545
  1,299
  929
  429
  -204
  -972
  -1,874
  -2,906
  -4,065
  -5,346
  -6,743
  -8,251
  -9,863
  -11,576
  -13,385
  -15,286
  -17,275
  -19,351
Tax expense, $m
  13
  0
  24
  68
  120
  179
  240
  302
  360
  409
  443
  461
  453
  417
  351
  251
  116
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  19
  -59
  65
  184
  325
  483
  650
  818
  974
  1,105
  1,198
  1,246
  1,224
  1,128
  948
  678
  313
  -204
  -972
  -1,874
  -2,906
  -4,065
  -5,346
  -6,743
  -8,251
  -9,863
  -11,576
  -13,385
  -15,286
  -17,275
  -19,351

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  489
  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
  19,593
  31,265
  48,305
  72,240
  104,817
  147,881
  203,302
  272,891
  358,323
  461,075
  582,375
  723,178
  884,154
  1,065,703
  1,267,977
  1,490,915
  1,734,293
  1,997,760
  2,280,891
  2,583,228
  2,904,315
  3,243,734
  3,601,130
  3,976,232
  4,368,870
  4,778,983
  5,206,627
  5,651,981
  6,115,343
  6,597,135
  7,097,895
Adjusted assets (=assets-cash), $m
  19,104
  31,265
  48,305
  72,240
  104,817
  147,881
  203,302
  272,891
  358,323
  461,075
  582,375
  723,178
  884,154
  1,065,703
  1,267,977
  1,490,915
  1,734,293
  1,997,760
  2,280,891
  2,583,228
  2,904,315
  3,243,734
  3,601,130
  3,976,232
  4,368,870
  4,778,983
  5,206,627
  5,651,981
  6,115,343
  6,597,135
  7,097,895
Revenue / Adjusted assets
  0.100
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
  0.098
Average production assets, $m
  3,445
  5,512
  8,516
  12,736
  18,479
  26,072
  35,843
  48,111
  63,173
  81,288
  102,674
  127,498
  155,878
  187,886
  223,547
  262,851
  305,759
  352,209
  402,126
  455,428
  512,037
  571,877
  634,886
  701,018
  770,241
  842,544
  917,939
  996,455
  1,078,147
  1,163,088
  1,251,373
Working capital, $m
  0
  -306
  -473
  -708
  -1,027
  -1,449
  -1,992
  -2,674
  -3,512
  -4,519
  -5,707
  -7,087
  -8,665
  -10,444
  -12,426
  -14,611
  -16,996
  -19,578
  -22,353
  -25,316
  -28,462
  -31,789
  -35,291
  -38,967
  -42,815
  -46,834
  -51,025
  -55,389
  -59,930
  -64,652
  -69,559
Total debt, $m
  15,162
  25,385
  40,720
  62,262
  91,581
  130,339
  180,218
  242,848
  319,737
  412,214
  521,384
  648,106
  792,985
  956,379
  1,138,425
  1,339,070
  1,558,109
  1,795,230
  2,050,048
  2,322,151
  2,611,129
  2,916,607
  3,238,263
  3,575,855
  3,929,229
  4,298,330
  4,683,210
  5,084,029
  5,501,055
  5,934,668
  6,385,352
Total liabilities, $m
  17,916
  28,139
  43,474
  65,016
  94,335
  133,093
  182,972
  245,602
  322,491
  414,968
  524,138
  650,860
  795,739
  959,133
  1,141,179
  1,341,824
  1,560,863
  1,797,984
  2,052,802
  2,324,905
  2,613,883
  2,919,361
  3,241,017
  3,578,609
  3,931,983
  4,301,084
  4,685,964
  5,086,783
  5,503,809
  5,937,422
  6,388,106
Total equity, $m
  1,677
  3,127
  4,830
  7,224
  10,482
  14,788
  20,330
  27,289
  35,832
  46,108
  58,238
  72,318
  88,415
  106,570
  126,798
  149,092
  173,429
  199,776
  228,089
  258,323
  290,431
  324,373
  360,113
  397,623
  436,887
  477,898
  520,663
  565,198
  611,534
  659,714
  709,790
Total liabilities and equity, $m
  19,593
  31,266
  48,304
  72,240
  104,817
  147,881
  203,302
  272,891
  358,323
  461,076
  582,376
  723,178
  884,154
  1,065,703
  1,267,977
  1,490,916
  1,734,292
  1,997,760
  2,280,891
  2,583,228
  2,904,314
  3,243,734
  3,601,130
  3,976,232
  4,368,870
  4,778,982
  5,206,627
  5,651,981
  6,115,343
  6,597,136
  7,097,896
Debt-to-equity ratio
  9.041
  8.120
  8.430
  8.620
  8.740
  8.810
  8.860
  8.900
  8.920
  8.940
  8.950
  8.960
  8.970
  8.970
  8.980
  8.980
  8.980
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  9.000
  9.000
  9.000
  9.000
Adjusted equity ratio
  0.062
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  -59
  65
  184
  325
  483
  650
  818
  974
  1,105
  1,198
  1,246
  1,224
  1,128
  948
  678
  313
  -204
  -972
  -1,874
  -2,906
  -4,065
  -5,346
  -6,743
  -8,251
  -9,863
  -11,576
  -13,385
  -15,286
  -17,275
  -19,351
Depreciation, amort., depletion, $m
  63
  191
  291
  432
  623
  876
  1,202
  1,611
  2,113
  2,717
  3,430
  4,250
  5,196
  6,263
  7,452
  8,762
  10,192
  11,740
  13,404
  15,181
  17,068
  19,063
  21,163
  23,367
  25,675
  28,085
  30,598
  33,215
  35,938
  38,770
  41,712
Funds from operations, $m
  1,760
  132
  356
  616
  948
  1,359
  1,852
  2,429
  3,087
  3,822
  4,628
  5,496
  6,420
  7,391
  8,400
  9,440
  10,505
  11,536
  12,432
  13,307
  14,161
  14,997
  15,817
  16,624
  17,424
  18,221
  19,022
  19,830
  20,652
  21,494
  22,361
Change in working capital, $m
  789
  -115
  -167
  -235
  -319
  -422
  -543
  -682
  -837
  -1,007
  -1,189
  -1,380
  -1,578
  -1,779
  -1,982
  -2,185
  -2,385
  -2,582
  -2,775
  -2,963
  -3,147
  -3,326
  -3,502
  -3,676
  -3,848
  -4,019
  -4,191
  -4,364
  -4,541
  -4,722
  -4,907
Cash from operations, $m
  971
  247
  523
  851
  1,268
  1,781
  2,395
  3,111
  3,924
  4,829
  5,817
  6,876
  7,998
  9,170
  10,382
  11,625
  12,890
  14,118
  15,207
  16,270
  17,308
  18,323
  19,319
  20,300
  21,272
  22,240
  23,212
  24,194
  25,193
  26,216
  27,269
Maintenance CAPEX, $m
  0
  -115
  -184
  -284
  -425
  -616
  -869
  -1,195
  -1,604
  -2,106
  -2,710
  -3,422
  -4,250
  -5,196
  -6,263
  -7,452
  -8,762
  -10,192
  -11,740
  -13,404
  -15,181
  -17,068
  -19,063
  -21,163
  -23,367
  -25,675
  -28,085
  -30,598
  -33,215
  -35,938
  -38,770
New CAPEX, $m
  -62
  -2,067
  -3,004
  -4,220
  -5,743
  -7,592
  -9,771
  -12,269
  -15,062
  -18,115
  -21,385
  -24,824
  -28,380
  -32,007
  -35,661
  -39,305
  -42,908
  -46,450
  -49,917
  -53,303
  -56,608
  -59,840
  -63,010
  -66,131
  -69,223
  -72,304
  -75,395
  -78,517
  -81,692
  -84,941
  -88,285
Cash from investing activities, $m
  -3,738
  -2,182
  -3,188
  -4,504
  -6,168
  -8,208
  -10,640
  -13,464
  -16,666
  -20,221
  -24,095
  -28,246
  -32,630
  -37,203
  -41,924
  -46,757
  -51,670
  -56,642
  -61,657
  -66,707
  -71,789
  -76,908
  -82,073
  -87,294
  -92,590
  -97,979
  -103,480
  -109,115
  -114,907
  -120,879
  -127,055
Free cash flow, $m
  -2,767
  -1,935
  -2,664
  -3,653
  -4,900
  -6,427
  -8,244
  -10,353
  -12,742
  -15,392
  -18,278
  -21,371
  -24,633
  -28,033
  -31,542
  -35,131
  -38,779
  -42,524
  -46,450
  -50,437
  -54,481
  -58,585
  -62,753
  -66,994
  -71,318
  -75,738
  -80,267
  -84,920
  -89,714
  -94,663
  -99,786
Issuance/(repayment) of debt, $m
  482
  10,223
  15,336
  21,542
  29,319
  38,758
  49,879
  62,630
  76,889
  92,477
  109,170
  126,722
  144,879
  163,394
  182,046
  200,645
  219,039
  237,120
  254,818
  272,103
  288,978
  305,477
  321,656
  337,592
  353,374
  369,101
  384,880
  400,818
  417,026
  433,613
  450,684
Issuance/(repurchase) of shares, $m
  -114
  1,508
  1,639
  2,209
  2,933
  3,824
  4,892
  6,141
  7,570
  9,170
  10,932
  12,834
  14,874
  17,027
  19,279
  21,616
  24,024
  26,551
  29,285
  32,108
  35,015
  38,007
  41,086
  44,253
  47,514
  50,875
  54,341
  57,921
  61,622
  65,454
  69,427
Cash from financing (excl. dividends), $m  
  2,643
  11,731
  16,975
  23,751
  32,252
  42,582
  54,771
  68,771
  84,459
  101,647
  120,102
  139,556
  159,753
  180,421
  201,325
  222,261
  243,063
  263,671
  284,103
  304,211
  323,993
  343,484
  362,742
  381,845
  400,888
  419,976
  439,221
  458,739
  478,648
  499,067
  520,111
Total cash flow (excl. dividends), $m
  -124
  9,796
  14,310
  20,098
  27,351
  36,155
  46,527
  58,419
  71,717
  86,255
  101,824
  118,186
  135,120
  152,388
  169,783
  187,129
  204,285
  221,148
  237,653
  253,774
  269,512
  284,900
  299,989
  314,851
  329,570
  344,238
  358,954
  373,819
  388,935
  404,404
  420,325
Retained Cash Flow (-), $m
  81
  -1,508
  -1,704
  -2,394
  -3,258
  -4,306
  -5,542
  -6,959
  -8,543
  -10,275
  -12,130
  -14,080
  -16,098
  -18,155
  -20,227
  -22,294
  -24,338
  -26,551
  -29,285
  -32,108
  -35,015
  -38,007
  -41,086
  -44,253
  -47,514
  -50,875
  -54,341
  -57,921
  -61,622
  -65,454
  -69,427
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
 
  8,288
  12,606
  17,704
  24,094
  31,848
  40,985
  51,460
  63,174
  75,979
  89,694
  104,106
  119,022
  134,233
  149,556
  164,835
  179,947
  194,597
  208,368
  221,666
  234,497
  246,892
  258,903
  270,598
  282,056
  293,363
  304,613
  315,898
  327,313
  338,950
  350,898
Discount rate, %
 
  14.10
  14.81
  15.55
  16.32
  17.14
  18.00
  18.90
  19.84
  20.83
  21.87
  22.97
  24.12
  25.32
  26.59
  27.92
  29.31
  30.78
  32.32
  33.93
  35.63
  37.41
  39.28
  41.25
  43.31
  45.47
  47.75
  50.13
  52.64
  55.27
  58.04
PV of cash for distribution, $m
 
  7,264
  9,564
  11,477
  13,160
  14,441
  15,185
  15,322
  14,850
  13,837
  12,407
  10,710
  8,906
  7,137
  5,512
  4,103
  2,944
  2,032
  1,348
  861
  528
  312
  177
  96
  50
  25
  12
  5
  2
  1
  0
Current shareholders' claim on cash, %
  100
  51.7
  33.4
  22.7
  15.9
  11.5
  8.6
  6.5
  5.1
  4.0
  3.2
  2.6
  2.2
  1.8
  1.5
  1.3
  1.1
  0.9
  0.8
  0.7
  0.6
  0.6
  0.5
  0.4
  0.4
  0.3
  0.3
  0.3
  0.2
  0.2
  0.2

Nationstar Mortgage Holdings Inc. provides servicing, origination, and transaction based services primarily to single-family residences in the United States. It operates in three segments: Servicing, Originations, and Xome. The Servicing segment offers residential mortgage services, such as loan administration, payment processing, mortgage escrow account administration, collection of insurance premiums, and response to homeowner inquiries, as well as loss mitigation solutions, including loan modifications and supervision of foreclosures and property dispositions on behalf of the owners of the loans. The Originations segment originates conventional residential mortgage loans under the Greenlight Financial Services and Nationstar Mortgage brands. This segment primarily markets mortgage products to existing servicing customers and customers of homebuilders, as well as participates in the correspondent market. The Xome segment provides residential real estate services and technology to perfect the residential real estate transaction experience for consumers and real estate professionals. It offers Xome Exchange, a tech-enabled platform that manages and sells residential properties; Xome Services, which connects the touch points of the real estate transactions process by providing title, valuation, settlement, and closing services to consumer and financial institutions; and Xome Technology and Support that provides connectivity for the residential real estate market through technology development, data analytics, and customer relationship management tools. Nationstar Mortgage Holdings Inc. serves homeowners, homebuyers, home sellers, investors, and real estate agents. The company was founded in 1994 and is headquartered in Coppell, Texas. Nationstar Mortgage Holdings Inc. is a subsidiary of Fortress Investment Group LLC.

FINANCIAL RATIOS  of  Nationstar Mortgage Holdings (NSM)

Valuation Ratios
P/E Ratio 86.3
Price to Sales 0.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow 1.7
Price to Free Cash Flow 1.8
Growth Rates
Sales Growth Rate -3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.8%
Cap. Spend. - 3 Yr. Gr. Rate 4.8%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 904.1%
Total Debt to Equity 904.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.2%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 0.1%
Ret/ On T. Cap. - 3 Yr. Avg. 0.9%
Return On Equity 1.1%
Return On Equity - 3 Yr. Avg. 7.9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 41%
EBITDA Margin - 3 Yr. Avg. 36.9%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 20.2%
Pre-Tax Margin 1.5%
Pre-Tax Margin - 3 Yr. Avg. 6.2%
Net Profit Margin 1%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 44.8%
Eff/ Tax Rate - 3 Yr. Avg. 29.3%
Payout Ratio 0%

NSM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NSM stock intrinsic value calculation we used $1915 million for the last fiscal year's total revenue generated by Nationstar Mortgage Holdings. The default revenue input number comes from 2016 income statement of Nationstar Mortgage Holdings. 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 NSM stock valuation model: a) initial revenue growth rate of 60% 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 14.1%, whose default value for NSM is calculated based on our internal credit rating of Nationstar Mortgage Holdings, 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 Nationstar Mortgage Holdings.
    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 NSM stock the variable cost ratio is equal to 59.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $518 million in the base year in the intrinsic value calculation for NSM 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 5.1% for Nationstar Mortgage Holdings.

Corporate tax rate of 27% is the nominal tax rate for Nationstar Mortgage Holdings. 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 NSM 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 NSM are equal to 179.9%.

Life of production assets of 55.8 years is the average useful life of capital assets used in Nationstar Mortgage Holdings 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 NSM is equal to -10%. 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 - $1677 million for Nationstar Mortgage Holdings - 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 95.905 million for Nationstar Mortgage Holdings 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 Nationstar Mortgage Holdings at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ Nationstar Rebrands as Mr. Cooper   [Aug-21-17 10:45AM  Business Wire]
▶ Today's Bell Ringer, August 21, 2017   [09:13AM  CNBC Videos]
▶ Nationstar reports 2Q loss   [Aug-03-17 07:40PM  Associated Press]
▶ Nationstar misses 1Q profit forecasts   [May-04-17 08:57AM  Associated Press]
▶ Nationstar to Officially Become Mr. Cooper in August 2017   [May-02-17 09:00AM  Business Wire]
▶ Nationstar to Discuss First Quarter Results on May 4, 2017   [Apr-20-17 04:00PM  Business Wire]
▶ Nationstar posts 4Q profit   [07:31AM  Associated Press]
▶ Should You Avoid Nationstar Mortgage Holdings Inc (NSM)?   [Dec-06-16 08:01PM  at Insider Monkey]
Stock chart of NSM Financial statements of NSM
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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