Intrinsic value of Progress Software - PRGS

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$29.49

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$29.49

 
Intrinsic value

$15.26

 
Up/down potential

-48%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of PRGS 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 1.4

 

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, %
  7.14
  2.20
  2.48
  2.73
  2.96
  3.16
  3.35
  3.51
  3.66
  3.79
  3.92
  4.02
  4.12
  4.21
  4.29
  4.36
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
Revenue, $m
  405
  414
  424
  436
  449
  463
  478
  495
  513
  533
  554
  576
  600
  625
  652
  680
  710
  742
  776
  811
  849
  888
  930
  974
  1,020
  1,069
  1,120
  1,174
  1,231
  1,291
  1,353
Variable operating expenses, $m
 
  397
  406
  416
  428
  440
  454
  469
  485
  503
  521
  513
  534
  557
  581
  606
  633
  661
  691
  723
  756
  792
  829
  868
  909
  953
  998
  1,046
  1,097
  1,150
  1,206
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
  435
  397
  406
  416
  428
  440
  454
  469
  485
  503
  521
  513
  534
  557
  581
  606
  633
  661
  691
  723
  756
  792
  829
  868
  909
  953
  998
  1,046
  1,097
  1,150
  1,206
Operating income, $m
  -30
  17
  18
  20
  21
  22
  24
  26
  28
  30
  32
  63
  65
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
  140
  147
EBITDA, $m
  10
  58
  59
  61
  63
  65
  67
  69
  72
  74
  77
  80
  84
  87
  91
  95
  99
  104
  108
  113
  119
  124
  130
  136
  143
  149
  157
  164
  172
  180
  189
Interest expense (income), $m
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
Earnings before tax, $m
  -35
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  54
  56
  58
  60
  63
  65
  68
  70
  73
  76
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
Tax expense, $m
  21
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
Net income, $m
  -56
  9
  10
  11
  12
  12
  13
  14
  15
  17
  18
  39
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  75
  78
  82
  86

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  250
  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
  755
  516
  529
  543
  559
  577
  596
  617
  640
  664
  690
  718
  748
  779
  813
  848
  885
  925
  967
  1,011
  1,058
  1,107
  1,159
  1,214
  1,272
  1,333
  1,397
  1,464
  1,535
  1,609
  1,687
Adjusted assets (=assets-cash), $m
  505
  516
  529
  543
  559
  577
  596
  617
  640
  664
  690
  718
  748
  779
  813
  848
  885
  925
  967
  1,011
  1,058
  1,107
  1,159
  1,214
  1,272
  1,333
  1,397
  1,464
  1,535
  1,609
  1,687
Revenue / Adjusted assets
  0.802
  0.802
  0.802
  0.803
  0.803
  0.802
  0.802
  0.802
  0.802
  0.803
  0.803
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
Average production assets, $m
  150
  153
  157
  161
  166
  171
  177
  183
  190
  197
  205
  213
  222
  231
  241
  252
  263
  275
  287
  300
  314
  329
  344
  360
  377
  395
  414
  434
  455
  477
  501
Working capital, $m
  132
  -105
  -108
  -111
  -114
  -118
  -121
  -126
  -130
  -135
  -141
  -146
  -152
  -159
  -166
  -173
  -180
  -188
  -197
  -206
  -216
  -226
  -236
  -247
  -259
  -271
  -284
  -298
  -313
  -328
  -344
Total debt, $m
  135
  127
  136
  145
  156
  167
  180
  194
  209
  225
  242
  260
  280
  300
  322
  346
  371
  397
  424
  453
  484
  517
  551
  587
  625
  665
  707
  752
  798
  847
  899
Total liabilities, $m
  348
  340
  349
  358
  369
  380
  393
  407
  422
  438
  455
  473
  493
  513
  535
  559
  584
  610
  637
  666
  697
  730
  764
  800
  838
  878
  920
  965
  1,011
  1,060
  1,112
Total equity, $m
  407
  176
  180
  185
  191
  197
  203
  211
  218
  227
  235
  245
  255
  266
  277
  289
  302
  315
  330
  345
  361
  378
  395
  414
  434
  454
  476
  499
  523
  549
  575
Total liabilities and equity, $m
  755
  516
  529
  543
  560
  577
  596
  618
  640
  665
  690
  718
  748
  779
  812
  848
  886
  925
  967
  1,011
  1,058
  1,108
  1,159
  1,214
  1,272
  1,332
  1,396
  1,464
  1,534
  1,609
  1,687
Debt-to-equity ratio
  0.332
  0.720
  0.750
  0.780
  0.820
  0.850
  0.890
  0.920
  0.960
  0.990
  1.030
  1.060
  1.100
  1.130
  1.160
  1.200
  1.230
  1.260
  1.290
  1.310
  1.340
  1.370
  1.390
  1.420
  1.440
  1.460
  1.490
  1.510
  1.530
  1.540
  1.560
Adjusted equity ratio
  0.311
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -56
  9
  10
  11
  12
  12
  13
  14
  15
  17
  18
  39
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  75
  78
  82
  86
Depreciation, amort., depletion, $m
  40
  41
  41
  41
  42
  42
  43
  43
  44
  44
  45
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
Funds from operations, $m
  102
  50
  51
  52
  53
  55
  56
  58
  59
  61
  63
  57
  60
  62
  64
  67
  70
  72
  75
  79
  82
  86
  89
  93
  98
  102
  107
  112
  117
  122
  128
Change in working capital, $m
  -1
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
Cash from operations, $m
  103
  33
  54
  55
  57
  58
  60
  62
  64
  66
  68
  63
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
New CAPEX, $m
  -6
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from investing activities, $m
  -21
  -16
  -17
  -17
  -19
  -19
  -20
  -21
  -22
  -23
  -25
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -60
  -63
Free cash flow, $m
  82
  18
  37
  38
  38
  39
  40
  41
  42
  43
  44
  38
  39
  40
  42
  43
  45
  47
  49
  50
  53
  55
  57
  59
  62
  65
  67
  70
  74
  77
  80
Issuance/(repayment) of debt, $m
  -9
  7
  8
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
Issuance/(repurchase) of shares, $m
  -69
  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  
  -82
  7
  8
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
Total cash flow (excl. dividends), $m
  -5
  25
  45
  47
  49
  51
  53
  55
  57
  59
  61
  56
  58
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  96
  100
  105
  110
  115
  120
  126
  132
Retained Cash Flow (-), $m
  115
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Prev. year cash balance distribution, $m
 
  235
  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
 
  256
  41
  42
  43
  45
  46
  47
  49
  50
  52
  46
  48
  50
  52
  55
  57
  59
  62
  65
  67
  70
  74
  77
  80
  84
  88
  92
  96
  101
  105
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
 
  245
  38
  37
  36
  35
  33
  32
  31
  29
  27
  22
  21
  19
  18
  16
  14
  13
  11
  10
  9
  7
  6
  5
  4
  3
  3
  2
  1
  1
  1
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

Progress Software Corporation provides software solutions for various industries worldwide. Its OpenEdge segment offers Progress OpenEdge, a development software, which builds multi-language applications for secure deployment across various platforms and devices, as well as cloud; and Progress Corticon, a business rules management system that enables applications with decision automation and change process, and decision-related insight capabilities. The company’s Data Connectivity and Integration segment provides Progress DataDirect Connect software, which offers data connectivity using industry-standard interfaces to connect applications running on various platforms; and Progress DataDirect Cloud, a software-as-a-service (SaaS) based connection management service that simplifies SQL access to a spectrum of cloud-based data sources through a single standards-based interface. Its Application Development and Deployment segment offers Dev Tools, a design, quality assurance, debugging, and reporting suite; NativeScript, an open-source application development platform; Dev Cloud, a cloud-based application design, deployment, hosting, and testing suite; Telerik Platform, an end-to-end application lifecycle solution; Test Studio, an application lifecycle management suite for testing Web, mobile, and desktop applications; Sitefinity, a Web content management and customer analytics platform; and Progress Rollbase, a software that allows the creation of SaaS business applications. The company also provides project management, implementation, custom development, programming, and other services, as well as services to Web-enable applications; and training services. It sells its products directly to end-users, as well as indirectly to application partners, original equipment manufacturers, and system integrators. Progress Software Corporation was founded in 1981 and is headquartered in Bedford, Massachusetts.

FINANCIAL RATIOS  of  Progress Software (PRGS)

Valuation Ratios
P/E Ratio -25.6
Price to Sales 3.5
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 13.9
Price to Free Cash Flow 14.8
Growth Rates
Sales Growth Rate 7.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 17
Current Ratio 0.1
LT Debt to Equity 29.5%
Total Debt to Equity 33.2%
Interest Coverage -11
Management Effectiveness
Return On Assets -6.3%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -9.3%
Ret/ On T. Cap. - 3 Yr. Avg. -0.5%
Return On Equity -12.1%
Return On Equity - 3 Yr. Avg. -1.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 84%
Gross Margin - 3 Yr. Avg. 85.5%
EBITDA Margin 2%
EBITDA Margin - 3 Yr. Avg. 15%
Operating Margin -7.4%
Oper. Margin - 3 Yr. Avg. 7%
Pre-Tax Margin -8.6%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin -13.8%
Net Profit Margin - 3 Yr. Avg. -0.5%
Effective Tax Rate -60%
Eff/ Tax Rate - 3 Yr. Avg. 50.7%
Payout Ratio 0%

PRGS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRGS stock intrinsic value calculation we used $405 million for the last fiscal year's total revenue generated by Progress Software. The default revenue input number comes from 2016 income statement of Progress Software. 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 PRGS stock valuation model: a) initial revenue growth rate of 2.2% 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 4.3%, whose default value for PRGS is calculated based on our internal credit rating of Progress Software, 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 Progress Software.
    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 PRGS stock the variable cost ratio is equal to 96%.

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 PRGS 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 Progress Software.

Corporate tax rate of 27% is the nominal tax rate for Progress Software. 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 PRGS 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 PRGS are equal to 37%.

Life of production assets of 11.9 years is the average useful life of capital assets used in Progress Software 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 PRGS is equal to -25.4%. 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 - $407 million for Progress Software - 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 47.849 million for Progress Software 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 Progress Software at the current share price and the inputted number of shares is $1.4 billion.


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COMPANY NEWS

▶ Progress Software's Uncertain Ride Continues   [Apr-05-17 08:30AM  Investopedia]
▶ Progress Software reports 1Q loss   [05:08PM  Associated Press]
▶ Progress Announces ProgressNEXT 2017 Partner Conference   [Feb-06-17 04:00AM  Business Wire]
▶ Bedford software firm laying off hundreds of employees   [Feb-02-17 03:35PM  at bizjournals.com]
▶ Progress Software reports 4Q loss   [Jan-16-17 05:56PM  AP]
▶ Progress Announces Support for Microsoft Visual Studio 2017   [Nov-16-16 11:05AM  Business Wire]
▶ Progress Software Names Gupta as New CEO Replacing Pead   [Oct-10-16 05:03PM  at Barrons.com]
▶ Progress Announces CEO Succession   [04:15PM  Business Wire]
▶ Progress Initiates Quarterly Dividend   [04:20PM  Business Wire]
▶ [$$] 4 New Ways to Hitch a Ride on the Cloud   [Aug-06-16 12:01AM  at Barrons.com]
Stock chart of PRGS Financial statements of PRGS
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