Intrinsic value of Radware - RDWR

Previous Close

$17.18

  Intrinsic Value

$10.09

stock screener

  Rating & Target

sell

-41%

  Value-price divergence*

-34%

Previous close

$17.18

 
Intrinsic value

$10.09

 
Up/down potential

-41%

 
Rating

sell

 
Value-price divergence*

-34%

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

We calculate the intrinsic value of RDWR 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 0.8

 

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, %
  -9.22
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  197
  201
  206
  211
  217
  223
  231
  238
  247
  256
  266
  276
  288
  300
  312
  326
  340
  355
  371
  388
  406
  425
  444
  465
  487
  511
  535
  561
  588
  616
  646
Variable operating expenses, $m
 
  185
  189
  194
  199
  205
  211
  218
  226
  234
  243
  250
  260
  271
  282
  294
  307
  321
  335
  351
  367
  384
  402
  421
  440
  461
  484
  507
  531
  557
  584
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
  209
  185
  189
  194
  199
  205
  211
  218
  226
  234
  243
  250
  260
  271
  282
  294
  307
  321
  335
  351
  367
  384
  402
  421
  440
  461
  484
  507
  531
  557
  584
Operating income, $m
  -13
  16
  17
  17
  18
  18
  19
  20
  21
  22
  23
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  57
  59
  62
EBITDA, $m
  -3
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
Earnings before tax, $m
  -7
  16
  17
  17
  18
  18
  19
  19
  20
  20
  21
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  53
Tax expense, $m
  2
  4
  5
  5
  5
  5
  5
  5
  5
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
Net income, $m
  -9
  12
  12
  12
  13
  13
  14
  14
  14
  15
  15
  18
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  38

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  226
  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
  430
  208
  213
  218
  224
  231
  239
  247
  256
  265
  275
  286
  298
  310
  323
  337
  352
  368
  384
  402
  420
  440
  460
  482
  505
  529
  554
  580
  608
  638
  669
Adjusted assets (=assets-cash), $m
  204
  208
  213
  218
  224
  231
  239
  247
  256
  265
  275
  286
  298
  310
  323
  337
  352
  368
  384
  402
  420
  440
  460
  482
  505
  529
  554
  580
  608
  638
  669
Revenue / Adjusted assets
  0.966
  0.966
  0.967
  0.968
  0.969
  0.965
  0.967
  0.964
  0.965
  0.966
  0.967
  0.965
  0.966
  0.968
  0.966
  0.967
  0.966
  0.965
  0.966
  0.965
  0.967
  0.966
  0.965
  0.965
  0.964
  0.966
  0.966
  0.967
  0.967
  0.966
  0.966
Average production assets, $m
  29
  30
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  72
  75
  79
  82
  86
  91
  95
Working capital, $m
  182
  -45
  -46
  -47
  -48
  -50
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -87
  -90
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
Total debt, $m
  0
  3
  6
  9
  13
  17
  22
  27
  33
  39
  45
  52
  60
  68
  76
  85
  94
  104
  115
  126
  138
  150
  163
  177
  191
  207
  223
  240
  258
  276
  296
Total liabilities, $m
  131
  133
  136
  139
  143
  147
  152
  157
  163
  169
  175
  182
  190
  198
  206
  215
  224
  234
  245
  256
  268
  280
  293
  307
  321
  337
  353
  370
  388
  406
  426
Total equity, $m
  300
  76
  77
  79
  81
  84
  87
  90
  93
  96
  100
  104
  108
  113
  117
  122
  128
  133
  139
  146
  152
  160
  167
  175
  183
  192
  201
  211
  221
  232
  243
Total liabilities and equity, $m
  431
  209
  213
  218
  224
  231
  239
  247
  256
  265
  275
  286
  298
  311
  323
  337
  352
  367
  384
  402
  420
  440
  460
  482
  504
  529
  554
  581
  609
  638
  669
Debt-to-equity ratio
  0.000
  0.030
  0.070
  0.110
  0.160
  0.210
  0.250
  0.300
  0.350
  0.400
  0.450
  0.500
  0.550
  0.600
  0.650
  0.690
  0.740
  0.780
  0.820
  0.860
  0.900
  0.940
  0.980
  1.010
  1.050
  1.080
  1.110
  1.140
  1.170
  1.190
  1.220
Adjusted equity ratio
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -9
  12
  12
  12
  13
  13
  14
  14
  14
  15
  15
  18
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  38
Depreciation, amort., depletion, $m
  10
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
Funds from operations, $m
  65
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
Change in working capital, $m
  27
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Cash from operations, $m
  38
  21
  21
  22
  23
  23
  24
  25
  26
  26
  27
  27
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
Maintenance CAPEX, $m
  0
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
New CAPEX, $m
  -9
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Cash from investing activities, $m
  28
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -13
  -13
  -14
  -14
  -15
  -15
  -17
  -17
  -18
  -19
  -19
Free cash flow, $m
  66
  15
  16
  16
  16
  17
  17
  18
  18
  19
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  41
Issuance/(repayment) of debt, $m
  0
  3
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
Issuance/(repurchase) of shares, $m
  -20
  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  
  -21
  3
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  46
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  58
  61
Retained Cash Flow (-), $m
  19
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
Prev. year cash balance distribution, $m
 
  226
  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
 
  242
  17
  18
  18
  19
  19
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
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
 
  232
  16
  15
  15
  14
  14
  14
  13
  12
  12
  11
  10
  9
  8
  8
  7
  6
  5
  5
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
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
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Radware Ltd. is a provider of cyber security and application delivery solutions. The Company's solutions incorporate Distributed Denial of Service protection, Web application firewall (WAF) and Application Delivery Controllers (ADC) technologies to enable its customers to provide cyber-attack mitigation solutions for a range of applications. The Company's products and activities are focused on protecting against cyber-attacks and ensuring optimal application service level for enterprises' and carriers' data centers. Its solutions include application and network security, and application delivery. Its application and network Security products include DefensePro Attack Mitigation Device, AppWall Web Application Firewall, DefenseFlow Cyber Command and Control application, and DefensePipe Cloud Scrubbing Service. Its application delivery products include Alteon NG, LinkProof NG and FastView. Its management solutions include APSolute Vision, application performance monitoring and vDirect.

FINANCIAL RATIOS  of  Radware (RDWR)

Valuation Ratios
P/E Ratio -82.4
Price to Sales 3.8
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 19.5
Price to Free Cash Flow 25.6
Growth Rates
Sales Growth Rate -9.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.7%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital -2.9%
Ret/ On T. Cap. - 3 Yr. Avg. 3.6%
Return On Equity -2.9%
Return On Equity - 3 Yr. Avg. 3.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 81.7%
Gross Margin - 3 Yr. Avg. 81.9%
EBITDA Margin 1.5%
EBITDA Margin - 3 Yr. Avg. 11.4%
Operating Margin -6.1%
Oper. Margin - 3 Yr. Avg. 4.5%
Pre-Tax Margin -3.6%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin -4.6%
Net Profit Margin - 3 Yr. Avg. 5.1%
Effective Tax Rate -28.6%
Eff/ Tax Rate - 3 Yr. Avg. 3.9%
Payout Ratio 0%

RDWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RDWR stock intrinsic value calculation we used $197 million for the last fiscal year's total revenue generated by Radware. The default revenue input number comes from 2016 income statement of Radware. 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 RDWR stock valuation model: a) initial revenue growth rate of 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 RDWR is calculated based on our internal credit rating of Radware, 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 Radware.
    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 RDWR stock the variable cost ratio is equal to 91.9%.

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 RDWR 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 Radware.

Corporate tax rate of 27% is the nominal tax rate for Radware. 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 RDWR 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 RDWR are equal to 14.7%.

Life of production assets of 5.9 years is the average useful life of capital assets used in Radware 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 RDWR is equal to -22.3%. 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 - $300 million for Radware - 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 44.28 million for Radware 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 Radware at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ Radware Reports Results of Annual General Meeting   [Sep-22-17 06:00AM  GlobeNewswire]
▶ Radware Announces 2017 Annual General Meeting   [Aug-08-17 06:00AM  GlobeNewswire]
▶ Radware reports 2Q loss   [Aug-02-17 09:54PM  Associated Press]
▶ Radware Ltd. Value Analysis (NASDAQ:RDWR) : July 10, 2017   [Jul-10-17 04:26PM  Capital Cube]
▶ Radware Secures Its Largest Deal Ever   [Jun-01-17 06:00AM  GlobeNewswire]
▶ ETFs with exposure to Radware Ltd. : May 30, 2017   [May-30-17 12:41PM  Capital Cube]
▶ ETFs with exposure to Radware Ltd. : May 11, 2017   [May-11-17 05:25PM  Capital Cube]
▶ Here's Why Radware (RDWR) Stock Soared Today   [Apr-25-17 06:57PM  Zacks]
▶ Radware reports 1Q loss   [06:08AM  Associated Press]
▶ ETFs with exposure to Radware Ltd. : February 14, 2017   [Feb-14-17 05:10PM  Capital Cube]
▶ Radware reports 4Q loss   [06:18AM  AP]
▶ [$$] Radware Acquires Seculert to Protect Data Centers   [Jan-31-17 06:10PM  at The Wall Street Journal]
▶ Jefferies Has 4 Top Red-Hot Growth Stocks to Buy Now   [Dec-29-16 08:25AM  at 24/7 Wall St.]
▶ Hedge Funds Are Crazy About Radware Ltd. (RDWR)   [Dec-11-16 09:07AM  at Insider Monkey]
▶ Radware reports 3Q loss   [06:12AM  AP]
▶ Radware Reports Results of Annual General Meeting   [Oct-07-16 06:00AM  GlobeNewswire]
▶ Radware Announces 2016 Annual General Meeting   [Aug-29-16 06:00AM  GlobeNewswire]
Financial statements of RDWR
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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