Intrinsic value of Sykes Enterprises - SYKE

Previous Close

$29.61

  Intrinsic Value

$34.81

stock screener

  Rating & Target

hold

+18%

  Value-price divergence*

+36%

Previous close

$29.61

 
Intrinsic value

$34.81

 
Up/down potential

+18%

 
Rating

hold

 
Value-price divergence*

+36%

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

We calculate the intrinsic value of SYKE 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 1.3

 

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, %
  13.53
  3.00
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
Revenue, $m
  1,460
  1,504
  1,552
  1,604
  1,661
  1,722
  1,788
  1,859
  1,934
  2,014
  2,099
  2,189
  2,285
  2,386
  2,493
  2,607
  2,726
  2,853
  2,986
  3,126
  3,274
  3,430
  3,594
  3,766
  3,948
  4,139
  4,340
  4,551
  4,774
  5,007
  5,253
Variable operating expenses, $m
 
  1,393
  1,437
  1,485
  1,536
  1,592
  1,652
  1,716
  1,784
  1,857
  1,934
  1,990
  2,077
  2,169
  2,266
  2,369
  2,478
  2,593
  2,714
  2,841
  2,975
  3,117
  3,266
  3,423
  3,588
  3,762
  3,944
  4,136
  4,338
  4,551
  4,774
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
  1,368
  1,393
  1,437
  1,485
  1,536
  1,592
  1,652
  1,716
  1,784
  1,857
  1,934
  1,990
  2,077
  2,169
  2,266
  2,369
  2,478
  2,593
  2,714
  2,841
  2,975
  3,117
  3,266
  3,423
  3,588
  3,762
  3,944
  4,136
  4,338
  4,551
  4,774
Operating income, $m
  92
  111
  115
  120
  125
  131
  136
  143
  150
  157
  165
  200
  208
  218
  227
  238
  249
  260
  272
  285
  298
  313
  328
  343
  360
  377
  396
  415
  435
  456
  479
EBITDA, $m
  161
  173
  178
  184
  191
  198
  206
  214
  222
  232
  241
  252
  263
  274
  287
  300
  313
  328
  343
  359
  376
  394
  413
  433
  454
  476
  499
  523
  549
  576
  604
Interest expense (income), $m
  4
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  32
  33
  35
  38
  40
  42
  45
  47
  50
  53
Earnings before tax, $m
  89
  101
  105
  109
  114
  119
  124
  130
  136
  142
  149
  182
  190
  198
  207
  216
  225
  235
  246
  257
  269
  281
  294
  308
  322
  337
  353
  370
  388
  407
  426
Tax expense, $m
  27
  27
  28
  30
  31
  32
  33
  35
  37
  38
  40
  49
  51
  53
  56
  58
  61
  63
  66
  69
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
Net income, $m
  62
  74
  77
  80
  83
  87
  90
  95
  99
  104
  109
  133
  139
  145
  151
  157
  164
  172
  179
  188
  196
  205
  215
  225
  235
  246
  258
  270
  283
  297
  311

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  276
  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
  1,236
  989
  1,020
  1,055
  1,092
  1,132
  1,176
  1,222
  1,271
  1,324
  1,380
  1,439
  1,502
  1,569
  1,639
  1,714
  1,792
  1,875
  1,963
  2,055
  2,152
  2,255
  2,363
  2,476
  2,596
  2,721
  2,853
  2,992
  3,138
  3,292
  3,454
Adjusted assets (=assets-cash), $m
  960
  989
  1,020
  1,055
  1,092
  1,132
  1,176
  1,222
  1,271
  1,324
  1,380
  1,439
  1,502
  1,569
  1,639
  1,714
  1,792
  1,875
  1,963
  2,055
  2,152
  2,255
  2,363
  2,476
  2,596
  2,721
  2,853
  2,992
  3,138
  3,292
  3,454
Revenue / Adjusted assets
  1.521
  1.521
  1.522
  1.520
  1.521
  1.521
  1.520
  1.521
  1.522
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.522
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
  1.521
Average production assets, $m
  237
  244
  251
  260
  269
  279
  290
  301
  313
  326
  340
  355
  370
  387
  404
  422
  442
  462
  484
  506
  530
  556
  582
  610
  640
  671
  703
  737
  773
  811
  851
Working capital, $m
  420
  149
  154
  159
  164
  171
  177
  184
  191
  199
  208
  217
  226
  236
  247
  258
  270
  282
  296
  309
  324
  340
  356
  373
  391
  410
  430
  451
  473
  496
  520
Total debt, $m
  267
  282
  299
  317
  337
  358
  381
  406
  432
  460
  490
  522
  555
  591
  628
  668
  710
  754
  800
  849
  901
  956
  1,013
  1,073
  1,137
  1,204
  1,274
  1,348
  1,426
  1,507
  1,593
Total liabilities, $m
  512
  526
  543
  561
  581
  602
  625
  650
  676
  704
  734
  766
  799
  835
  872
  912
  954
  998
  1,044
  1,093
  1,145
  1,200
  1,257
  1,317
  1,381
  1,448
  1,518
  1,592
  1,670
  1,751
  1,837
Total equity, $m
  725
  463
  478
  494
  511
  530
  550
  572
  595
  620
  646
  674
  703
  734
  767
  802
  839
  878
  919
  962
  1,007
  1,055
  1,106
  1,159
  1,215
  1,274
  1,335
  1,400
  1,469
  1,541
  1,616
Total liabilities and equity, $m
  1,237
  989
  1,021
  1,055
  1,092
  1,132
  1,175
  1,222
  1,271
  1,324
  1,380
  1,440
  1,502
  1,569
  1,639
  1,714
  1,793
  1,876
  1,963
  2,055
  2,152
  2,255
  2,363
  2,476
  2,596
  2,722
  2,853
  2,992
  3,139
  3,292
  3,453
Debt-to-equity ratio
  0.368
  0.610
  0.630
  0.640
  0.660
  0.680
  0.690
  0.710
  0.730
  0.740
  0.760
  0.770
  0.790
  0.800
  0.820
  0.830
  0.850
  0.860
  0.870
  0.880
  0.890
  0.910
  0.920
  0.930
  0.940
  0.950
  0.950
  0.960
  0.970
  0.980
  0.990
Adjusted equity ratio
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  62
  74
  77
  80
  83
  87
  90
  95
  99
  104
  109
  133
  139
  145
  151
  157
  164
  172
  179
  188
  196
  205
  215
  225
  235
  246
  258
  270
  283
  297
  311
Depreciation, amort., depletion, $m
  69
  62
  63
  65
  66
  68
  69
  71
  73
  74
  77
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
Funds from operations, $m
  122
  136
  140
  144
  149
  154
  160
  165
  172
  178
  185
  185
  193
  201
  210
  220
  229
  240
  251
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  416
  436
Change in working capital, $m
  -9
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Cash from operations, $m
  131
  132
  135
  139
  144
  148
  153
  158
  164
  170
  177
  176
  184
  191
  200
  208
  217
  227
  237
  248
  259
  271
  284
  297
  311
  326
  342
  358
  375
  393
  412
Maintenance CAPEX, $m
  0
  -35
  -36
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -114
  -119
New CAPEX, $m
  -78
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
Cash from investing activities, $m
  -273
  -42
  -44
  -45
  -47
  -50
  -52
  -54
  -56
  -59
  -62
  -65
  -68
  -70
  -74
  -77
  -81
  -85
  -90
  -94
  -98
  -103
  -109
  -114
  -119
  -125
  -132
  -137
  -144
  -152
  -159
Free cash flow, $m
  -142
  90
  92
  94
  96
  99
  101
  104
  108
  111
  115
  112
  116
  121
  125
  131
  136
  142
  148
  154
  161
  168
  176
  184
  192
  201
  210
  220
  230
  241
  253
Issuance/(repayment) of debt, $m
  196
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  33
  35
  37
  40
  42
  44
  47
  49
  52
  54
  57
  60
  64
  67
  70
  74
  78
  82
  86
Issuance/(repurchase) of shares, $m
  -11
  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  
  182
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  33
  35
  37
  40
  42
  44
  47
  49
  52
  54
  57
  60
  64
  67
  70
  74
  78
  82
  86
Total cash flow (excl. dividends), $m
  31
  105
  109
  112
  116
  120
  124
  129
  134
  139
  145
  143
  149
  156
  163
  170
  178
  186
  194
  203
  213
  223
  233
  244
  256
  268
  281
  294
  308
  323
  339
Retained Cash Flow (-), $m
  -46
  -14
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -76
Prev. year cash balance distribution, $m
 
  276
  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
 
  367
  94
  96
  99
  101
  104
  107
  111
  114
  118
  116
  120
  125
  130
  135
  141
  147
  153
  160
  167
  175
  183
  191
  200
  209
  219
  229
  240
  251
  263
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
 
  352
  86
  84
  81
  78
  76
  73
  69
  66
  62
  55
  51
  47
  44
  40
  36
  32
  28
  25
  21
  18
  15
  13
  10
  8
  6
  5
  4
  3
  2
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

Sykes Enterprises, Incorporated is engaged in providing outsourced customer contact management solutions and services in the business process outsourcing (BPO) arena on a global basis. The Company has operations in two segments: the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, and EMEA, which includes Europe, the Middle East and Africa. The Company provides its service to clients from its locations in the United States, Canada, Latin America, Australia, the Asia Pacific Rim, Europe and Africa. It serves a range of clients, including medium-sized businesses and public institutions, which span the communications, financial services, technology/consumer, transportation and leisure, healthcare and other industries. Its Americas and EMEA groups primarily provide customer engagement services. The Company's outsourced customer contact management services include customer care, technical support and customer acquisition.

FINANCIAL RATIOS  of  Sykes Enterprises (SYKE)

Valuation Ratios
P/E Ratio 20.3
Price to Sales 0.9
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 9.6
Price to Free Cash Flow 23.8
Growth Rates
Sales Growth Rate 13.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 56%
Cap. Spend. - 3 Yr. Gr. Rate 5.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 36.8%
Total Debt to Equity 36.8%
Interest Coverage 23
Management Effectiveness
Return On Assets 5.9%
Ret/ On Assets - 3 Yr. Avg. 6.5%
Return On Total Capital 7.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8.1%
Return On Equity 8.8%
Return On Equity - 3 Yr. Avg. 9.4%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 35.1%
Gross Margin - 3 Yr. Avg. 34.3%
EBITDA Margin 11.1%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 6.3%
Oper. Margin - 3 Yr. Avg. 6.5%
Pre-Tax Margin 6.1%
Pre-Tax Margin - 3 Yr. Avg. 6.3%
Net Profit Margin 4.2%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 30.3%
Eff/ Tax Rate - 3 Yr. Avg. 26.1%
Payout Ratio 0%

SYKE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SYKE stock intrinsic value calculation we used $1460 million for the last fiscal year's total revenue generated by Sykes Enterprises. The default revenue input number comes from 2016 income statement of Sykes Enterprises. 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 SYKE stock valuation model: a) initial revenue growth rate of 3% 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 SYKE is calculated based on our internal credit rating of Sykes Enterprises, 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 Sykes Enterprises.
    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 SYKE stock the variable cost ratio is equal to 92.7%.

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 SYKE 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 Sykes Enterprises.

Corporate tax rate of 27% is the nominal tax rate for Sykes Enterprises. 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 SYKE 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 SYKE are equal to 16.2%.

Life of production assets of 6.8 years is the average useful life of capital assets used in Sykes Enterprises 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 SYKE is equal to 9.9%. 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 - $725 million for Sykes Enterprises - 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 42.895 million for Sykes Enterprises 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 Sykes Enterprises at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ Sykes tops 2Q profit forecasts   [Aug-07-17 10:47PM  Associated Press]
▶ Sykes tops Street 1Q forecasts   [May-08-17 05:52PM  Associated Press]
▶ Sykes CEO pay squeezed in 2016   [Apr-21-17 03:01PM  American City Business Journals]
▶ Sykes beats Street 2Q forecasts   [Aug-01-16 05:36PM  AP]
▶ Sykes tops 1Q profit forecasts   [May-02-16 05:05PM  AP]
Financial statements of SYKE
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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