Intrinsic value of Tessco Technologies - TESS

Previous Close

$13.70

  Intrinsic Value

$47.19

stock screener

  Rating & Target

str. buy

+244%

  Value-price divergence*

+151%

Previous close

$13.70

 
Intrinsic value

$47.19

 
Up/down potential

+244%

 
Rating

str. buy

 
Value-price divergence*

+151%

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

We calculate the intrinsic value of TESS 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, %
  -3.45
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  531
  558
  585
  615
  645
  678
  712
  747
  785
  824
  865
  908
  954
  1,001
  1,051
  1,104
  1,159
  1,217
  1,278
  1,342
  1,409
  1,479
  1,553
  1,631
  1,713
  1,798
  1,888
  1,982
  2,082
  2,186
  2,295
Variable operating expenses, $m
 
  381
  400
  420
  441
  463
  486
  511
  536
  563
  591
  619
  650
  683
  717
  753
  790
  830
  871
  915
  961
  1,009
  1,059
  1,112
  1,167
  1,226
  1,287
  1,352
  1,419
  1,490
  1,565
Fixed operating expenses, $m
 
  167
  171
  176
  180
  184
  189
  194
  199
  204
  209
  214
  219
  225
  230
  236
  242
  248
  254
  261
  267
  274
  281
  288
  295
  302
  310
  317
  325
  334
  342
Total operating expenses, $m
  522
  548
  571
  596
  621
  647
  675
  705
  735
  767
  800
  833
  869
  908
  947
  989
  1,032
  1,078
  1,125
  1,176
  1,228
  1,283
  1,340
  1,400
  1,462
  1,528
  1,597
  1,669
  1,744
  1,824
  1,907
Operating income, $m
  9
  9
  14
  19
  24
  30
  36
  43
  50
  57
  65
  75
  84
  94
  104
  115
  127
  139
  152
  166
  181
  197
  214
  231
  250
  270
  291
  313
  337
  362
  388
EBITDA, $m
  14
  14
  19
  24
  29
  35
  42
  49
  56
  64
  72
  81
  90
  100
  111
  122
  134
  147
  160
  175
  190
  206
  223
  241
  260
  281
  302
  325
  350
  375
  402
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
Earnings before tax, $m
  9
  9
  14
  19
  24
  30
  36
  42
  49
  56
  64
  74
  83
  92
  102
  113
  125
  137
  150
  164
  178
  194
  210
  228
  246
  266
  286
  308
  332
  356
  382
Tax expense, $m
  4
  2
  4
  5
  6
  8
  10
  11
  13
  15
  17
  20
  22
  25
  28
  31
  34
  37
  40
  44
  48
  52
  57
  61
  66
  72
  77
  83
  90
  96
  103
Net income, $m
  5
  7
  10
  14
  17
  22
  26
  31
  36
  41
  47
  54
  60
  67
  75
  83
  91
  100
  109
  119
  130
  141
  153
  166
  180
  194
  209
  225
  242
  260
  279

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  17
  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
  169
  160
  168
  176
  185
  194
  204
  214
  225
  236
  248
  260
  273
  287
  301
  316
  332
  348
  366
  384
  403
  424
  445
  467
  490
  515
  541
  568
  596
  626
  657
Adjusted assets (=assets-cash), $m
  152
  160
  168
  176
  185
  194
  204
  214
  225
  236
  248
  260
  273
  287
  301
  316
  332
  348
  366
  384
  403
  424
  445
  467
  490
  515
  541
  568
  596
  626
  657
Revenue / Adjusted assets
  3.493
  3.488
  3.482
  3.494
  3.486
  3.495
  3.490
  3.491
  3.489
  3.492
  3.488
  3.492
  3.495
  3.488
  3.492
  3.494
  3.491
  3.497
  3.492
  3.495
  3.496
  3.488
  3.490
  3.493
  3.496
  3.491
  3.490
  3.489
  3.493
  3.492
  3.493
Average production assets, $m
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  90
Working capital, $m
  82
  68
  71
  75
  79
  83
  87
  91
  96
  100
  106
  111
  116
  122
  128
  135
  141
  148
  156
  164
  172
  180
  190
  199
  209
  219
  230
  242
  254
  267
  280
Total debt, $m
  2
  5
  8
  11
  14
  17
  21
  25
  29
  33
  37
  42
  46
  51
  57
  62
  68
  74
  81
  87
  94
  102
  110
  118
  126
  135
  145
  155
  165
  176
  188
Total liabilities, $m
  57
  59
  62
  65
  68
  71
  75
  79
  83
  87
  91
  96
  100
  105
  111
  116
  122
  128
  135
  141
  148
  156
  164
  172
  180
  189
  199
  209
  219
  230
  242
Total equity, $m
  113
  101
  106
  111
  117
  123
  129
  135
  142
  149
  156
  164
  173
  181
  190
  200
  210
  220
  231
  243
  255
  268
  281
  295
  310
  325
  342
  359
  377
  395
  415
Total liabilities and equity, $m
  170
  160
  168
  176
  185
  194
  204
  214
  225
  236
  247
  260
  273
  286
  301
  316
  332
  348
  366
  384
  403
  424
  445
  467
  490
  514
  541
  568
  596
  625
  657
Debt-to-equity ratio
  0.018
  0.050
  0.070
  0.100
  0.120
  0.140
  0.160
  0.180
  0.200
  0.220
  0.240
  0.250
  0.270
  0.280
  0.300
  0.310
  0.320
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.420
  0.430
  0.440
  0.450
  0.450
Adjusted equity ratio
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632
  0.632

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  7
  10
  14
  17
  22
  26
  31
  36
  41
  47
  54
  60
  67
  75
  83
  91
  100
  109
  119
  130
  141
  153
  166
  180
  194
  209
  225
  242
  260
  279
Depreciation, amort., depletion, $m
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Funds from operations, $m
  29
  11
  15
  18
  23
  27
  31
  36
  42
  47
  53
  59
  66
  73
  81
  89
  98
  107
  117
  128
  139
  150
  163
  176
  190
  205
  220
  237
  255
  273
  293
Change in working capital, $m
  9
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
Cash from operations, $m
  20
  7
  11
  15
  19
  23
  27
  32
  37
  43
  48
  54
  61
  68
  75
  83
  91
  100
  110
  120
  130
  142
  154
  166
  180
  194
  209
  225
  242
  260
  280
Maintenance CAPEX, $m
  0
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
New CAPEX, $m
  -4
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -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
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -15
  -15
  -16
  -16
  -17
Free cash flow, $m
  16
  3
  7
  10
  14
  18
  22
  26
  31
  36
  42
  47
  53
  60
  67
  75
  83
  91
  100
  110
  120
  131
  142
  154
  167
  181
  195
  210
  227
  244
  262
Issuance/(repayment) of debt, $m
  0
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
Issuance/(repurchase) of shares, $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 financing (excl. dividends), $m  
  0
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
Total cash flow (excl. dividends), $m
  16
  6
  10
  13
  17
  21
  26
  30
  35
  40
  46
  52
  58
  65
  72
  80
  88
  97
  106
  116
  127
  138
  150
  162
  176
  190
  205
  220
  237
  255
  274
Retained Cash Flow (-), $m
  0
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Prev. year cash balance distribution, $m
 
  17
  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
 
  18
  5
  8
  12
  15
  19
  24
  28
  33
  39
  44
  50
  56
  63
  71
  78
  87
  95
  105
  115
  125
  136
  148
  161
  174
  188
  203
  219
  236
  254
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
 
  17
  4
  7
  10
  12
  14
  16
  18
  19
  20
  21
  21
  21
  21
  21
  20
  19
  18
  16
  15
  13
  11
  10
  8
  7
  5
  4
  3
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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TESSCO Technologies Incorporated architects and delivers products and value chain solutions to support wireless systems in the United States. It provides base station infrastructure products, including base station antennas, cable and transmission lines, small towers, lightning protection devices, connectors, power systems, enclosures, grounding, jumpers, miscellaneous hardware products, and mobile antennas to build, repair, and upgrade wireless broadband systems; and connector installation, custom jumper assembly, site kitting, and logistics integration services. The company also offers network systems, such as fixed and mobile broadband radio equipment, wireless networking filtering and distributed antenna systems, two-way radios, and security and surveillance products to build and upgrade public and private wireless broadband networks; and training classes, technical support, and engineering design services. In addition, it provides analysis equipment, tools, hardware, GPS, safety and replacement products, and component parts and supplies, as well as various frequency, voltage, and power-measuring devices to install, tune, and maintain wireless communications equipment. Further, the company offers mobile devices and accessory products, such as cellular and smart phone, and data device accessories consisting of replacement batteries, cases, screen protectors, speakers, mobile amplifiers, power supplies, bluetooth and corded headsets, mounts, car antennas, music accessories, and data and memory cards. It sells its products to carrier and public network operators, tower owners, program managers, contractors and integrators, wireless Internet service providers, industrial and enterprise self-maintained users, governments, manufacturers, value-added resellers, retail carrier stores, and local and national retailers under the Ventev, Wireless Solutions, and TerraWave brands. The company was founded in 1982 and is headquartered in Hunt Valley, Maryland.

FINANCIAL RATIOS  of  Tessco Technologies (TESS)

Valuation Ratios
P/E Ratio 22.7
Price to Sales 0.2
Price to Book 1
Price to Tangible Book
Price to Cash Flow 5.7
Price to Free Cash Flow 7.1
Growth Rates
Sales Growth Rate -3.5%
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 -4.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 1.8%
Total Debt to Equity 1.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 4.4%
Return On Equity - 3 Yr. Avg. 9%
Asset Turnover 3
Profitability Ratios
Gross Margin 21.1%
Gross Margin - 3 Yr. Avg. 21.7%
EBITDA Margin 2.6%
EBITDA Margin - 3 Yr. Avg. 3.9%
Operating Margin 1.7%
Oper. Margin - 3 Yr. Avg. 3%
Pre-Tax Margin 1.7%
Pre-Tax Margin - 3 Yr. Avg. 3%
Net Profit Margin 0.9%
Net Profit Margin - 3 Yr. Avg. 1.8%
Effective Tax Rate 44.4%
Eff/ Tax Rate - 3 Yr. Avg. 39.5%
Payout Ratio 140%

TESS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TESS stock intrinsic value calculation we used $531 million for the last fiscal year's total revenue generated by Tessco Technologies. The default revenue input number comes from 2016 income statement of Tessco Technologies. 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 TESS stock valuation model: a) initial revenue growth rate of 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 TESS is calculated based on our internal credit rating of Tessco Technologies, 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 Tessco Technologies.
    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 TESS stock the variable cost ratio is equal to 68.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $163 million in the base year in the intrinsic value calculation for TESS 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 Tessco Technologies.

Corporate tax rate of 27% is the nominal tax rate for Tessco Technologies. 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 TESS 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 TESS are equal to 3.9%.

Life of production assets of 6.5 years is the average useful life of capital assets used in Tessco Technologies 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 TESS is equal to 12.2%. 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 - $113 million for Tessco Technologies - 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 8.492 million for Tessco Technologies 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 Tessco Technologies at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Tessco posts 3Q profit   [04:24PM  AP]
▶ Does PRGX Global Inc (PRGX) Stack Up Against Its Peers?   [Dec-16-16 08:54PM  at Insider Monkey]
▶ Tessco Technologies names new CEO   [Sep-01-16 03:00PM  at bizjournals.com]
▶ Tessco posts 1Q profit   [04:36PM  AP]
▶ CommScope Executive David Strauss Joins TESSCO   [Mar-08-16 09:03AM  Business Wire]
▶ TESSCO Introduces New Solutions at TESSCO ONE   [Feb-22-16 09:15AM  Business Wire]
▶ Should You Buy TESSCO Technologies, Inc. (TESS)?   [Nov-27  09:17AM  at Insider Monkey]
Stock chart of TESS Financial statements of TESS
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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