Intrinsic value of Zix - ZIXI

Previous Close

$5.24

  Intrinsic Value

$5.14

stock screener

  Rating & Target

hold

-2%

  Value-price divergence*

+124%

Previous close

$5.24

 
Intrinsic value

$5.14

 
Up/down potential

-2%

 
Rating

hold

 
Value-price divergence*

+124%

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

We calculate the intrinsic value of ZIXI 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 0.3

 

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, %
  9.09
  14.30
  13.37
  12.53
  11.78
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
Revenue, $m
  60
  69
  78
  87
  98
  109
  120
  132
  144
  157
  171
  185
  200
  215
  231
  247
  264
  282
  301
  320
  340
  361
  382
  405
  429
  453
  479
  506
  534
  563
  594
Variable operating expenses, $m
 
  55
  62
  70
  78
  87
  96
  105
  115
  126
  136
  147
  159
  171
  184
  197
  211
  225
  240
  255
  271
  287
  305
  323
  342
  361
  382
  403
  425
  449
  473
Fixed operating expenses, $m
 
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
Total operating expenses, $m
  51
  58
  65
  73
  81
  90
  99
  109
  119
  130
  140
  151
  163
  175
  188
  201
  215
  230
  245
  260
  276
  292
  310
  328
  347
  367
  388
  409
  431
  455
  479
Operating income, $m
  9
  11
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  73
  77
  82
  87
  92
  97
  103
  108
  114
EBITDA, $m
  11
  11
  13
  15
  17
  19
  22
  24
  27
  29
  32
  35
  38
  41
  44
  48
  51
  55
  58
  62
  66
  71
  75
  80
  85
  90
  95
  100
  106
  112
  118
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
Earnings before tax, $m
  10
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  32
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  80
  84
  89
  94
  99
  105
Tax expense, $m
  4
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
Net income, $m
  6
  8
  9
  10
  12
  13
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  69
  72
  76

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  26
  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
  82
  64
  73
  82
  91
  101
  112
  123
  135
  147
  160
  173
  187
  201
  216
  231
  247
  263
  281
  299
  317
  337
  357
  378
  400
  423
  447
  472
  498
  526
  554
Adjusted assets (=assets-cash), $m
  56
  64
  73
  82
  91
  101
  112
  123
  135
  147
  160
  173
  187
  201
  216
  231
  247
  263
  281
  299
  317
  337
  357
  378
  400
  423
  447
  472
  498
  526
  554
Revenue / Adjusted assets
  1.071
  1.078
  1.068
  1.061
  1.077
  1.079
  1.071
  1.073
  1.067
  1.068
  1.069
  1.069
  1.070
  1.070
  1.069
  1.069
  1.069
  1.072
  1.071
  1.070
  1.073
  1.071
  1.070
  1.071
  1.073
  1.071
  1.072
  1.072
  1.072
  1.070
  1.072
Average production assets, $m
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  17
  18
  19
  20
  21
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
Working capital, $m
  1
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -53
  -56
  -59
Total debt, $m
  0
  5
  10
  15
  21
  27
  33
  40
  46
  54
  61
  69
  77
  85
  94
  103
  112
  122
  132
  143
  154
  165
  177
  190
  203
  216
  230
  245
  261
  277
  294
Total liabilities, $m
  33
  38
  43
  48
  54
  60
  66
  73
  79
  87
  94
  102
  110
  118
  127
  136
  145
  155
  165
  176
  187
  198
  210
  223
  236
  249
  263
  278
  294
  310
  327
Total equity, $m
  49
  26
  30
  34
  38
  42
  46
  51
  55
  60
  66
  71
  77
  83
  89
  95
  101
  108
  115
  123
  130
  138
  147
  155
  165
  174
  184
  194
  205
  216
  228
Total liabilities and equity, $m
  82
  64
  73
  82
  92
  102
  112
  124
  134
  147
  160
  173
  187
  201
  216
  231
  246
  263
  280
  299
  317
  336
  357
  378
  401
  423
  447
  472
  499
  526
  555
Debt-to-equity ratio
  0.000
  0.180
  0.330
  0.450
  0.550
  0.640
  0.720
  0.780
  0.840
  0.890
  0.930
  0.970
  1.000
  1.030
  1.060
  1.090
  1.110
  1.130
  1.150
  1.160
  1.180
  1.190
  1.210
  1.220
  1.230
  1.240
  1.250
  1.260
  1.270
  1.280
  1.290
Adjusted equity ratio
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  8
  9
  10
  12
  13
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  69
  72
  76
Depreciation, amort., depletion, $m
  2
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
Funds from operations, $m
  17
  8
  10
  11
  12
  14
  15
  17
  19
  21
  22
  24
  26
  28
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  58
  61
  65
  68
  72
  76
  80
Change in working capital, $m
  2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Cash from operations, $m
  15
  9
  11
  12
  13
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  45
  47
  50
  54
  57
  60
  64
  67
  71
  75
  79
  84
Maintenance CAPEX, $m
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
New CAPEX, $m
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  -2
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
Free cash flow, $m
  13
  8
  10
  11
  12
  14
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  74
  78
Issuance/(repayment) of debt, $m
  0
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
Issuance/(repurchase) of shares, $m
  -15
  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  
  -15
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
Total cash flow (excl. dividends), $m
  -2
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  31
  34
  36
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  85
  90
  95
Retained Cash Flow (-), $m
  8
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Prev. year cash balance distribution, $m
 
  26
  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
 
  36
  11
  12
  14
  15
  17
  19
  20
  22
  24
  26
  28
  30
  32
  35
  37
  39
  42
  45
  47
  50
  53
  56
  60
  63
  67
  70
  74
  78
  83
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
 
  34
  10
  11
  11
  12
  12
  13
  13
  13
  13
  12
  12
  11
  11
  10
  9
  9
  8
  7
  6
  5
  4
  4
  3
  2
  2
  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
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Zix Corporation provides email encryption, data loss prevention (DLP), and Bring-Your-Own-Device solutions to the healthcare, financial services, insurance, and government sectors in the United States. The company offers Zix Email Encryption that allows an enterprise to use policy-driven rules to determine, which email messages should be sent securely to comply with regulations or company-defined policies. It also provides ZixDirectory, an email encryption community to share identities; ZixCorp’s Best Method of Delivery, which is designed to deliver email based on the sender’s and recipient’s communications environment and preferences; and ZixGateway, which automatically encrypts and decrypts messages with sensitive content. In addition, the company offers ZixDLP, an email-specific data loss prevention solution that reduces deployment time from months to hours and minimizes impact on customer resources and workflow; and ZixOne, a mobile email app, which provides access to corporate email while never allowing that data to be persistently stored on the device where it is vulnerable to loss or theft. It sells its email encryption, DLP, and ZixOne services through a direct sales force, and a network of resellers and other distribution partners. The company was formerly known as ZixIt Corporation and changed its name to Zix Corporation in 2002. Zix Corporation was founded in 1983 and is headquartered in Dallas, Texas.

FINANCIAL RATIOS  of  Zix (ZIXI)

Valuation Ratios
P/E Ratio 46.8
Price to Sales 4.7
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 18.7
Price to Free Cash Flow 21.6
Growth Rates
Sales Growth Rate 9.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
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 7.1%
Ret/ On Assets - 3 Yr. Avg. 5.8%
Return On Total Capital 11.3%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 11.3%
Return On Equity - 3 Yr. Avg. 8.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 83.3%
Gross Margin - 3 Yr. Avg. 83.1%
EBITDA Margin 20%
EBITDA Margin - 3 Yr. Avg. 18.7%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 13.8%
Pre-Tax Margin 16.7%
Pre-Tax Margin - 3 Yr. Avg. 15.1%
Net Profit Margin 10%
Net Profit Margin - 3 Yr. Avg. 9%
Effective Tax Rate 40%
Eff/ Tax Rate - 3 Yr. Avg. 40.1%
Payout Ratio 0%

ZIXI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ZIXI stock intrinsic value calculation we used $60 million for the last fiscal year's total revenue generated by Zix. The default revenue input number comes from 2016 income statement of Zix. 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 ZIXI stock valuation model: a) initial revenue growth rate of 14.3% 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 ZIXI is calculated based on our internal credit rating of Zix, 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 Zix.
    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 ZIXI stock the variable cost ratio is equal to 80%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3 million in the base year in the intrinsic value calculation for ZIXI 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 Zix.

Corporate tax rate of 27% is the nominal tax rate for Zix. 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 ZIXI 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 ZIXI are equal to 6.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Zix 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 ZIXI 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 - $49 million for Zix - 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 51.181 million for Zix 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 Zix at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Zix and Digital Guardian Announce Strategic Partnership   [Aug-08-17 07:36AM  Business Wire]
▶ Zix Corp. Value Analysis (NASDAQ:ZIXI) : August 4, 2017   [Aug-03-17 11:55PM  Capital Cube]
▶ Zix meets 2Q profit forecasts   [Aug-01-17 06:23PM  Associated Press]
▶ ETFs with exposure to Zix Corp. : July 25, 2017   [Jul-25-17 02:23PM  Capital Cube]
▶ ETFs with exposure to Zix Corp. : July 14, 2017   [Jul-14-17 05:46PM  Capital Cube]
▶ Zix to Announce Second Quarter 2017 Results on August 1   [Jul-06-17 07:36AM  Business Wire]
▶ ETFs with exposure to Zix Corp. : June 27, 2017   [Jun-27-17 04:04PM  Capital Cube]
▶ Zix posts 1Q profit   [Apr-25-17 05:02PM  Associated Press]
▶ Zix Announces Share Repurchase Program   [04:07PM  Business Wire]
▶ ETFs with exposure to Zix Corp. : April 5, 2017   [Apr-05-17 05:48PM  Capital Cube]
▶ Zix tops 4Q profit forecasts   [Feb-09-17 06:19PM  Associated Press]
▶ Zix Corporation Evolves Company Brand   [Feb-07-17 07:35AM  Business Wire]
▶ Should You Buy Zix Corporation (ZIXI)?   [Dec-09-16 05:04AM  at Insider Monkey]
▶ Zix meets 2Q profit forecasts   [Jul-26-16 05:13PM  AP]
▶ ZixCorp to Announce Second Quarter 2016 Results on July 26   [Jul-05-16 07:35AM  Business Wire]
▶ Zix tops 1Q profit forecasts   [Apr-26-16 05:21PM  AP]
Stock chart of ZIXI Financial statements of ZIXI
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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