Intrinsic value of ADTRAN, Inc. - ADTN

Previous Close

$15.72

  Intrinsic Value

$20.36

stock screener

  Rating & Target

buy

+30%

Previous close

$15.72

 
Intrinsic value

$20.36

 
Up/down potential

+30%

 
Rating

buy

We calculate the intrinsic value of ADTN 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 0001), $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
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
Revenue, $m
  584
  642
  702
  764
  830
  898
  968
  1,042
  1,118
  1,197
  1,280
  1,365
  1,455
  1,547
  1,644
  1,744
  1,849
  1,958
  2,072
  2,190
  2,314
  2,444
  2,579
  2,720
  2,868
  3,022
  3,184
  3,353
  3,530
  3,716
Variable operating expenses, $m
  231
  253
  276
  300
  325
  351
  378
  406
  435
  465
  488
  521
  555
  591
  627
  666
  706
  747
  791
  836
  883
  933
  984
  1,038
  1,095
  1,154
  1,215
  1,280
  1,348
  1,418
Fixed operating expenses, $m
  381
  390
  398
  407
  416
  425
  434
  444
  454
  464
  474
  484
  495
  506
  517
  528
  540
  552
  564
  576
  589
  602
  615
  629
  643
  657
  671
  686
  701
  717
Total operating expenses, $m
  612
  643
  674
  707
  741
  776
  812
  850
  889
  929
  962
  1,005
  1,050
  1,097
  1,144
  1,194
  1,246
  1,299
  1,355
  1,412
  1,472
  1,535
  1,599
  1,667
  1,738
  1,811
  1,886
  1,966
  2,049
  2,135
Operating income, $m
  -28
  -1
  28
  58
  89
  122
  156
  192
  230
  269
  317
  360
  404
  451
  499
  550
  603
  659
  717
  778
  842
  909
  979
  1,053
  1,131
  1,212
  1,298
  1,387
  1,482
  1,581
EBITDA, $m
  -4
  24
  55
  86
  119
  154
  190
  228
  268
  309
  352
  397
  444
  492
  544
  597
  653
  711
  773
  837
  904
  975
  1,049
  1,126
  1,208
  1,293
  1,383
  1,477
  1,577
  1,681
Interest expense (income), $m
  1
  1
  2
  3
  5
  6
  7
  8
  9
  11
  12
  14
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
  54
  57
Earnings before tax, $m
  -30
  -3
  24
  53
  83
  115
  148
  183
  219
  256
  304
  345
  388
  432
  479
  528
  579
  633
  689
  748
  810
  875
  942
  1,014
  1,089
  1,167
  1,250
  1,337
  1,428
  1,524
Tax expense, $m
  0
  0
  7
  14
  23
  31
  40
  49
  59
  69
  82
  93
  105
  117
  129
  143
  156
  171
  186
  202
  219
  236
  254
  274
  294
  315
  337
  361
  386
  412
Net income, $m
  -30
  -3
  18
  39
  61
  84
  108
  133
  160
  187
  222
  252
  283
  316
  350
  386
  423
  462
  503
  546
  591
  638
  688
  740
  795
  852
  912
  976
  1,043
  1,113

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  694
  762
  833
  908
  985
  1,066
  1,150
  1,237
  1,328
  1,422
  1,520
  1,622
  1,728
  1,838
  1,952
  2,072
  2,196
  2,325
  2,460
  2,601
  2,749
  2,902
  3,063
  3,231
  3,406
  3,590
  3,782
  3,983
  4,193
  4,413
Adjusted assets (=assets-cash), $m
  694
  762
  833
  908
  985
  1,066
  1,150
  1,237
  1,328
  1,422
  1,520
  1,622
  1,728
  1,838
  1,952
  2,072
  2,196
  2,325
  2,460
  2,601
  2,749
  2,902
  3,063
  3,231
  3,406
  3,590
  3,782
  3,983
  4,193
  4,413
Revenue / Adjusted assets
  0.841
  0.843
  0.843
  0.841
  0.843
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
  0.842
Average production assets, $m
  105
  115
  126
  138
  149
  162
  174
  188
  201
  216
  230
  246
  262
  279
  296
  314
  333
  352
  373
  394
  417
  440
  464
  490
  516
  544
  573
  604
  635
  669
Working capital, $m
  142
  156
  171
  186
  202
  218
  235
  253
  272
  291
  311
  332
  353
  376
  399
  424
  449
  476
  503
  532
  562
  594
  627
  661
  697
  734
  774
  815
  858
  903
Total debt, $m
  43
  63
  84
  105
  128
  151
  175
  200
  227
  254
  282
  312
  342
  374
  407
  442
  477
  515
  554
  595
  637
  682
  728
  777
  827
  880
  936
  994
  1,055
  1,118
Total liabilities, $m
  200
  220
  241
  262
  285
  308
  332
  358
  384
  411
  439
  469
  499
  531
  564
  599
  635
  672
  711
  752
  794
  839
  885
  934
  984
  1,037
  1,093
  1,151
  1,212
  1,275
Total equity, $m
  493
  542
  593
  646
  701
  758
  818
  880
  944
  1,011
  1,081
  1,153
  1,228
  1,307
  1,388
  1,473
  1,561
  1,653
  1,749
  1,850
  1,954
  2,064
  2,178
  2,297
  2,422
  2,552
  2,689
  2,832
  2,981
  3,138
Total liabilities and equity, $m
  693
  762
  834
  908
  986
  1,066
  1,150
  1,238
  1,328
  1,422
  1,520
  1,622
  1,727
  1,838
  1,952
  2,072
  2,196
  2,325
  2,460
  2,602
  2,748
  2,903
  3,063
  3,231
  3,406
  3,589
  3,782
  3,983
  4,193
  4,413
Debt-to-equity ratio
  0.090
  0.120
  0.140
  0.160
  0.180
  0.200
  0.210
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.290
  0.290
  0.300
  0.310
  0.310
  0.320
  0.320
  0.330
  0.330
  0.330
  0.340
  0.340
  0.340
  0.350
  0.350
  0.350
  0.360
Adjusted equity ratio
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711
  0.711

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -30
  -3
  18
  39
  61
  84
  108
  133
  160
  187
  222
  252
  283
  316
  350
  386
  423
  462
  503
  546
  591
  638
  688
  740
  795
  852
  912
  976
  1,043
  1,113
Depreciation, amort., depletion, $m
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  86
  90
  95
  100
Funds from operations, $m
  -6
  22
  45
  67
  91
  116
  142
  169
  198
  227
  256
  288
  322
  357
  394
  432
  473
  515
  559
  605
  653
  704
  757
  813
  872
  933
  998
  1,066
  1,137
  1,212
Change in working capital, $m
  13
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  27
  28
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
Cash from operations, $m
  -19
  8
  30
  52
  75
  100
  125
  152
  179
  208
  236
  268
  300
  335
  371
  408
  447
  488
  531
  576
  623
  673
  724
  779
  836
  896
  959
  1,025
  1,094
  1,167
Maintenance CAPEX, $m
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -42
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -86
  -90
  -95
New CAPEX, $m
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
Cash from investing activities, $m
  -24
  -26
  -28
  -30
  -33
  -34
  -37
  -39
  -42
  -44
  -47
  -49
  -53
  -56
  -59
  -62
  -66
  -70
  -73
  -77
  -81
  -85
  -90
  -94
  -100
  -105
  -110
  -116
  -122
  -128
Free cash flow, $m
  -43
  -18
  2
  22
  43
  65
  88
  112
  138
  164
  189
  218
  248
  279
  312
  346
  381
  419
  458
  499
  542
  587
  634
  684
  736
  791
  848
  909
  972
  1,039
Issuance/(repayment) of debt, $m
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  64
Issuance/(repurchase) of shares, $m
  76
  52
  33
  14
  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  
  95
  72
  54
  36
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  64
Total cash flow (excl. dividends), $m
  52
  54
  56
  58
  66
  88
  112
  138
  164
  191
  217
  247
  278
  311
  345
  380
  417
  456
  497
  540
  585
  632
  681
  733
  787
  844
  904
  967
  1,033
  1,103
Retained Cash Flow (-), $m
  -76
  -52
  -51
  -53
  -55
  -57
  -60
  -62
  -64
  -67
  -70
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -100
  -105
  -109
  -114
  -119
  -125
  -130
  -137
  -143
  -150
  -157
Prev. year cash balance distribution, $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 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
  -25
  2
  5
  5
  10
  31
  53
  76
  99
  124
  148
  175
  203
  232
  263
  295
  329
  364
  401
  440
  480
  522
  567
  613
  662
  714
  767
  824
  884
  946
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
  -24
  2
  4
  4
  8
  23
  36
  47
  57
  65
  70
  75
  77
  78
  77
  75
  72
  67
  62
  56
  50
  43
  37
  31
  26
  21
  16
  13
  10
  7
Current shareholders' claim on cash, %
  90.8
  85.4
  82.4
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3
  81.3

ADTRAN, Inc. (ADTRAN) is a provider of networking and communications equipment. The Company's solutions enable voice, data, video and Internet communications across a range of network infrastructures. It operates through two segments: Network Solutions and Services & Support. Network Solutions includes software and hardware products that enable CSPs and enterprise customers to realize a fully connected world. It provides a full-range of network implementation, maintenance and managed services. Its solutions include Access & Aggregation, Customer Devices, and Traditional & Other Products. Its Access & Aggregation solutions are used by communications service providers (CSPs) to connect their network infrastructure to their subscribers. The portfolio of ADTRAN solutions within Access & Aggregation category includes a range of modular or fixed physical form factors designed to deliver the technology and economic fit based on the target subscriber density and environmental conditions.

FINANCIAL RATIOS  of  ADTRAN, Inc. (ADTN)

Valuation Ratios
P/E Ratio 21.8
Price to Sales 1.2
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 18.1
Price to Free Cash Flow 36.3
Growth Rates
Sales Growth Rate 6.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 75%
Cap. Spend. - 3 Yr. Gr. Rate 21.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 5.6%
Total Debt to Equity 5.6%
Interest Coverage 48
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 6.9%
Ret/ On T. Cap. - 3 Yr. Avg. 5.9%
Return On Equity 7.3%
Return On Equity - 3 Yr. Avg. 6.3%
Asset Turnover 1
Profitability Ratios
Gross Margin 45.7%
Gross Margin - 3 Yr. Avg. 46.5%
EBITDA Margin 9.7%
EBITDA Margin - 3 Yr. Avg. 9.5%
Operating Margin 6%
Oper. Margin - 3 Yr. Avg. 5.2%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. 7.1%
Net Profit Margin 5.5%
Net Profit Margin - 3 Yr. Avg. 5.3%
Effective Tax Rate 25.5%
Eff/ Tax Rate - 3 Yr. Avg. 25.8%
Payout Ratio 51.4%

ADTN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADTN stock intrinsic value calculation we used $529 million for the last fiscal year's total revenue generated by ADTRAN, Inc.. The default revenue input number comes from 0001 income statement of ADTRAN, Inc.. 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 ADTN stock valuation model: a) initial revenue growth rate of 10.4% 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 ADTN is calculated based on our internal credit rating of ADTRAN, Inc., 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 ADTRAN, Inc..
    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 ADTN stock the variable cost ratio is equal to 39.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $373 million in the base year in the intrinsic value calculation for ADTN 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 5.4% for ADTRAN, Inc..

Corporate tax rate of 27% is the nominal tax rate for ADTRAN, Inc.. 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 ADTN 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 ADTN are equal to 18%.

Life of production assets of 6.7 years is the average useful life of capital assets used in ADTRAN, Inc. 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 ADTN is equal to 24.3%. 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 - $446.279 million for ADTRAN, Inc. - 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 47.777 million for ADTRAN, Inc. 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 ADTRAN, Inc. at the current share price and the inputted number of shares is $0.8 billion.

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