Intrinsic value of Adtran - ADTN

Previous Close

$16.00

  Intrinsic Value

$2.58

stock screener

  Rating & Target

str. sell

-84%

Previous close

$16.00

 
Intrinsic value

$2.58

 
Up/down potential

-84%

 
Rating

str. sell

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 2017), $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
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
Revenue, $m
  698
  731
  766
  803
  841
  882
  925
  970
  1,017
  1,066
  1,119
  1,174
  1,231
  1,292
  1,356
  1,422
  1,493
  1,567
  1,644
  1,726
  1,812
  1,901
  1,996
  2,095
  2,200
  2,309
  2,424
  2,545
  2,672
  2,805
Variable operating expenses, $m
  629
  658
  690
  722
  757
  794
  832
  872
  915
  960
  1,006
  1,056
  1,108
  1,162
  1,219
  1,280
  1,343
  1,409
  1,479
  1,552
  1,630
  1,710
  1,796
  1,885
  1,979
  2,077
  2,181
  2,289
  2,403
  2,523
Fixed operating expenses, $m
  31
  31
  32
  33
  33
  34
  35
  36
  36
  37
  38
  39
  40
  41
  42
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  54
  55
  56
  58
Total operating expenses, $m
  660
  689
  722
  755
  790
  828
  867
  908
  951
  997
  1,044
  1,095
  1,148
  1,203
  1,261
  1,322
  1,386
  1,453
  1,524
  1,598
  1,677
  1,758
  1,845
  1,936
  2,031
  2,130
  2,235
  2,344
  2,459
  2,581
Operating income, $m
  39
  42
  45
  48
  51
  54
  58
  61
  65
  70
  74
  79
  84
  89
  95
  100
  107
  113
  120
  127
  135
  143
  151
  160
  169
  179
  190
  200
  212
  224
EBITDA, $m
  49
  52
  55
  59
  62
  66
  70
  74
  79
  84
  89
  94
  100
  106
  112
  119
  126
  134
  142
  150
  158
  168
  177
  188
  198
  210
  222
  234
  247
  261
Interest expense (income), $m
  1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
  29
Earnings before tax, $m
  38
  40
  42
  45
  47
  50
  53
  56
  60
  63
  67
  71
  75
  80
  85
  89
  95
  100
  106
  112
  119
  125
  133
  140
  148
  156
  165
  175
  185
  195
Tax expense, $m
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
Net income, $m
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  82
  87
  91
  97
  102
  108
  114
  121
  128
  135
  142

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
  700
  734
  768
  805
  844
  885
  927
  972
  1,020
  1,070
  1,122
  1,177
  1,235
  1,296
  1,360
  1,427
  1,497
  1,571
  1,649
  1,731
  1,817
  1,907
  2,002
  2,102
  2,206
  2,316
  2,431
  2,552
  2,680
  2,813
Adjusted assets (=assets-cash), $m
  700
  734
  768
  805
  844
  885
  927
  972
  1,020
  1,070
  1,122
  1,177
  1,235
  1,296
  1,360
  1,427
  1,497
  1,571
  1,649
  1,731
  1,817
  1,907
  2,002
  2,102
  2,206
  2,316
  2,431
  2,552
  2,680
  2,813
Revenue / Adjusted assets
  0.997
  0.996
  0.997
  0.998
  0.996
  0.997
  0.998
  0.998
  0.997
  0.996
  0.997
  0.997
  0.997
  0.997
  0.997
  0.996
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
Average production assets, $m
  92
  97
  101
  106
  111
  116
  122
  128
  134
  141
  148
  155
  163
  171
  179
  188
  197
  207
  217
  228
  239
  251
  263
  277
  290
  305
  320
  336
  353
  370
Working capital, $m
  65
  68
  71
  75
  78
  82
  86
  90
  95
  99
  104
  109
  115
  120
  126
  132
  139
  146
  153
  161
  168
  177
  186
  195
  205
  215
  225
  237
  248
  261
Total debt, $m
  34
  42
  51
  61
  71
  81
  92
  103
  116
  128
  142
  156
  171
  186
  203
  220
  238
  257
  277
  298
  320
  343
  367
  393
  419
  447
  477
  508
  541
  575
Total liabilities, $m
  179
  188
  197
  206
  216
  226
  237
  249
  261
  274
  287
  301
  316
  332
  348
  365
  383
  402
  422
  443
  465
  488
  513
  538
  565
  593
  622
  653
  686
  720
Total equity, $m
  521
  546
  572
  599
  628
  658
  690
  724
  759
  796
  835
  876
  919
  964
  1,012
  1,061
  1,114
  1,169
  1,227
  1,288
  1,352
  1,419
  1,489
  1,564
  1,641
  1,723
  1,809
  1,899
  1,994
  2,093
Total liabilities and equity, $m
  700
  734
  769
  805
  844
  884
  927
  973
  1,020
  1,070
  1,122
  1,177
  1,235
  1,296
  1,360
  1,426
  1,497
  1,571
  1,649
  1,731
  1,817
  1,907
  2,002
  2,102
  2,206
  2,316
  2,431
  2,552
  2,680
  2,813
Debt-to-equity ratio
  0.060
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.190
  0.200
  0.210
  0.210
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
Adjusted equity ratio
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744
  0.744

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  82
  87
  91
  97
  102
  108
  114
  121
  128
  135
  142
Depreciation, amort., depletion, $m
  10
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
Funds from operations, $m
  37
  39
  41
  44
  46
  49
  51
  54
  57
  61
  64
  68
  71
  75
  80
  84
  89
  94
  99
  105
  110
  117
  123
  130
  137
  145
  153
  161
  170
  179
Change in working capital, $m
  3
  3
  3
  3
  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
Cash from operations, $m
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  70
  74
  78
  82
  87
  92
  97
  102
  108
  114
  121
  127
  135
  142
  150
  158
  167
Maintenance CAPEX, $m
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
New CAPEX, $m
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
Cash from investing activities, $m
  -13
  -13
  -15
  -15
  -16
  -16
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -42
  -43
  -45
  -48
  -51
  -53
Free cash flow, $m
  21
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  51
  54
  57
  61
  65
  68
  72
  77
  81
  86
  91
  96
  102
  108
  114
Issuance/(repayment) of debt, $m
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  34
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  34
Total cash flow (excl. dividends), $m
  30
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  58
  61
  65
  68
  72
  76
  81
  85
  90
  96
  101
  107
  113
  119
  126
  133
  140
  148
Retained Cash Flow (-), $m
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -99
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
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
Cash available for distribution, $m
  7
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  25
  26
  28
  30
  33
  35
  37
  40
  43
  46
  49
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
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  5
  5
  5
  4
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  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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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 (ADTN)

Valuation Ratios
P/E Ratio 22.2
Price to Sales 1.2
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 18.5
Price to Free Cash Flow 36.9
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 $667 million for the last fiscal year's total revenue generated by Adtran. The default revenue input number comes from 2017 income statement of Adtran. 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 4.7% 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, 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.
    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 90%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $30 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.

Corporate tax rate of 27% is the nominal tax rate for Adtran. 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 1.1%.

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 13.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Adtran 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 9.3%. 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 - $498 million for Adtran - 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 48 million for Adtran 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 at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ Adtran: 2Q Earnings Snapshot   [05:06AM  Associated Press]
▶ Earnings Outlook For Adtran   [08:21AM  Benzinga]
▶ New Strong Sell Stocks for July 13th   [Jul-13-18 07:10AM  Zacks]
▶ New Strong Sell Stocks for July 10th   [Jul-10-18 08:13AM  Zacks]
▶ Does ADTRAN Inc (NASDAQ:ADTN) Have A Place In Your Portfolio?   [Jun-21-18 01:09PM  Simply Wall St.]
▶ ADTRANS Global Design Centers Certified Secure   [Jun-14-18 08:00AM  Business Wire]
▶ Argus Downgrades Adtran After 'Weak' Q1   [Apr-19-18 02:40PM  Benzinga]
▶ Adtran: 1Q Earnings Snapshot   [05:04AM  Associated Press]
▶ You Should Diversify With These Tech Dividend Stocks   [Mar-07-18 04:02PM  Simply Wall St.]
▶ ADTRAN Builds Competitive Broadband Network for EWE TEL   [Feb-28-18 02:00AM  Business Wire]
▶ Adtran reports 4Q loss   [Jan-17-18 05:01AM  Associated Press]
▶ ADTRAN Inc (ADTN)s Earnings Grew 29.6%, Is It Enough?   [Nov-27-17 06:10PM  Simply Wall St.]
▶ Adtran misses 3Q revenue forecasts   [Oct-18-17 05:01AM  Associated Press]
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