Intrinsic value of Comtech Telecommunications - CMTL

Previous Close

$21.62

  Intrinsic Value

$20.96

stock screener

  Rating & Target

hold

-3%

  Value-price divergence*

-100%

Previous close

$21.62

 
Intrinsic value

$20.96

 
Up/down potential

-3%

 
Rating

hold

 
Value-price divergence*

-100%

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

We calculate the intrinsic value of CMTL 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 0.5

 

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, %
  33.88
  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
  4.92
Revenue, $m
  411
  424
  438
  454
  471
  489
  508
  529
  550
  574
  598
  624
  652
  681
  712
  745
  780
  816
  854
  895
  937
  982
  1,029
  1,079
  1,131
  1,186
  1,244
  1,305
  1,369
  1,436
  1,506
Variable operating expenses, $m
 
  376
  387
  400
  414
  429
  444
  461
  479
  498
  518
  511
  533
  557
  583
  609
  638
  667
  699
  732
  767
  803
  842
  883
  925
  970
  1,017
  1,067
  1,119
  1,174
  1,232
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
  412
  376
  387
  400
  414
  429
  444
  461
  479
  498
  518
  511
  533
  557
  583
  609
  638
  667
  699
  732
  767
  803
  842
  883
  925
  970
  1,017
  1,067
  1,119
  1,174
  1,232
Operating income, $m
  -1
  48
  51
  54
  57
  60
  64
  67
  71
  76
  80
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  187
  196
  206
  216
  226
  238
  249
  261
  274
EBITDA, $m
  22
  88
  91
  94
  98
  102
  106
  110
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  186
  195
  204
  214
  224
  235
  246
  258
  271
  284
  298
  313
Interest expense (income), $m
  5
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
Earnings before tax, $m
  -8
  39
  41
  43
  46
  48
  51
  54
  57
  60
  64
  96
  100
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  169
  177
  185
  193
  203
  212
  222
Tax expense, $m
  0
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
Net income, $m
  -8
  28
  30
  32
  33
  35
  37
  39
  42
  44
  47
  70
  73
  76
  80
  83
  87
  90
  94
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  162

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  67
  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
  921
  882
  912
  944
  979
  1,016
  1,056
  1,099
  1,144
  1,193
  1,244
  1,298
  1,356
  1,417
  1,481
  1,549
  1,621
  1,696
  1,776
  1,860
  1,949
  2,042
  2,140
  2,243
  2,352
  2,466
  2,586
  2,712
  2,845
  2,985
  3,131
Adjusted assets (=assets-cash), $m
  854
  882
  912
  944
  979
  1,016
  1,056
  1,099
  1,144
  1,193
  1,244
  1,298
  1,356
  1,417
  1,481
  1,549
  1,621
  1,696
  1,776
  1,860
  1,949
  2,042
  2,140
  2,243
  2,352
  2,466
  2,586
  2,712
  2,845
  2,985
  3,131
Revenue / Adjusted assets
  0.481
  0.481
  0.480
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
Average production assets, $m
  180
  185
  192
  198
  206
  214
  222
  231
  241
  251
  261
  273
  285
  298
  311
  326
  341
  357
  373
  391
  410
  429
  450
  472
  494
  518
  544
  570
  598
  627
  658
Working capital, $m
  120
  70
  72
  75
  78
  81
  84
  87
  91
  95
  99
  103
  108
  112
  118
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
  196
  205
  215
  226
  237
  249
Total debt, $m
  259
  259
  274
  290
  308
  327
  348
  369
  393
  417
  444
  471
  501
  532
  565
  600
  636
  675
  716
  759
  804
  851
  902
  954
  1,010
  1,068
  1,129
  1,194
  1,262
  1,333
  1,408
Total liabilities, $m
  451
  451
  466
  482
  500
  519
  540
  561
  585
  609
  636
  663
  693
  724
  757
  792
  828
  867
  908
  951
  996
  1,043
  1,094
  1,146
  1,202
  1,260
  1,321
  1,386
  1,454
  1,525
  1,600
Total equity, $m
  470
  431
  446
  462
  479
  497
  516
  537
  560
  583
  608
  635
  663
  693
  724
  758
  793
  830
  869
  910
  953
  998
  1,046
  1,097
  1,150
  1,206
  1,265
  1,326
  1,391
  1,460
  1,531
Total liabilities and equity, $m
  921
  882
  912
  944
  979
  1,016
  1,056
  1,098
  1,145
  1,192
  1,244
  1,298
  1,356
  1,417
  1,481
  1,550
  1,621
  1,697
  1,777
  1,861
  1,949
  2,041
  2,140
  2,243
  2,352
  2,466
  2,586
  2,712
  2,845
  2,985
  3,131
Debt-to-equity ratio
  0.551
  0.600
  0.610
  0.630
  0.640
  0.660
  0.670
  0.690
  0.700
  0.720
  0.730
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.860
  0.870
  0.880
  0.890
  0.890
  0.900
  0.910
  0.910
  0.920
Adjusted equity ratio
  0.472
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8
  28
  30
  32
  33
  35
  37
  39
  42
  44
  47
  70
  73
  76
  80
  83
  87
  90
  94
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  162
Depreciation, amort., depletion, $m
  23
  40
  40
  40
  41
  41
  42
  42
  43
  44
  44
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
Funds from operations, $m
  10
  68
  70
  72
  74
  77
  79
  82
  85
  88
  91
  86
  90
  94
  98
  102
  107
  111
  116
  122
  127
  133
  139
  145
  152
  159
  167
  175
  183
  192
  201
Change in working capital, $m
  -5
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
Cash from operations, $m
  15
  66
  68
  69
  71
  74
  76
  78
  81
  84
  87
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  126
  131
  137
  144
  150
  157
  165
  173
  181
  189
Maintenance CAPEX, $m
  0
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -37
New CAPEX, $m
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
Cash from investing activities, $m
  -286
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -24
  -26
  -26
  -28
  -30
  -32
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -59
  -62
  -64
  -68
Free cash flow, $m
  -271
  50
  50
  51
  52
  54
  55
  56
  58
  59
  61
  55
  57
  59
  62
  64
  67
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
  116
  122
Issuance/(repayment) of debt, $m
  255
  15
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  65
  68
  71
  75
Issuance/(repurchase) of shares, $m
  96
  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  
  206
  15
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  65
  68
  71
  75
Total cash flow (excl. dividends), $m
  -65
  64
  66
  68
  70
  73
  75
  78
  81
  84
  87
  83
  87
  91
  95
  99
  103
  108
  113
  118
  124
  129
  136
  142
  149
  156
  163
  171
  179
  188
  197
Retained Cash Flow (-), $m
  -69
  -13
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -72
Prev. year cash balance distribution, $m
 
  52
  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
 
  103
  51
  52
  53
  54
  56
  57
  59
  61
  62
  56
  59
  61
  63
  66
  68
  71
  74
  77
  80
  84
  88
  91
  95
  100
  104
  109
  114
  119
  125
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  96
  44
  42
  39
  36
  34
  31
  28
  25
  23
  18
  15
  13
  11
  10
  8
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
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

Comtech Telecommunications Corp. designs, develops, produces and markets products, systems and services for communications solutions. The Company operates through two segments: Commercial Solutions and Government Solutions. It offers communications solutions, including command and control technologies, safety and security technologies and enterprise technologies. Its Commercial Solutions segment provides satellite communications (such as satellite earth station modems and traveling wave tube amplifiers), public safety systems (such as next generation 911 technologies) and enterprise application technologies (such as messaging and trusted location-based technologies). The Government Solutions segment includes command and control technologies, troposcatter technologies, and radio frequency power and switching technologies. It serves system and network suppliers in the global satellite, defense, broadcast and aerospace industries, and the United States federal government, among others.

FINANCIAL RATIOS  of  Comtech Telecommunications (CMTL)

Valuation Ratios
P/E Ratio -63
Price to Sales 1.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 33.6
Price to Free Cash Flow 56
Growth Rates
Sales Growth Rate 33.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 51.9%
Total Debt to Equity 55.1%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.4%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital -1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.1%
Return On Equity -1.8%
Return On Equity - 3 Yr. Avg. 3.4%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 41.6%
Gross Margin - 3 Yr. Avg. 43.5%
EBITDA Margin 4.9%
EBITDA Margin - 3 Yr. Avg. 12.3%
Operating Margin -0.2%
Oper. Margin - 3 Yr. Avg. 7.8%
Pre-Tax Margin -1.9%
Pre-Tax Margin - 3 Yr. Avg. 6.8%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. 4.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 22.8%
Payout Ratio -237.5%

CMTL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CMTL stock intrinsic value calculation we used $411 million for the last fiscal year's total revenue generated by Comtech Telecommunications. The default revenue input number comes from 2016 income statement of Comtech Telecommunications. 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 CMTL stock valuation model: a) initial revenue growth rate of 3.2% 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 6.9%, whose default value for CMTL is calculated based on our internal credit rating of Comtech Telecommunications, 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 Comtech Telecommunications.
    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 CMTL stock the variable cost ratio is equal to 88.8%.

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 CMTL 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 3.9% for Comtech Telecommunications.

Corporate tax rate of 27% is the nominal tax rate for Comtech Telecommunications. 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 CMTL 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 CMTL are equal to 43.7%.

Life of production assets of 17 years is the average useful life of capital assets used in Comtech Telecommunications 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 CMTL is equal to 16.5%. 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 - $470 million for Comtech Telecommunications - 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 23.906 million for Comtech Telecommunications 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 Comtech Telecommunications at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Comtech tops 4Q profit forecasts   [Sep-27-17 09:33PM  Associated Press]
▶ Why Comtech Telecommunications Corp (CMTL) Could Be A Buy   [Sep-17-17 07:43PM  Simply Wall St.]
▶ Comtech misses 3Q revenue forecasts   [05:38PM  Associated Press]
▶ Communications technology firm plans layoffs, plant shutdown in Tampa   [12:55PM  American City Business Journals]
▶ Comtech tops 2Q revenue forecasts   [Mar-08-17 05:54PM  AP]
Financial statements of CMTL
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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