Intrinsic value of Ceragon Networks - CRNT

Previous Close

$3.54

  Intrinsic Value

$0.42

stock screener

  Rating & Target

str. sell

-88%

Previous close

$3.54

 
Intrinsic value

$0.42

 
Up/down potential

-88%

 
Rating

str. sell

We calculate the intrinsic value of CRNT 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 0.3

 

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, %
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
Revenue, $m
  375
  422
  470
  522
  575
  632
  691
  752
  816
  882
  951
  1,023
  1,097
  1,175
  1,255
  1,339
  1,426
  1,517
  1,611
  1,709
  1,811
  1,918
  2,029
  2,145
  2,266
  2,393
  2,525
  2,663
  2,808
  2,959
Variable operating expenses, $m
  341
  382
  427
  473
  522
  573
  626
  682
  740
  800
  862
  927
  995
  1,065
  1,138
  1,214
  1,293
  1,375
  1,460
  1,549
  1,642
  1,738
  1,839
  1,944
  2,054
  2,169
  2,289
  2,414
  2,545
  2,682
Fixed operating expenses, $m
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  13
  14
  14
  14
  15
  15
  15
Total operating expenses, $m
  349
  390
  436
  482
  531
  582
  635
  692
  750
  810
  872
  937
  1,006
  1,076
  1,149
  1,225
  1,305
  1,387
  1,472
  1,561
  1,655
  1,751
  1,852
  1,957
  2,068
  2,183
  2,303
  2,429
  2,560
  2,697
Operating income, $m
  27
  31
  35
  40
  45
  50
  55
  61
  66
  72
  79
  85
  92
  99
  106
  114
  122
  130
  139
  148
  157
  167
  177
  187
  198
  210
  222
  235
  248
  262
EBITDA, $m
  30
  35
  40
  45
  50
  56
  62
  68
  74
  81
  88
  95
  102
  110
  118
  126
  135
  144
  154
  163
  174
  184
  195
  207
  219
  232
  245
  259
  274
  289
Interest expense (income), $m
  2
  0
  11
  22
  35
  47
  61
  75
  90
  105
  121
  138
  155
  173
  191
  211
  231
  252
  273
  296
  320
  344
  370
  396
  424
  453
  483
  515
  548
  583
  619
Earnings before tax, $m
  27
  20
  13
  5
  -3
  -11
  -20
  -29
  -39
  -49
  -59
  -69
  -81
  -92
  -104
  -117
  -130
  -143
  -157
  -172
  -187
  -203
  -220
  -237
  -255
  -274
  -293
  -314
  -335
  -357
Tax expense, $m
  7
  5
  3
  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
Net income, $m
  20
  15
  9
  4
  -3
  -11
  -20
  -29
  -39
  -49
  -59
  -69
  -81
  -92
  -104
  -117
  -130
  -143
  -157
  -172
  -187
  -203
  -220
  -237
  -255
  -274
  -293
  -314
  -335
  -357

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
  287
  322
  359
  399
  440
  483
  528
  574
  623
  674
  727
  781
  838
  897
  959
  1,023
  1,089
  1,159
  1,231
  1,306
  1,384
  1,465
  1,550
  1,639
  1,731
  1,828
  1,929
  2,034
  2,145
  2,260
Adjusted assets (=assets-cash), $m
  287
  322
  359
  399
  440
  483
  528
  574
  623
  674
  727
  781
  838
  897
  959
  1,023
  1,089
  1,159
  1,231
  1,306
  1,384
  1,465
  1,550
  1,639
  1,731
  1,828
  1,929
  2,034
  2,145
  2,260
Revenue / Adjusted assets
  1.307
  1.311
  1.309
  1.308
  1.307
  1.308
  1.309
  1.310
  1.310
  1.309
  1.308
  1.310
  1.309
  1.310
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
  1.309
Average production assets, $m
  35
  39
  43
  48
  53
  58
  64
  69
  75
  81
  87
  94
  101
  108
  115
  123
  131
  140
  148
  157
  167
  176
  187
  197
  208
  220
  232
  245
  258
  272
Working capital, $m
  -52
  -59
  -65
  -73
  -80
  -88
  -96
  -105
  -113
  -123
  -132
  -142
  -153
  -163
  -174
  -186
  -198
  -211
  -224
  -238
  -252
  -267
  -282
  -298
  -315
  -333
  -351
  -370
  -390
  -411
Total debt, $m
  16
  32
  50
  69
  88
  108
  129
  152
  175
  198
  223
  249
  276
  304
  333
  363
  395
  427
  461
  497
  534
  572
  612
  654
  698
  743
  791
  841
  893
  947
Total liabilities, $m
  135
  152
  170
  188
  208
  228
  249
  271
  294
  318
  343
  369
  396
  424
  453
  483
  514
  547
  581
  616
  653
  692
  732
  774
  817
  863
  910
  960
  1,012
  1,067
Total equity, $m
  151
  170
  190
  210
  232
  255
  279
  303
  329
  356
  384
  413
  443
  474
  506
  540
  575
  612
  650
  689
  731
  774
  818
  865
  914
  965
  1,018
  1,074
  1,132
  1,193
Total liabilities and equity, $m
  286
  322
  360
  398
  440
  483
  528
  574
  623
  674
  727
  782
  839
  898
  959
  1,023
  1,089
  1,159
  1,231
  1,305
  1,384
  1,466
  1,550
  1,639
  1,731
  1,828
  1,928
  2,034
  2,144
  2,260
Debt-to-equity ratio
  0.100
  0.190
  0.260
  0.330
  0.380
  0.420
  0.460
  0.500
  0.530
  0.560
  0.580
  0.600
  0.620
  0.640
  0.660
  0.670
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.760
  0.770
  0.780
  0.780
  0.790
  0.790
Adjusted equity ratio
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  20
  15
  9
  4
  -3
  -11
  -20
  -29
  -39
  -49
  -59
  -69
  -81
  -92
  -104
  -117
  -130
  -143
  -157
  -172
  -187
  -203
  -220
  -237
  -255
  -274
  -293
  -314
  -335
  -357
Depreciation, amort., depletion, $m
  4
  4
  5
  5
  5
  6
  7
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
Funds from operations, $m
  23
  19
  14
  9
  3
  -5
  -13
  -22
  -31
  -40
  -50
  -60
  -71
  -81
  -93
  -104
  -117
  -129
  -143
  -156
  -171
  -185
  -201
  -217
  -234
  -252
  -270
  -289
  -309
  -330
Change in working capital, $m
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
Cash from operations, $m
  29
  25
  21
  16
  10
  3
  -5
  -13
  -22
  -31
  -40
  -50
  -60
  -71
  -82
  -93
  -105
  -117
  -129
  -143
  -156
  -171
  -186
  -201
  -217
  -234
  -251
  -270
  -289
  -309
Maintenance CAPEX, $m
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
New CAPEX, $m
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
Cash from investing activities, $m
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -16
  -16
  -17
  -18
  -20
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
Free cash flow, $m
  22
  17
  12
  7
  0
  -8
  -16
  -25
  -35
  -45
  -55
  -65
  -76
  -88
  -100
  -112
  -125
  -138
  -152
  -167
  -182
  -197
  -213
  -230
  -248
  -266
  -286
  -306
  -327
  -349
Issuance/(repayment) of debt, $m
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
Issuance/(repurchase) of shares, $m
  0
  4
  10
  17
  24
  34
  44
  54
  64
  75
  87
  98
  111
  123
  137
  151
  165
  180
  195
  212
  229
  246
  264
  284
  304
  325
  346
  369
  393
  418
Cash from financing (excl. dividends), $m  
  16
  21
  28
  35
  43
  54
  65
  76
  87
  99
  112
  124
  138
  151
  166
  181
  196
  213
  229
  247
  266
  284
  304
  326
  348
  371
  394
  419
  445
  472
Total cash flow (excl. dividends), $m
  38
  38
  40
  42
  44
  46
  48
  50
  53
  55
  57
  59
  61
  64
  66
  69
  71
  74
  77
  81
  84
  87
  91
  95
  99
  104
  108
  113
  118
  124
Retained Cash Flow (-), $m
  -17
  -19
  -20
  -21
  -24
  -34
  -44
  -54
  -64
  -75
  -87
  -98
  -111
  -123
  -137
  -151
  -165
  -180
  -195
  -212
  -229
  -246
  -264
  -284
  -304
  -325
  -346
  -369
  -393
  -418
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
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Cash available for distribution, $m
  21
  19
  21
  22
  20
  13
  5
  -3
  -12
  -21
  -30
  -40
  -50
  -60
  -71
  -82
  -94
  -106
  -118
  -131
  -145
  -159
  -173
  -189
  -204
  -221
  -238
  -256
  -275
  -294
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
  20
  18
  18
  18
  15
  9
  3
  -2
  -7
  -11
  -14
  -17
  -19
  -20
  -21
  -21
  -20
  -19
  -18
  -17
  -15
  -13
  -11
  -10
  -8
  -6
  -5
  -4
  -3
  -2
Current shareholders' claim on cash, %
  100.0
  98.7
  95.9
  91.9
  87.0
  81.3
  75.1
  68.6
  62.2
  56.0
  50.1
  44.5
  39.4
  34.7
  30.5
  26.6
  23.2
  20.1
  17.4
  15.0
  13.0
  11.1
  9.6
  8.2
  7.0
  6.0
  5.1
  4.3
  3.7
  3.1

Ceragon Networks Ltd. offers wireless backhaul solutions. The Company's products include FibeAir IP-20 Platform, FibeAir IP-20 Assured Platform and Network Management. The Company provides its services to wireless service providers, public safety organizations, government agencies and utility companies, among others. Its solutions are deployed by over 460 service providers, as well as a range of private network owners, in over 130 countries. The Company's FibeAir IP-20 platform offers flexibility in choosing all-outdoor, split-mount and all-indoor configurations to suit any deployment scenario. The FibeAir IP-20 platform includes product categories, such as shorthaul-access and shorthaul-aggregation. The FibeAir IP-20 Assured platform includes product categories, such as shorthaul-access, shorthaul-aggregation, small cells, longhaul and enterprise access. Its NetMaster is a Network Management System (NMS), which is designed for managing large-scale wireless backhaul networks.

FINANCIAL RATIOS  of  Ceragon Networks (CRNT)

Valuation Ratios
P/E Ratio 25
Price to Sales 0.9
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 10.6
Price to Free Cash Flow 15.3
Growth Rates
Sales Growth Rate -15.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 60%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 14.7%
Interest Coverage 8
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. -4.9%
Return On Total Capital 8.1%
Ret/ On T. Cap. - 3 Yr. Avg. -11.6%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. -17.4%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 33.7%
Gross Margin - 3 Yr. Avg. 28.6%
EBITDA Margin 8.5%
EBITDA Margin - 3 Yr. Avg. 0.3%
Operating Margin 6.8%
Oper. Margin - 3 Yr. Avg. 1.4%
Pre-Tax Margin 4.4%
Pre-Tax Margin - 3 Yr. Avg. -4.1%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. -5.5%
Effective Tax Rate 15.4%
Eff/ Tax Rate - 3 Yr. Avg. 30.8%
Payout Ratio 0%

CRNT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CRNT stock intrinsic value calculation we used $332 million for the last fiscal year's total revenue generated by Ceragon Networks. The default revenue input number comes from 2017 income statement of Ceragon Networks. 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 CRNT stock valuation model: a) initial revenue growth rate of 13.1% 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 CRNT is calculated based on our internal credit rating of Ceragon Networks, 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 Ceragon Networks.
    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 CRNT stock the variable cost ratio is equal to 90.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8 million in the base year in the intrinsic value calculation for CRNT 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 69.3% for Ceragon Networks.

Corporate tax rate of 27% is the nominal tax rate for Ceragon Networks. 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 CRNT stock is equal to 0.4%.

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 CRNT are equal to 9.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Ceragon Networks 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 CRNT is equal to -13.9%. 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 - $134 million for Ceragon Networks - 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 78 million for Ceragon Networks 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 Ceragon Networks at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Benzinga Pro's 5 Stocks To Watch Today   [May-07-18 09:05AM  Benzinga]
▶ Ceragon: 1Q Earnings Snapshot   [07:23AM  Associated Press]
▶ Ceragon License CEVA DSPs for Full 5G Wireless Backhaul   [Feb-26-18 02:00AM  PR Newswire]
▶ Ceragon posts 4Q profit   [07:35AM  Associated Press]
▶ Ceragon posts 3Q profit   [Nov-06-17 07:31AM  Associated Press]
▶ Ceragon posts 2Q profit   [Aug-07-17 11:55PM  Associated Press]
▶ How Ceragon Networks Ltd. Fell 11.7% in May   [Jun-07-17 10:00AM  Motley Fool]
▶ Ceragon posts 1Q loss   [07:46AM  Associated Press]
▶ ETFs with exposure to Ceragon Networks Ltd. : May 1, 2017   [May-01-17 03:49PM  Capital Cube]
▶ Why Ceragon Networks Ltd. Stock Fell 11% in March   [Apr-10-17 07:24PM  Motley Fool]
▶ Ceragon Networks Announces Filing of Shelf Registration   [Apr-07-17 11:00AM  PR Newswire]
▶ 5 of the Best Stocks Under $10 for 2017   [Mar-02-17 01:42PM  Zacks]
▶ New Strong Buy Stocks for February 23rd   [Feb-23-17 07:04AM  Zacks]
▶ Ceragon posts 4Q profit   [07:26AM  Associated Press]
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