Intrinsic value of Cubic - CUB

Previous Close

$55.20

  Intrinsic Value

$27.54

stock screener

  Rating & Target

str. sell

-50%

Previous close

$55.20

 
Intrinsic value

$27.54

 
Up/down potential

-50%

 
Rating

str. sell

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

We calculate the intrinsic value of CUB 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 1.5

 

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, %
  2.17
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,462
  1,491
  1,526
  1,565
  1,609
  1,658
  1,711
  1,769
  1,832
  1,900
  1,973
  2,051
  2,135
  2,223
  2,317
  2,417
  2,523
  2,635
  2,754
  2,879
  3,012
  3,151
  3,298
  3,454
  3,617
  3,789
  3,971
  4,161
  4,362
  4,574
  4,796
Variable operating expenses, $m
 
  1,411
  1,443
  1,479
  1,519
  1,564
  1,613
  1,667
  1,725
  1,787
  1,854
  1,885
  1,962
  2,043
  2,130
  2,222
  2,319
  2,422
  2,531
  2,647
  2,768
  2,896
  3,032
  3,174
  3,325
  3,483
  3,650
  3,825
  4,010
  4,204
  4,408
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
  1,454
  1,411
  1,443
  1,479
  1,519
  1,564
  1,613
  1,667
  1,725
  1,787
  1,854
  1,885
  1,962
  2,043
  2,130
  2,222
  2,319
  2,422
  2,531
  2,647
  2,768
  2,896
  3,032
  3,174
  3,325
  3,483
  3,650
  3,825
  4,010
  4,204
  4,408
Operating income, $m
  7
  80
  83
  86
  89
  93
  98
  102
  107
  113
  119
  166
  173
  180
  187
  195
  204
  213
  223
  233
  243
  255
  267
  279
  292
  306
  321
  336
  353
  370
  388
EBITDA, $m
  52
  134
  137
  141
  145
  149
  154
  159
  165
  171
  178
  185
  192
  200
  208
  217
  227
  237
  248
  259
  271
  283
  297
  311
  325
  341
  357
  374
  392
  411
  431
Interest expense (income), $m
  0
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  17
  18
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  50
  53
Earnings before tax, $m
  -7
  72
  74
  77
  80
  83
  87
  91
  95
  99
  104
  150
  156
  162
  168
  175
  182
  190
  198
  206
  215
  224
  234
  245
  256
  267
  279
  292
  306
  320
  335
Tax expense, $m
  -9
  19
  20
  21
  22
  22
  23
  24
  26
  27
  28
  41
  42
  44
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
Net income, $m
  2
  52
  54
  56
  58
  61
  63
  66
  69
  73
  76
  110
  114
  118
  123
  128
  133
  138
  144
  150
  157
  164
  171
  179
  187
  195
  204
  213
  223
  233
  244

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  210
  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
  1,504
  1,320
  1,350
  1,385
  1,424
  1,467
  1,514
  1,566
  1,622
  1,682
  1,746
  1,815
  1,889
  1,967
  2,051
  2,139
  2,233
  2,332
  2,437
  2,548
  2,665
  2,789
  2,919
  3,056
  3,201
  3,353
  3,514
  3,683
  3,860
  4,047
  4,244
Adjusted assets (=assets-cash), $m
  1,294
  1,320
  1,350
  1,385
  1,424
  1,467
  1,514
  1,566
  1,622
  1,682
  1,746
  1,815
  1,889
  1,967
  2,051
  2,139
  2,233
  2,332
  2,437
  2,548
  2,665
  2,789
  2,919
  3,056
  3,201
  3,353
  3,514
  3,683
  3,860
  4,047
  4,244
Revenue / Adjusted assets
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.129
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
Average production assets, $m
  136
  139
  142
  146
  150
  154
  159
  165
  170
  177
  184
  191
  199
  207
  216
  225
  235
  245
  256
  268
  280
  293
  307
  321
  336
  352
  369
  387
  406
  425
  446
Working capital, $m
  263
  298
  305
  313
  322
  332
  342
  354
  366
  380
  395
  410
  427
  445
  463
  483
  505
  527
  551
  576
  602
  630
  660
  691
  723
  758
  794
  832
  872
  915
  959
Total debt, $m
  441
  243
  257
  274
  292
  312
  334
  358
  384
  412
  443
  475
  509
  546
  585
  626
  670
  716
  765
  817
  872
  929
  990
  1,054
  1,122
  1,193
  1,268
  1,347
  1,430
  1,517
  1,609
Total liabilities, $m
  815
  616
  630
  647
  665
  685
  707
  731
  757
  785
  816
  848
  882
  919
  958
  999
  1,043
  1,089
  1,138
  1,190
  1,245
  1,302
  1,363
  1,427
  1,495
  1,566
  1,641
  1,720
  1,803
  1,890
  1,982
Total equity, $m
  690
  703
  720
  738
  759
  782
  807
  835
  864
  896
  931
  968
  1,007
  1,049
  1,093
  1,140
  1,190
  1,243
  1,299
  1,358
  1,421
  1,486
  1,556
  1,629
  1,706
  1,787
  1,873
  1,963
  2,058
  2,157
  2,262
Total liabilities and equity, $m
  1,505
  1,319
  1,350
  1,385
  1,424
  1,467
  1,514
  1,566
  1,621
  1,681
  1,747
  1,816
  1,889
  1,968
  2,051
  2,139
  2,233
  2,332
  2,437
  2,548
  2,666
  2,788
  2,919
  3,056
  3,201
  3,353
  3,514
  3,683
  3,861
  4,047
  4,244
Debt-to-equity ratio
  0.639
  0.350
  0.360
  0.370
  0.380
  0.400
  0.410
  0.430
  0.440
  0.460
  0.480
  0.490
  0.510
  0.520
  0.530
  0.550
  0.560
  0.580
  0.590
  0.600
  0.610
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.710
Adjusted equity ratio
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  52
  54
  56
  58
  61
  63
  66
  69
  73
  76
  110
  114
  118
  123
  128
  133
  138
  144
  150
  157
  164
  171
  179
  187
  195
  204
  213
  223
  233
  244
Depreciation, amort., depletion, $m
  45
  54
  55
  55
  55
  56
  56
  57
  57
  58
  59
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  35
  36
  38
  40
  42
  44
Funds from operations, $m
  55
  107
  109
  111
  114
  116
  120
  123
  127
  131
  135
  128
  133
  138
  144
  150
  156
  162
  169
  177
  184
  192
  201
  210
  219
  230
  240
  251
  263
  275
  288
Change in working capital, $m
  10
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
Cash from operations, $m
  45
  101
  102
  103
  105
  107
  109
  111
  114
  117
  120
  113
  117
  121
  125
  130
  135
  140
  146
  152
  158
  165
  172
  179
  187
  195
  204
  213
  223
  233
  244
Maintenance CAPEX, $m
  0
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
New CAPEX, $m
  -32
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -261
  -16
  -17
  -18
  -18
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -43
  -44
  -46
  -49
  -52
  -54
  -57
  -60
  -63
Free cash flow, $m
  -216
  84
  85
  86
  86
  88
  89
  90
  92
  94
  96
  88
  90
  93
  96
  99
  103
  107
  111
  115
  119
  124
  129
  134
  140
  146
  152
  159
  166
  173
  181
Issuance/(repayment) of debt, $m
  255
  12
  14
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
Issuance/(repurchase) of shares, $m
  -2
  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  
  240
  12
  14
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
Total cash flow (excl. dividends), $m
  -14
  97
  99
  102
  105
  108
  111
  114
  118
  122
  126
  120
  125
  130
  135
  141
  147
  153
  160
  167
  174
  182
  190
  199
  208
  217
  227
  238
  249
  261
  273
Retained Cash Flow (-), $m
  66
  -13
  -16
  -18
  -21
  -23
  -25
  -27
  -30
  -32
  -34
  -37
  -39
  -42
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -86
  -90
  -95
  -100
  -105
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
 
  83
  83
  83
  84
  85
  86
  87
  88
  90
  92
  83
  85
  88
  91
  93
  97
  100
  104
  107
  112
  116
  121
  125
  131
  136
  142
  148
  154
  161
  168
Discount rate, %
 
  6.20
  6.51
  6.84
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.04
  20.00
  21.00
  22.05
  23.15
  24.30
  25.52
PV of cash for distribution, $m
 
  78
  73
  68
  64
  59
  54
  50
  45
  41
  37
  29
  25
  22
  19
  16
  14
  12
  9
  8
  6
  5
  4
  3
  2
  1
  1
  1
  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

Cubic Corporation (Cubic) designs, integrates and operates systems, products and services that provide situational awareness for its customers in the transportation and defense industries. The Company operates in three business segments across the global transportation and defense markets, which include Cubic Transportation Systems (CTS), Cubic Global Defense (CGD) and Cubic Global Defense Services (CGD Services). The Company's CTS segment is a systems integrator of payment and information technology and services for travel solutions. The Company's CGD Systems is focused on two primary lines of business: training systems and secure communications (SC) products. The Company's CGD Services segment is a provider of training, operations, intelligence, maintenance, technical and other support services to the United States government and its agencies and allied nations. It also provides cross-domain hardware solutions to address multi-level security challenges across common networks.

FINANCIAL RATIOS  of  Cubic (CUB)

Valuation Ratios
P/E Ratio 744.9
Price to Sales 1
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 33.1
Price to Free Cash Flow 114.6
Growth Rates
Sales Growth Rate 2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28%
Cap. Spend. - 3 Yr. Gr. Rate 28.9%
Financial Strength
Quick Ratio 1
Current Ratio 0.2
LT Debt to Equity 29.1%
Total Debt to Equity 63.9%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.1%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 0.2%
Ret/ On T. Cap. - 3 Yr. Avg. 3.6%
Return On Equity 0.3%
Return On Equity - 3 Yr. Avg. 4.2%
Asset Turnover 1
Profitability Ratios
Gross Margin 23.6%
Gross Margin - 3 Yr. Avg. 23.3%
EBITDA Margin 2.6%
EBITDA Margin - 3 Yr. Avg. 6.3%
Operating Margin 0.5%
Oper. Margin - 3 Yr. Avg. 4.1%
Pre-Tax Margin -0.5%
Pre-Tax Margin - 3 Yr. Avg. 3.6%
Net Profit Margin 0.1%
Net Profit Margin - 3 Yr. Avg. 2.2%
Effective Tax Rate 128.6%
Eff/ Tax Rate - 3 Yr. Avg. 72.7%
Payout Ratio 350%

CUB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CUB stock intrinsic value calculation we used $1462 million for the last fiscal year's total revenue generated by Cubic. The default revenue input number comes from 2016 income statement of Cubic. 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 CUB stock valuation model: a) initial revenue growth rate of 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 6.2%, whose default value for CUB is calculated based on our internal credit rating of Cubic, 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 Cubic.
    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 CUB stock the variable cost ratio is equal to 94.7%.

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 CUB 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 Cubic.

Corporate tax rate of 27% is the nominal tax rate for Cubic. 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 CUB 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 CUB are equal to 9.3%.

Life of production assets of 10.2 years is the average useful life of capital assets used in Cubic 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 CUB is equal to 20%. 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 - $690 million for Cubic - 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 27.144 million for Cubic 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 Cubic at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

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▶ [$$] MTA Moves Closer to New Subway Fare-Payment Method   [Oct-23-17 05:57PM  The Wall Street Journal]
▶ Airlines Capacity Growth Leaves No Room For Error   [Sep-13-17 01:23PM  Barrons.com]
▶ Cubic Corporation Announces Semiannual Dividend   [Aug-11-17 03:09PM  PR Newswire]
▶ Cubic reports 3Q loss   [Aug-04-17 02:50AM  Associated Press]
▶ Cubic Aids in Success of Talisman Sabre 2017   [07:00AM  Business Wire]
▶ Cubic Completes Acquisition of Deltenna Limited   [Jul-18-17 07:00AM  Business Wire]
▶ ETFs with exposure to Cubic Corp. : May 30, 2017   [May-30-17 12:23PM  Capital Cube]
▶ These 8 firms want to hire hundreds of Orlando engineers   [May-25-17 05:35PM  American City Business Journals]
▶ Why Cubic Corporation Crashed 10% Today   [May-09-17 04:58PM  Motley Fool]
▶ Cubic posts 2Q profit   [May-08-17 05:21PM  Associated Press]
Financial statements of CUB
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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