Intrinsic value of Cubic - CUB

Previous Close

$68.90

  Intrinsic Value

$20.53

stock screener

  Rating & Target

str. sell

-70%

Previous close

$68.90

 
Intrinsic value

$20.53

 
Up/down potential

-70%

 
Rating

str. sell

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 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 1.9

 

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, %
  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
  1,516
  1,551
  1,590
  1,635
  1,685
  1,739
  1,798
  1,862
  1,932
  2,006
  2,085
  2,170
  2,260
  2,355
  2,457
  2,565
  2,679
  2,799
  2,927
  3,061
  3,203
  3,353
  3,510
  3,677
  3,852
  4,036
  4,230
  4,434
  4,649
  4,874
Variable operating expenses, $m
  867
  886
  908
  932
  958
  988
  1,020
  1,054
  1,091
  1,131
  1,123
  1,168
  1,217
  1,268
  1,323
  1,381
  1,442
  1,507
  1,576
  1,648
  1,725
  1,805
  1,890
  1,979
  2,074
  2,173
  2,277
  2,387
  2,503
  2,624
Fixed operating expenses, $m
  645
  659
  674
  688
  704
  719
  735
  751
  768
  784
  802
  819
  837
  856
  875
  894
  913
  934
  954
  975
  997
  1,018
  1,041
  1,064
  1,087
  1,111
  1,136
  1,161
  1,186
  1,212
Total operating expenses, $m
  1,512
  1,545
  1,582
  1,620
  1,662
  1,707
  1,755
  1,805
  1,859
  1,915
  1,925
  1,987
  2,054
  2,124
  2,198
  2,275
  2,355
  2,441
  2,530
  2,623
  2,722
  2,823
  2,931
  3,043
  3,161
  3,284
  3,413
  3,548
  3,689
  3,836
Operating income, $m
  3
  5
  9
  15
  23
  32
  44
  57
  73
  90
  161
  182
  206
  232
  260
  290
  323
  359
  397
  438
  482
  529
  579
  633
  691
  752
  817
  886
  960
  1,038
EBITDA, $m
  119
  122
  128
  135
  145
  157
  171
  187
  206
  226
  249
  274
  301
  331
  363
  398
  436
  477
  520
  567
  617
  671
  728
  788
  853
  922
  995
  1,073
  1,156
  1,244
Interest expense (income), $m
  0
  14
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
  54
  58
  61
  65
  69
  74
  78
  83
  88
Earnings before tax, $m
  -10
  -9
  -6
  -1
  5
  14
  24
  36
  50
  66
  135
  154
  176
  200
  225
  253
  284
  317
  352
  390
  431
  475
  522
  572
  625
  682
  743
  808
  877
  950
Tax expense, $m
  0
  0
  0
  0
  1
  4
  7
  10
  14
  18
  36
  42
  47
  54
  61
  68
  77
  86
  95
  105
  116
  128
  141
  154
  169
  184
  201
  218
  237
  256
Net income, $m
  -10
  -9
  -6
  -1
  4
  10
  18
  26
  37
  48
  98
  113
  128
  146
  165
  185
  207
  231
  257
  285
  315
  347
  381
  417
  457
  498
  543
  590
  640
  693

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
  1,363
  1,394
  1,430
  1,470
  1,515
  1,564
  1,617
  1,675
  1,737
  1,804
  1,875
  1,951
  2,032
  2,118
  2,210
  2,306
  2,409
  2,517
  2,632
  2,753
  2,880
  3,015
  3,157
  3,306
  3,464
  3,629
  3,804
  3,987
  4,180
  4,384
Adjusted assets (=assets-cash), $m
  1,363
  1,394
  1,430
  1,470
  1,515
  1,564
  1,617
  1,675
  1,737
  1,804
  1,875
  1,951
  2,032
  2,118
  2,210
  2,306
  2,409
  2,517
  2,632
  2,753
  2,880
  3,015
  3,157
  3,306
  3,464
  3,629
  3,804
  3,987
  4,180
  4,384
Revenue / Adjusted assets
  1.112
  1.113
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
  1.112
Average production assets, $m
  640
  654
  671
  690
  711
  734
  759
  786
  815
  846
  880
  916
  954
  994
  1,037
  1,082
  1,130
  1,181
  1,235
  1,292
  1,352
  1,415
  1,481
  1,551
  1,625
  1,703
  1,785
  1,871
  1,962
  2,057
Working capital, $m
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Total debt, $m
  268
  283
  301
  320
  342
  365
  391
  419
  449
  481
  516
  553
  592
  634
  678
  725
  774
  827
  882
  941
  1,003
  1,068
  1,136
  1,209
  1,285
  1,365
  1,449
  1,538
  1,632
  1,730
Total liabilities, $m
  660
  675
  692
  712
  733
  757
  783
  811
  841
  873
  907
  944
  984
  1,025
  1,069
  1,116
  1,166
  1,218
  1,274
  1,332
  1,394
  1,459
  1,528
  1,600
  1,676
  1,757
  1,841
  1,930
  2,023
  2,122
Total equity, $m
  703
  720
  738
  759
  782
  807
  834
  864
  896
  931
  967
  1,007
  1,049
  1,093
  1,140
  1,190
  1,243
  1,299
  1,358
  1,420
  1,486
  1,556
  1,629
  1,706
  1,787
  1,873
  1,963
  2,057
  2,157
  2,262
Total liabilities and equity, $m
  1,363
  1,395
  1,430
  1,471
  1,515
  1,564
  1,617
  1,675
  1,737
  1,804
  1,874
  1,951
  2,033
  2,118
  2,209
  2,306
  2,409
  2,517
  2,632
  2,752
  2,880
  3,015
  3,157
  3,306
  3,463
  3,630
  3,804
  3,987
  4,180
  4,384
Debt-to-equity ratio
  0.380
  0.390
  0.410
  0.420
  0.440
  0.450
  0.470
  0.480
  0.500
  0.520
  0.530
  0.550
  0.560
  0.580
  0.590
  0.610
  0.620
  0.640
  0.650
  0.660
  0.670
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.760
Adjusted equity ratio
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -10
  -9
  -6
  -1
  4
  10
  18
  26
  37
  48
  98
  113
  128
  146
  165
  185
  207
  231
  257
  285
  315
  347
  381
  417
  457
  498
  543
  590
  640
  693
Depreciation, amort., depletion, $m
  115
  117
  119
  120
  122
  125
  127
  130
  133
  136
  88
  92
  95
  99
  104
  108
  113
  118
  124
  129
  135
  141
  148
  155
  163
  170
  178
  187
  196
  206
Funds from operations, $m
  105
  108
  112
  119
  126
  135
  145
  156
  169
  184
  186
  204
  224
  245
  268
  293
  320
  349
  381
  414
  450
  488
  529
  573
  619
  668
  721
  777
  836
  899
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  105
  108
  113
  119
  127
  135
  145
  157
  170
  184
  187
  205
  224
  246
  269
  294
  321
  350
  381
  415
  451
  489
  530
  573
  620
  669
  722
  778
  837
  900
Maintenance CAPEX, $m
  -63
  -64
  -65
  -67
  -69
  -71
  -73
  -76
  -79
  -82
  -85
  -88
  -92
  -95
  -99
  -104
  -108
  -113
  -118
  -124
  -129
  -135
  -141
  -148
  -155
  -163
  -170
  -178
  -187
  -196
New CAPEX, $m
  -12
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -86
  -91
  -95
Cash from investing activities, $m
  -75
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -108
  -113
  -118
  -124
  -130
  -135
  -142
  -149
  -156
  -164
  -172
  -181
  -189
  -198
  -208
  -218
  -229
  -241
  -252
  -264
  -278
  -291
Free cash flow, $m
  30
  29
  30
  33
  37
  41
  47
  54
  62
  72
  69
  81
  95
  110
  126
  145
  164
  186
  209
  234
  262
  291
  322
  355
  391
  429
  470
  513
  559
  609
Issuance/(repayment) of debt, $m
  13
  15
  17
  19
  22
  24
  26
  28
  30
  32
  35
  37
  39
  42
  44
  47
  50
  52
  55
  59
  62
  65
  69
  72
  76
  80
  84
  89
  93
  98
Issuance/(repurchase) of shares, $m
  24
  25
  25
  22
  19
  15
  10
  3
  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  
  37
  40
  42
  41
  41
  39
  36
  31
  30
  32
  35
  37
  39
  42
  44
  47
  50
  52
  55
  59
  62
  65
  69
  72
  76
  80
  84
  89
  93
  98
Total cash flow (excl. dividends), $m
  67
  70
  72
  75
  77
  80
  82
  85
  92
  104
  103
  118
  134
  151
  171
  192
  214
  238
  265
  293
  323
  356
  390
  428
  467
  509
  554
  602
  653
  707
Retained Cash Flow (-), $m
  -24
  -25
  -25
  -22
  -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
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
Cash available for distribution, $m
  44
  44
  48
  53
  54
  55
  55
  55
  60
  69
  66
  78
  92
  107
  124
  142
  161
  183
  206
  231
  257
  286
  317
  350
  386
  424
  464
  507
  553
  602
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
  41
  39
  39
  40
  38
  35
  31
  28
  27
  28
  23
  23
  23
  23
  22
  20
  19
  17
  15
  13
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
Current shareholders' claim on cash, %
  98.7
  97.4
  96.2
  95.2
  94.3
  93.6
  93.2
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1

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 -169.9
Price to Sales 1.3
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 74.8
Price to Free Cash Flow -155.8
Growth Rates
Sales Growth Rate 1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 15.6%
Cap. Spend. - 3 Yr. Gr. Rate 16.8%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 29%
Total Debt to Equity 37%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.8%
Ret/ On Assets - 3 Yr. Avg. 0.4%
Return On Total Capital -1.1%
Ret/ On T. Cap. - 3 Yr. Avg. 0.6%
Return On Equity -1.6%
Return On Equity - 3 Yr. Avg. 0.6%
Asset Turnover 1
Profitability Ratios
Gross Margin 24.5%
Gross Margin - 3 Yr. Avg. 24%
EBITDA Margin 3.7%
EBITDA Margin - 3 Yr. Avg. 4.7%
Operating Margin 1.2%
Oper. Margin - 3 Yr. Avg. 2.3%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. 1.6%
Net Profit Margin -0.7%
Net Profit Margin - 3 Yr. Avg. 0.3%
Effective Tax Rate 375%
Eff/ Tax Rate - 3 Yr. Avg. 190.5%
Payout Ratio -63.6%

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 $1486 million for the last fiscal year's total revenue generated by Cubic. The default revenue input number comes from 2017 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 57.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $631 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 5.4% 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 0.4%.

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 CUB are equal to 42.2%.

Life of production assets of 10 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 -0.5%. 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 - $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 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 $1.9 billion.

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COMPANY NEWS

▶ New Strong Sell Stocks for May 10th   [May-10-18 09:20AM  Zacks]
▶ Cubic: Fiscal 2Q Earnings Snapshot   [05:13AM  Associated Press]
▶ Earnings Outlook For Cubic   [07:55AM  Benzinga]
▶ Valiant picks up another government business in $135M cash deal   [02:26PM  American City Business Journals]
▶ New Strong Sell Stocks for February 7th   [Feb-07-18 08:28AM  Zacks]
▶ Cubic reports 1Q loss   [Feb-06-18 06:51PM  Associated Press]
▶ Cubic Corporation to Host Earnings Call   [12:15PM  ACCESSWIRE]
▶ ETFs with exposure to Cubic Corp. : December 25, 2017   [Dec-25-17 11:49AM  Capital Cube]
▶ ETFs with exposure to Cubic Corp. : December 14, 2017   [Dec-14-17 01:10PM  Capital Cube]
▶ Cubic's DTECH Labs Completes VMware Testing   [Dec-06-17 07:00AM  PR Newswire]
▶ North Korea's missile has more advanced tech   [Nov-30-17 11:42AM  Yahoo Finance Video]
▶ Strong Chart and a Quant Upgrade for Cubic   [Nov-22-17 01:10PM  TheStreet.com]
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