Intrinsic value of Elbit Systems - ESLT

Previous Close

$117.74

  Intrinsic Value

$93.17

stock screener

  Rating & Target

sell

-21%

Previous close

$117.74

 
Intrinsic value

$93.17

 
Up/down potential

-21%

 
Rating

sell

We calculate the intrinsic value of ESLT 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 0001), $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 5.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  3,499
  3,630
  3,771
  3,921
  4,081
  4,251
  4,432
  4,624
  4,827
  5,042
  5,270
  5,510
  5,764
  6,032
  6,314
  6,611
  6,925
  7,255
  7,602
  7,968
  8,353
  8,758
  9,184
  9,631
  10,102
  10,597
  11,117
  11,664
  12,239
  12,843
Variable operating expenses, $m
  2,888
  2,993
  3,106
  3,226
  3,355
  3,492
  3,637
  3,792
  3,955
  4,128
  4,236
  4,429
  4,633
  4,848
  5,075
  5,314
  5,566
  5,831
  6,110
  6,404
  6,713
  7,039
  7,381
  7,741
  8,119
  8,517
  8,935
  9,375
  9,837
  10,322
Fixed operating expenses, $m
  280
  286
  292
  299
  305
  312
  319
  326
  333
  341
  348
  356
  364
  372
  380
  388
  397
  405
  414
  423
  433
  442
  452
  462
  472
  482
  493
  504
  515
  526
Total operating expenses, $m
  3,168
  3,279
  3,398
  3,525
  3,660
  3,804
  3,956
  4,118
  4,288
  4,469
  4,584
  4,785
  4,997
  5,220
  5,455
  5,702
  5,963
  6,236
  6,524
  6,827
  7,146
  7,481
  7,833
  8,203
  8,591
  8,999
  9,428
  9,879
  10,352
  10,848
Operating income, $m
  332
  351
  372
  395
  420
  447
  476
  506
  539
  574
  686
  726
  768
  812
  859
  910
  963
  1,019
  1,078
  1,141
  1,207
  1,277
  1,351
  1,428
  1,511
  1,597
  1,689
  1,785
  1,887
  1,994
EBITDA, $m
  490
  512
  537
  563
  592
  623
  656
  691
  728
  768
  811
  856
  904
  955
  1,009
  1,066
  1,126
  1,190
  1,258
  1,329
  1,404
  1,484
  1,568
  1,656
  1,750
  1,848
  1,952
  2,061
  2,177
  2,298
Interest expense (income), $m
  6
  36
  45
  55
  65
  76
  87
  99
  112
  126
  141
  157
  173
  190
  209
  228
  248
  270
  292
  316
  341
  368
  395
  425
  455
  488
  522
  557
  595
  634
  676
Earnings before tax, $m
  295
  306
  318
  331
  345
  360
  376
  394
  413
  433
  530
  553
  577
  604
  632
  661
  693
  726
  762
  799
  839
  881
  926
  973
  1,023
  1,076
  1,132
  1,190
  1,253
  1,318
Tax expense, $m
  80
  83
  86
  89
  93
  97
  102
  106
  111
  117
  143
  149
  156
  163
  171
  179
  187
  196
  206
  216
  227
  238
  250
  263
  276
  290
  306
  321
  338
  356
Net income, $m
  216
  223
  232
  241
  252
  263
  275
  287
  301
  316
  387
  404
  422
  441
  461
  483
  506
  530
  556
  583
  613
  643
  676
  710
  747
  785
  826
  869
  914
  962

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
  4,887
  5,070
  5,266
  5,476
  5,699
  5,937
  6,190
  6,458
  6,742
  7,042
  7,360
  7,696
  8,050
  8,424
  8,818
  9,234
  9,672
  10,133
  10,618
  11,129
  11,666
  12,232
  12,826
  13,452
  14,109
  14,801
  15,527
  16,291
  17,094
  17,937
Adjusted assets (=assets-cash), $m
  4,887
  5,070
  5,266
  5,476
  5,699
  5,937
  6,190
  6,458
  6,742
  7,042
  7,360
  7,696
  8,050
  8,424
  8,818
  9,234
  9,672
  10,133
  10,618
  11,129
  11,666
  12,232
  12,826
  13,452
  14,109
  14,801
  15,527
  16,291
  17,094
  17,937
Revenue / Adjusted assets
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
  0.716
Average production assets, $m
  885
  918
  954
  992
  1,032
  1,076
  1,121
  1,170
  1,221
  1,276
  1,333
  1,394
  1,458
  1,526
  1,597
  1,673
  1,752
  1,835
  1,923
  2,016
  2,113
  2,216
  2,323
  2,437
  2,556
  2,681
  2,813
  2,951
  3,096
  3,249
Working capital, $m
  570
  592
  615
  639
  665
  693
  722
  754
  787
  822
  859
  898
  940
  983
  1,029
  1,078
  1,129
  1,183
  1,239
  1,299
  1,362
  1,428
  1,497
  1,570
  1,647
  1,727
  1,812
  1,901
  1,995
  2,093
Total debt, $m
  557
  674
  799
  933
  1,075
  1,227
  1,388
  1,559
  1,740
  1,932
  2,135
  2,349
  2,575
  2,814
  3,065
  3,330
  3,610
  3,904
  4,213
  4,539
  4,882
  5,243
  5,622
  6,021
  6,441
  6,882
  7,345
  7,833
  8,345
  8,883
Total liabilities, $m
  3,118
  3,235
  3,360
  3,494
  3,636
  3,788
  3,949
  4,120
  4,301
  4,493
  4,696
  4,910
  5,136
  5,375
  5,626
  5,891
  6,170
  6,465
  6,774
  7,100
  7,443
  7,804
  8,183
  8,582
  9,002
  9,443
  9,906
  10,394
  10,906
  11,444
Total equity, $m
  1,769
  1,835
  1,906
  1,982
  2,063
  2,149
  2,241
  2,338
  2,441
  2,549
  2,664
  2,786
  2,914
  3,050
  3,192
  3,343
  3,501
  3,668
  3,844
  4,029
  4,223
  4,428
  4,643
  4,870
  5,108
  5,358
  5,621
  5,897
  6,188
  6,493
Total liabilities and equity, $m
  4,887
  5,070
  5,266
  5,476
  5,699
  5,937
  6,190
  6,458
  6,742
  7,042
  7,360
  7,696
  8,050
  8,425
  8,818
  9,234
  9,671
  10,133
  10,618
  11,129
  11,666
  12,232
  12,826
  13,452
  14,110
  14,801
  15,527
  16,291
  17,094
  17,937
Debt-to-equity ratio
  0.310
  0.370
  0.420
  0.470
  0.520
  0.570
  0.620
  0.670
  0.710
  0.760
  0.800
  0.840
  0.880
  0.920
  0.960
  1.000
  1.030
  1.060
  1.100
  1.130
  1.160
  1.180
  1.210
  1.240
  1.260
  1.280
  1.310
  1.330
  1.350
  1.370
Adjusted equity ratio
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  216
  223
  232
  241
  252
  263
  275
  287
  301
  316
  387
  404
  422
  441
  461
  483
  506
  530
  556
  583
  613
  643
  676
  710
  747
  785
  826
  869
  914
  962
Depreciation, amort., depletion, $m
  158
  161
  164
  168
  172
  176
  180
  185
  189
  194
  125
  130
  136
  143
  149
  156
  164
  172
  180
  188
  198
  207
  217
  228
  239
  251
  263
  276
  289
  304
Funds from operations, $m
  374
  384
  396
  409
  423
  438
  455
  472
  491
  510
  511
  534
  558
  583
  610
  639
  669
  702
  736
  772
  810
  850
  893
  938
  986
  1,036
  1,089
  1,145
  1,204
  1,266
Change in working capital, $m
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
  48
  51
  54
  57
  60
  63
  66
  69
  73
  77
  81
  85
  89
  94
  98
Cash from operations, $m
  354
  363
  373
  385
  397
  411
  425
  441
  457
  475
  474
  495
  516
  540
  564
  591
  618
  648
  679
  712
  747
  784
  824
  865
  909
  955
  1,004
  1,056
  1,110
  1,168
Maintenance CAPEX, $m
  -80
  -83
  -86
  -89
  -93
  -96
  -101
  -105
  -109
  -114
  -119
  -125
  -130
  -136
  -143
  -149
  -156
  -164
  -172
  -180
  -188
  -198
  -207
  -217
  -228
  -239
  -251
  -263
  -276
  -289
New CAPEX, $m
  -31
  -33
  -36
  -38
  -40
  -43
  -46
  -49
  -51
  -54
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -84
  -88
  -93
  -97
  -102
  -108
  -113
  -119
  -125
  -132
  -138
  -145
  -153
Cash from investing activities, $m
  -111
  -116
  -122
  -127
  -133
  -139
  -147
  -154
  -160
  -168
  -177
  -186
  -194
  -204
  -214
  -224
  -235
  -248
  -260
  -273
  -285
  -300
  -315
  -330
  -347
  -364
  -383
  -401
  -421
  -442
Free cash flow, $m
  243
  247
  252
  258
  264
  271
  279
  287
  297
  307
  297
  309
  322
  336
  350
  366
  383
  401
  420
  440
  462
  484
  509
  535
  562
  591
  622
  655
  689
  726
Issuance/(repayment) of debt, $m
  112
  117
  125
  134
  143
  152
  161
  171
  181
  192
  203
  214
  226
  239
  252
  265
  279
  294
  310
  326
  343
  361
  379
  399
  420
  441
  464
  487
  512
  538
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  
  112
  117
  125
  134
  143
  152
  161
  171
  181
  192
  203
  214
  226
  239
  252
  265
  279
  294
  310
  326
  343
  361
  379
  399
  420
  441
  464
  487
  512
  538
Total cash flow (excl. dividends), $m
  355
  364
  377
  391
  407
  423
  440
  458
  478
  499
  500
  523
  548
  574
  602
  631
  662
  695
  729
  766
  804
  845
  888
  934
  982
  1,032
  1,086
  1,142
  1,201
  1,264
Retained Cash Flow (-), $m
  -61
  -66
  -71
  -76
  -81
  -86
  -91
  -97
  -103
  -109
  -115
  -122
  -128
  -135
  -143
  -150
  -158
  -167
  -176
  -185
  -195
  -205
  -215
  -226
  -238
  -250
  -263
  -276
  -291
  -305
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
  294
  298
  306
  316
  326
  337
  349
  361
  375
  390
  385
  402
  420
  439
  459
  481
  504
  528
  554
  581
  610
  641
  673
  707
  744
  782
  822
  865
  911
  958
Discount rate, %
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
  282
  272
  266
  259
  251
  243
  233
  223
  213
  201
  180
  168
  156
  144
  131
  118
  106
  94
  82
  71
  60
  50
  42
  34
  27
  21
  16
  12
  9
  6
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
  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

Elbit Systems Ltd. is an international technology company engaged in a range of programs across the world. The Company develops and supplies a portfolio of airborne, land and naval systems and products for defense, homeland security and commercial aviation applications. Its systems and products are installed on new platforms, and it also performs platform modernization programs. In addition, it provides a range of support services. The Company's activities include military aircraft and helicopter systems; helmet mounted systems; commercial aviation systems and aerostructures; unmanned aircraft and unmanned surface vessels; land vehicle systems; command, control, communications, computer and intelligence (C4I) systems; intelligence and cyber systems; electro-optic and countermeasures systems; electronic warfare and signal intelligence systems, and various commercial activities. It operates primarily in the defense and homeland security arenas.

FINANCIAL RATIOS  of  Elbit Systems (ESLT)

Valuation Ratios
P/E Ratio 21.2
Price to Sales 1.5
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 24.2
Price to Free Cash Flow 59.9
Growth Rates
Sales Growth Rate 4.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25.3%
Cap. Spend. - 3 Yr. Gr. Rate 14.5%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 11%
Total Debt to Equity 26%
Interest Coverage 48
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 12.3%
Ret/ On T. Cap. - 3 Yr. Avg. 10.8%
Return On Equity 16.1%
Return On Equity - 3 Yr. Avg. 15.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 29.4%
Gross Margin - 3 Yr. Avg. 28.7%
EBITDA Margin 12.5%
EBITDA Margin - 3 Yr. Avg. 11.9%
Operating Margin 9.2%
Oper. Margin - 3 Yr. Avg. 8.7%
Pre-Tax Margin 8.6%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 7.3%
Net Profit Margin - 3 Yr. Avg. 6.5%
Effective Tax Rate 16.1%
Eff/ Tax Rate - 3 Yr. Avg. 15.9%
Payout Ratio 28.7%

ESLT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESLT stock intrinsic value calculation we used $3377.825 million for the last fiscal year's total revenue generated by Elbit Systems. The default revenue input number comes from 0001 income statement of Elbit Systems. 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 ESLT stock valuation model: a) initial revenue growth rate of 3.6% 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 4.4%, whose default value for ESLT is calculated based on our internal credit rating of Elbit Systems, 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 Elbit Systems.
    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 ESLT stock the variable cost ratio is equal to 82.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $274 million in the base year in the intrinsic value calculation for ESLT 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 8.1% for Elbit Systems.

Corporate tax rate of 27% is the nominal tax rate for Elbit Systems. 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 ESLT 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 ESLT are equal to 25.3%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Elbit Systems 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 ESLT is equal to 16.3%. 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 - $1708.31 million for Elbit Systems - 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 42.753 million for Elbit Systems 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 Elbit Systems at the current share price and the inputted number of shares is $5.0 billion.

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COMPANY NEWS

▶ This $1B Fort Worth company is the 'smarts' behind the country's costliest weapons   [Sep-18-18 07:24AM  American City Business Journals]
▶ Elbit Systems Ltd to Host Earnings Call   [07:00AM  ACCESSWIRE]
▶ Elbit: 2Q Earnings Snapshot   [05:04AM  Associated Press]
▶ Israel's Elbit on hunt for more takeovers   [Jul-18-18 03:21PM  Reuters]
▶ Elbit: 1Q Earnings Snapshot   [05:01AM  Associated Press]
▶ Elbit snaps up Universal Avionics   [Mar-22-18 05:49AM  Flightglobal]
▶ Cyberbit Recognized on CRN's 2018 Security 100 List   [Mar-21-18 10:00AM  PR Newswire]
▶ Elbit Systems Ltd to Host Earnings Call   [07:00AM  ACCESSWIRE]
▶ Elbit posts 4Q profit   [06:09AM  Associated Press]
▶ Elbit Systems Response to Press Reports   [07:59AM  PR Newswire]

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