Intrinsic value of Iridium Communications Inc - IRDM

Previous Close

$26.10

  Intrinsic Value

$19.42

stock screener

  Rating & Target

sell

-26%

Previous close

$26.10

 
Intrinsic value

$19.42

 
Up/down potential

-26%

 
Rating

sell

We calculate the intrinsic value of IRDM 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 2.9

 

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, %
  14.50
  13.55
  12.70
  11.93
  11.23
  10.61
  10.05
  9.54
  9.09
  8.68
  8.31
  7.98
  7.68
  7.41
  7.17
  6.96
  6.76
  6.58
  6.43
  6.28
  6.15
  6.04
  5.94
  5.84
  5.76
  5.68
  5.61
  5.55
  5.50
  5.45
Revenue, $m
  599
  680
  766
  858
  954
  1,055
  1,161
  1,272
  1,388
  1,508
  1,634
  1,764
  1,899
  2,040
  2,187
  2,339
  2,497
  2,661
  2,832
  3,010
  3,196
  3,389
  3,590
  3,799
  4,018
  4,246
  4,485
  4,734
  4,994
  5,266
Variable operating expenses, $m
  415
  425
  436
  448
  461
  474
  487
  502
  517
  532
  211
  228
  246
  264
  283
  303
  323
  345
  367
  390
  414
  439
  465
  492
  520
  550
  581
  613
  646
  682
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
  415
  425
  436
  448
  461
  474
  487
  502
  517
  532
  211
  228
  246
  264
  283
  303
  323
  345
  367
  390
  414
  439
  465
  492
  520
  550
  581
  613
  646
  682
Operating income, $m
  184
  255
  330
  410
  493
  582
  674
  770
  871
  976
  1,422
  1,536
  1,654
  1,776
  1,904
  2,036
  2,174
  2,317
  2,466
  2,621
  2,782
  2,950
  3,125
  3,308
  3,498
  3,697
  3,904
  4,121
  4,348
  4,584
EBITDA, $m
  769
  874
  985
  1,102
  1,226
  1,356
  1,492
  1,634
  1,783
  1,938
  2,099
  2,266
  2,441
  2,622
  2,810
  3,005
  3,208
  3,419
  3,639
  3,868
  4,106
  4,354
  4,612
  4,882
  5,163
  5,456
  5,762
  6,082
  6,417
  6,766
Interest expense (income), $m
  23
  106
  123
  142
  163
  184
  207
  231
  256
  282
  309
  338
  367
  398
  430
  463
  498
  534
  571
  610
  650
  692
  736
  781
  828
  878
  930
  983
  1,040
  1,098
  1,160
Earnings before tax, $m
  79
  132
  188
  247
  309
  374
  443
  514
  589
  667
  1,084
  1,168
  1,256
  1,346
  1,440
  1,538
  1,640
  1,746
  1,856
  1,971
  2,090
  2,214
  2,344
  2,479
  2,620
  2,767
  2,921
  3,082
  3,249
  3,425
Tax expense, $m
  21
  36
  51
  67
  83
  101
  120
  139
  159
  180
  293
  315
  339
  363
  389
  415
  443
  471
  501
  532
  564
  598
  633
  669
  707
  747
  789
  832
  877
  925
Net income, $m
  57
  96
  137
  180
  226
  273
  323
  376
  430
  487
  792
  853
  917
  983
  1,052
  1,123
  1,197
  1,275
  1,355
  1,439
  1,526
  1,616
  1,711
  1,810
  1,913
  2,020
  2,132
  2,250
  2,372
  2,500

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
  4,217
  4,789
  5,396
  6,040
  6,719
  7,431
  8,178
  8,959
  9,773
  10,621
  11,504
  12,422
  13,377
  14,368
  15,399
  16,470
  17,584
  18,742
  19,946
  21,199
  22,504
  23,863
  25,279
  26,756
  28,297
  29,905
  31,584
  33,337
  35,170
  37,086
Adjusted assets (=assets-cash), $m
  4,217
  4,789
  5,396
  6,040
  6,719
  7,431
  8,178
  8,959
  9,773
  10,621
  11,504
  12,422
  13,377
  14,368
  15,399
  16,470
  17,584
  18,742
  19,946
  21,199
  22,504
  23,863
  25,279
  26,756
  28,297
  29,905
  31,584
  33,337
  35,170
  37,086
Revenue / Adjusted assets
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
Average production assets, $m
  3,796
  4,310
  4,858
  5,437
  6,048
  6,689
  7,361
  8,064
  8,797
  9,561
  10,355
  11,182
  12,041
  12,934
  13,861
  14,826
  15,828
  16,870
  17,954
  19,082
  20,257
  21,480
  22,755
  24,084
  25,471
  26,918
  28,430
  30,008
  31,658
  33,382
Working capital, $m
  -243
  -275
  -310
  -347
  -386
  -427
  -470
  -515
  -562
  -611
  -662
  -714
  -769
  -826
  -886
  -947
  -1,011
  -1,078
  -1,147
  -1,219
  -1,294
  -1,372
  -1,454
  -1,539
  -1,627
  -1,720
  -1,816
  -1,917
  -2,023
  -2,133
Total debt, $m
  2,284
  2,638
  3,015
  3,414
  3,835
  4,276
  4,739
  5,223
  5,728
  6,254
  6,802
  7,371
  7,963
  8,578
  9,217
  9,881
  10,571
  11,289
  12,035
  12,813
  13,622
  14,464
  15,342
  16,258
  17,213
  18,210
  19,251
  20,338
  21,474
  22,662
Total liabilities, $m
  2,615
  2,969
  3,346
  3,745
  4,165
  4,607
  5,070
  5,554
  6,059
  6,585
  7,133
  7,702
  8,294
  8,908
  9,547
  10,212
  10,902
  11,620
  12,366
  13,143
  13,952
  14,795
  15,673
  16,589
  17,544
  18,541
  19,582
  20,669
  21,805
  22,993
Total equity, $m
  1,603
  1,820
  2,051
  2,295
  2,553
  2,824
  3,108
  3,404
  3,714
  4,036
  4,372
  4,720
  5,083
  5,460
  5,852
  6,259
  6,682
  7,122
  7,579
  8,056
  8,552
  9,068
  9,606
  10,167
  10,753
  11,364
  12,002
  12,668
  13,365
  14,093
Total liabilities and equity, $m
  4,218
  4,789
  5,397
  6,040
  6,718
  7,431
  8,178
  8,958
  9,773
  10,621
  11,505
  12,422
  13,377
  14,368
  15,399
  16,471
  17,584
  18,742
  19,945
  21,199
  22,504
  23,863
  25,279
  26,756
  28,297
  29,905
  31,584
  33,337
  35,170
  37,086
Debt-to-equity ratio
  1.430
  1.450
  1.470
  1.490
  1.500
  1.510
  1.530
  1.530
  1.540
  1.550
  1.560
  1.560
  1.570
  1.570
  1.580
  1.580
  1.580
  1.590
  1.590
  1.590
  1.590
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.610
  1.610
  1.610
Adjusted equity ratio
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  57
  96
  137
  180
  226
  273
  323
  376
  430
  487
  792
  853
  917
  983
  1,052
  1,123
  1,197
  1,275
  1,355
  1,439
  1,526
  1,616
  1,711
  1,810
  1,913
  2,020
  2,132
  2,250
  2,372
  2,500
Depreciation, amort., depletion, $m
  585
  619
  655
  692
  732
  774
  818
  864
  912
  962
  677
  731
  787
  845
  906
  969
  1,035
  1,103
  1,173
  1,247
  1,324
  1,404
  1,487
  1,574
  1,665
  1,759
  1,858
  1,961
  2,069
  2,182
Funds from operations, $m
  643
  715
  792
  873
  958
  1,048
  1,142
  1,240
  1,342
  1,449
  1,468
  1,584
  1,704
  1,828
  1,957
  2,092
  2,232
  2,377
  2,528
  2,686
  2,850
  3,020
  3,198
  3,384
  3,577
  3,779
  3,990
  4,211
  4,441
  4,682
Change in working capital, $m
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -85
  -89
  -92
  -97
  -101
  -105
  -110
Cash from operations, $m
  673
  748
  826
  910
  997
  1,089
  1,185
  1,285
  1,389
  1,497
  1,519
  1,637
  1,758
  1,885
  2,017
  2,154
  2,296
  2,444
  2,598
  2,758
  2,925
  3,099
  3,280
  3,469
  3,666
  3,872
  4,087
  4,312
  4,547
  4,792
Maintenance CAPEX, $m
  -217
  -248
  -282
  -317
  -355
  -395
  -437
  -481
  -527
  -575
  -625
  -677
  -731
  -787
  -845
  -906
  -969
  -1,035
  -1,103
  -1,173
  -1,247
  -1,324
  -1,404
  -1,487
  -1,574
  -1,665
  -1,759
  -1,858
  -1,961
  -2,069
New CAPEX, $m
  -481
  -514
  -547
  -579
  -611
  -642
  -672
  -703
  -733
  -764
  -795
  -826
  -859
  -893
  -928
  -964
  -1,002
  -1,042
  -1,084
  -1,128
  -1,175
  -1,223
  -1,275
  -1,329
  -1,387
  -1,447
  -1,511
  -1,579
  -1,650
  -1,725
Cash from investing activities, $m
  -698
  -762
  -829
  -896
  -966
  -1,037
  -1,109
  -1,184
  -1,260
  -1,339
  -1,420
  -1,503
  -1,590
  -1,680
  -1,773
  -1,870
  -1,971
  -2,077
  -2,187
  -2,301
  -2,422
  -2,547
  -2,679
  -2,816
  -2,961
  -3,112
  -3,270
  -3,437
  -3,611
  -3,794
Free cash flow, $m
  -24
  -15
  -2
  13
  31
  52
  75
  101
  129
  159
  100
  133
  169
  205
  244
  283
  325
  367
  411
  456
  503
  551
  601
  652
  705
  760
  816
  875
  936
  998
Issuance/(repayment) of debt, $m
  328
  354
  377
  399
  421
  442
  463
  484
  505
  526
  547
  569
  592
  615
  639
  664
  690
  718
  747
  777
  809
  843
  878
  916
  955
  997
  1,041
  1,087
  1,136
  1,188
Issuance/(repurchase) of shares, $m
  146
  121
  94
  64
  32
  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  
  474
  475
  471
  463
  453
  442
  463
  484
  505
  526
  547
  569
  592
  615
  639
  664
  690
  718
  747
  777
  809
  843
  878
  916
  955
  997
  1,041
  1,087
  1,136
  1,188
Total cash flow (excl. dividends), $m
  449
  461
  469
  476
  484
  494
  538
  585
  634
  685
  647
  702
  760
  820
  883
  948
  1,015
  1,085
  1,158
  1,233
  1,312
  1,394
  1,479
  1,568
  1,660
  1,757
  1,857
  1,962
  2,072
  2,186
Retained Cash Flow (-), $m
  -204
  -217
  -231
  -245
  -258
  -271
  -284
  -297
  -309
  -322
  -335
  -349
  -363
  -377
  -392
  -407
  -423
  -440
  -458
  -476
  -496
  -516
  -538
  -561
  -585
  -611
  -638
  -666
  -696
  -728
Prev. year cash balance distribution, $m
  203
  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
  449
  244
  238
  232
  226
  223
  254
  288
  324
  362
  311
  354
  398
  443
  491
  540
  592
  645
  700
  757
  816
  877
  941
  1,007
  1,075
  1,146
  1,219
  1,296
  1,375
  1,458
Discount rate, %
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for distribution, $m
  419
  210
  189
  168
  149
  132
  133
  133
  131
  126
  92
  88
  82
  75
  67
  58
  49
  41
  34
  27
  21
  16
  12
  8
  6
  4
  3
  2
  1
  1
Current shareholders' claim on cash, %
  94.6
  90.9
  88.4
  86.9
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2
  86.2

Iridium Communications Inc. is engaged in providing global satellite communications services and products. The Company offers mobile voice and data communications services through satellite, and provides communications services offering true global coverage. It provides services to businesses, the United States and foreign governments, non-governmental organizations and consumers through its satellite network, which has over 70 in-orbit satellites with in orbit spares and related ground infrastructure. As of December 31, 2016, the Company sold its products and services to customers through a wholesale distribution network of approximately 65 service providers, approximately 195 value-added resellers (VARs) and approximately 80 value-added manufacturers (VAMs). The Company's commercial end user base includes markets, such as emergency services, maritime, aviation, government, utilities, oil and gas, mining, recreation, forestry, heavy equipment, construction and transportation.

FINANCIAL RATIOS  of  Iridium Communications Inc (IRDM)

Valuation Ratios
P/E Ratio 22.5
Price to Sales 5.8
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 11.1
Price to Free Cash Flow -13.8
Growth Rates
Sales Growth Rate 5.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18%
Cap. Spend. - 3 Yr. Gr. Rate 0.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 123.3%
Total Debt to Equity 123.3%
Interest Coverage 9
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. 2.5%
Return On Equity 8.6%
Return On Equity - 3 Yr. Avg. 5.4%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 74.7%
Gross Margin - 3 Yr. Avg. 73.8%
EBITDA Margin 57.6%
EBITDA Margin - 3 Yr. Avg. 47.5%
Operating Margin 40.8%
Oper. Margin - 3 Yr. Avg. 29.5%
Pre-Tax Margin 41%
Pre-Tax Margin - 3 Yr. Avg. 29%
Net Profit Margin 25.6%
Net Profit Margin - 3 Yr. Avg. 15.2%
Effective Tax Rate 37.6%
Eff/ Tax Rate - 3 Yr. Avg. 54.5%
Payout Ratio 13.5%

IRDM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IRDM stock intrinsic value calculation we used $523 million for the last fiscal year's total revenue generated by Iridium Communications Inc. The default revenue input number comes from 0001 income statement of Iridium Communications Inc. 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 IRDM stock valuation model: a) initial revenue growth rate of 14.5% 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 7.2%, whose default value for IRDM is calculated based on our internal credit rating of Iridium Communications Inc, 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 Iridium Communications Inc.
    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 IRDM stock the variable cost ratio is equal to 77.4%.

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 IRDM 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 Iridium Communications Inc.

Corporate tax rate of 27% is the nominal tax rate for Iridium Communications Inc. 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 IRDM 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 IRDM are equal to 633.9%.

Life of production assets of 15.3 years is the average useful life of capital assets used in Iridium Communications Inc 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 IRDM is equal to -40.5%. 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 - $1601.577 million for Iridium Communications Inc - 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 112.400 million for Iridium Communications Inc 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 Iridium Communications Inc at the current share price and the inputted number of shares is $2.9 billion.

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