Intrinsic value of Communications Systems - JCS

Previous Close

$2.49

  Intrinsic Value

$1.34

stock screener

  Rating & Target

sell

-46%

Previous close

$2.49

 
Intrinsic value

$1.34

 
Up/down potential

-46%

 
Rating

sell

We calculate the intrinsic value of JCS 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 0.0

 

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, %
  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
  84
  86
  88
  91
  93
  96
  100
  103
  107
  111
  116
  120
  125
  130
  136
  142
  148
  155
  162
  170
  177
  186
  194
  204
  213
  224
  234
  246
  258
  270
Variable operating expenses, $m
  68
  69
  71
  73
  75
  78
  80
  83
  86
  89
  93
  97
  101
  105
  110
  114
  119
  125
  131
  137
  143
  150
  157
  164
  172
  180
  189
  198
  207
  217
Fixed operating expenses, $m
  31
  31
  32
  33
  33
  34
  35
  36
  36
  37
  38
  39
  40
  41
  42
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  54
  55
  56
  58
Total operating expenses, $m
  99
  100
  103
  106
  108
  112
  115
  119
  122
  126
  131
  136
  141
  146
  152
  156
  162
  169
  176
  183
  190
  198
  206
  215
  224
  233
  243
  253
  263
  275
Operating income, $m
  -14
  -15
  -15
  -15
  -15
  -15
  -16
  -16
  -16
  -16
  -16
  -16
  -15
  -15
  -15
  -15
  -14
  -14
  -14
  -13
  -13
  -12
  -12
  -11
  -10
  -9
  -8
  -7
  -6
  -5
EBITDA, $m
  -11
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -11
  -11
  -11
  -10
  -10
  -9
  -9
  -8
  -7
  -6
  -6
  -5
  -4
  -3
  -1
  0
  1
  3
  5
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Earnings before tax, $m
  -14
  -15
  -15
  -15
  -15
  -15
  -16
  -16
  -16
  -16
  -16
  -16
  -16
  -15
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -12
  -12
  -11
  -10
  -9
  -8
  -7
  -6
Tax expense, $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
Net income, $m
  -14
  -15
  -15
  -15
  -15
  -15
  -16
  -16
  -16
  -16
  -16
  -16
  -16
  -15
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -12
  -12
  -11
  -10
  -9
  -8
  -7
  -6

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
  50
  51
  53
  54
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
  116
  122
  128
  134
  140
  147
  154
  162
Adjusted assets (=assets-cash), $m
  50
  51
  53
  54
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
  116
  122
  128
  134
  140
  147
  154
  162
Revenue / Adjusted assets
  1.680
  1.686
  1.660
  1.685
  1.661
  1.655
  1.667
  1.661
  1.672
  1.657
  1.681
  1.667
  1.667
  1.667
  1.659
  1.671
  1.663
  1.667
  1.670
  1.667
  1.670
  1.676
  1.672
  1.672
  1.664
  1.672
  1.671
  1.673
  1.675
  1.667
Average production assets, $m
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  40
  41
  43
  46
  48
Working capital, $m
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
Total debt, $m
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
Total liabilities, $m
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  25
  26
  27
  28
  30
Total equity, $m
  41
  42
  43
  44
  46
  47
  49
  50
  52
  54
  57
  59
  61
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  100
  104
  109
  115
  120
  126
  132
Total liabilities and equity, $m
  50
  51
  53
  54
  56
  58
  60
  61
  64
  66
  70
  72
  75
  78
  82
  86
  89
  93
  97
  102
  106
  111
  116
  122
  127
  134
  141
  147
  154
  162
Debt-to-equity ratio
  0.010
  0.010
  0.020
  0.020
  0.030
  0.030
  0.040
  0.050
  0.050
  0.060
  0.070
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.110
  0.110
  0.120
  0.120
  0.130
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.150
  0.160
Adjusted equity ratio
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817
  0.817

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -14
  -15
  -15
  -15
  -15
  -15
  -16
  -16
  -16
  -16
  -16
  -16
  -16
  -15
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -12
  -12
  -11
  -10
  -9
  -8
  -7
  -6
Depreciation, amort., depletion, $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Funds from operations, $m
  -11
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -12
  -11
  -11
  -11
  -11
  -10
  -10
  -9
  -8
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -1
  1
  2
  4
Change in working capital, $m
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
Cash from operations, $m
  -12
  -12
  -12
  -12
  -13
  -13
  -13
  -13
  -13
  -13
  -13
  -13
  -12
  -12
  -12
  -11
  -11
  -11
  -10
  -9
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -1
  1
Maintenance CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
New CAPEX, $m
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
Free cash flow, $m
  -15
  -15
  -16
  -16
  -16
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -16
  -16
  -15
  -15
  -14
  -14
  -13
  -12
  -12
  -11
Issuance/(repayment) of debt, $m
  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
  1
  1
  1
Issuance/(repurchase) of shares, $m
  15
  16
  16
  16
  17
  17
  17
  17
  18
  18
  18
  18
  18
  18
  18
  18
  18
  18
  18
  17
  17
  17
  16
  16
  16
  15
  14
  14
  13
  12
Cash from financing (excl. dividends), $m  
  15
  16
  16
  16
  17
  17
  17
  17
  18
  18
  18
  19
  19
  19
  19
  19
  19
  19
  19
  18
  18
  18
  17
  17
  17
  16
  15
  15
  14
  13
Total cash flow (excl. dividends), $m
  1
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
Retained Cash Flow (-), $m
  -15
  -16
  -16
  -16
  -17
  -17
  -17
  -17
  -18
  -18
  -18
  -18
  -18
  -18
  -18
  -18
  -18
  -18
  -18
  -17
  -17
  -17
  -16
  -16
  -16
  -15
  -14
  -14
  -13
  -12
Prev. year cash balance distribution, $m
  9
  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
  -6
  -15
  -15
  -16
  -16
  -16
  -16
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -17
  -16
  -16
  -16
  -16
  -15
  -15
  -14
  -14
  -13
  -13
  -12
  -11
  -10
  -9
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
  -5
  -14
  -13
  -13
  -12
  -12
  -11
  -10
  -10
  -9
  -8
  -7
  -6
  -6
  -5
  -4
  -4
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  64.8
  42.1
  27.3
  17.7
  11.5
  7.5
  5.0
  3.3
  2.2
  1.5
  1.0
  0.7
  0.5
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
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Communications Systems, Inc. (CSI) operates directly and through its subsidiaries located in the United States, Costa Rica and the United Kingdom. The Company operates through three segments: Suttle, Transition Networks and JDL Technologies (JDL). The Company provides physical connectivity infrastructure products and services for global deployments of broadband networks. The Company is principally engaged through its subsidiary and business unit, Suttle, Inc., in the manufacture and sale of connectivity infrastructure products for broadband and voice communications, and through its another subsidiary and business unit, Transition Networks, Inc., in the manufacture and sale of core media conversion products for broadband networks. Through its JDL Technologies, Inc. subsidiary and business unit, CSI provides information technology (IT) solutions, including network design, computer infrastructure installations, IT service management, network security and network operation services.

FINANCIAL RATIOS  of  Communications Systems (JCS)

Valuation Ratios
P/E Ratio -2.8
Price to Sales 0.2
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 22.1
Price to Free Cash Flow -22.1
Growth Rates
Sales Growth Rate -8.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -7.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -9.9%
Ret/ On Assets - 3 Yr. Avg. -6.2%
Return On Total Capital -11.9%
Ret/ On T. Cap. - 3 Yr. Avg. -7.4%
Return On Equity -11.9%
Return On Equity - 3 Yr. Avg. -7.4%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 27.3%
Gross Margin - 3 Yr. Avg. 30.7%
EBITDA Margin -4%
EBITDA Margin - 3 Yr. Avg. -2.1%
Operating Margin -5.1%
Oper. Margin - 3 Yr. Avg. -3.9%
Pre-Tax Margin -8.1%
Pre-Tax Margin - 3 Yr. Avg. -4.9%
Net Profit Margin -8.1%
Net Profit Margin - 3 Yr. Avg. -5.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 11.1%
Payout Ratio -62.5%

JCS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the JCS stock intrinsic value calculation we used $82.322618 million for the last fiscal year's total revenue generated by Communications Systems. The default revenue input number comes from 0001 income statement of Communications 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 JCS 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 4.3%, whose default value for JCS is calculated based on our internal credit rating of Communications 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 Communications 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 JCS stock the variable cost ratio is equal to 80.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $30 million in the base year in the intrinsic value calculation for JCS 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 Communications Systems.

Corporate tax rate of 27% is the nominal tax rate for Communications 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 JCS 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 JCS are equal to 17.7%.

Life of production assets of 4.7 years is the average useful life of capital assets used in Communications 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 JCS is equal to 22.6%. 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 - $49.170727 million for Communications 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 9.15 million for Communications 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 Communications Systems at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Communications Systems: 3Q Earnings Snapshot   [Nov-07-18 07:20PM  Associated Press]
▶ Suttle Announces MediaMAX Contractor Kits   [Aug-27-18 02:36PM  PR Newswire]
▶ Suttle Announces MediaMAX10 Gig Data Jack   [Aug-22-18 01:59PM  PR Newswire]
▶ Communications Systems: 2Q Earnings Snapshot   [Aug-02-18 01:45PM  Associated Press]
▶ Suttle MediaMAX Home Network System   [Jun-14-18 04:07PM  PR Newswire]
▶ Communications Systems: 1Q Earnings Snapshot   [May-14-18 08:35AM  Associated Press]
▶ Communications Systems reports 4Q loss   [Apr-02-18 09:29AM  Associated Press]
▶ Communications Systems reports 3Q loss   [Nov-03-17 04:13PM  Associated Press]
▶ MediaMAX Tool-less CAT6 Data Jack   [Sep-21-17 02:36PM  PR Newswire]
▶ MediaMAX Reimagines the Connected Home and Business   [Aug-16-17 02:25PM  PR Newswire]
▶ Communications Systems reports 2Q loss   [Aug-15-17 11:23PM  Associated Press]
▶ Communications Systems reports 1Q loss   [May-04-17 05:47PM  Associated Press]
▶ Communications Systems reports 4Q loss   [Mar-07-17 04:42PM  Associated Press]
▶ JDL Technologies Wins 2017 Information Security Award   [Feb-14-17 10:22AM  PR Newswire]
▶ Private Practices Top List of Data Breach Investigations   [Sep-19-16 08:30AM  PR Newswire]

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