Intrinsic value of Kratos Defense & Security Solutions, Inc - KTOS

Previous Close

$24.07

  Intrinsic Value

$1.11

stock screener

  Rating & Target

str. sell

-95%

Previous close

$24.07

 
Intrinsic value

$1.11

 
Up/down potential

-95%

 
Rating

str. sell

We calculate the intrinsic value of KTOS 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 2.5

 

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
  630
  645
  661
  680
  701
  723
  748
  775
  803
  834
  867
  902
  940
  980
  1,022
  1,067
  1,114
  1,164
  1,217
  1,273
  1,332
  1,394
  1,460
  1,529
  1,602
  1,678
  1,759
  1,844
  1,933
  2,027
Variable operating expenses, $m
  641
  655
  671
  689
  708
  729
  753
  778
  805
  835
  822
  855
  890
  928
  968
  1,011
  1,056
  1,103
  1,153
  1,206
  1,262
  1,321
  1,383
  1,449
  1,518
  1,590
  1,667
  1,747
  1,832
  1,921
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
  641
  655
  671
  689
  708
  729
  753
  778
  805
  835
  822
  855
  890
  928
  968
  1,011
  1,056
  1,103
  1,153
  1,206
  1,262
  1,321
  1,383
  1,449
  1,518
  1,590
  1,667
  1,747
  1,832
  1,921
Operating income, $m
  -11
  -10
  -9
  -8
  -7
  -6
  -5
  -4
  -2
  0
  46
  47
  49
  51
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  102
  106
EBITDA, $m
  43
  44
  46
  47
  48
  50
  51
  53
  55
  57
  60
  62
  65
  67
  70
  73
  77
  80
  84
  88
  92
  96
  100
  105
  110
  115
  121
  127
  133
  139
Interest expense (income), $m
  32
  21
  22
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  81
  85
  90
  95
Earnings before tax, $m
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  11
  11
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
Net income, $m
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  8
  8
  8

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
  1,012
  1,035
  1,062
  1,092
  1,125
  1,161
  1,200
  1,243
  1,289
  1,339
  1,392
  1,448
  1,508
  1,572
  1,640
  1,712
  1,788
  1,869
  1,954
  2,043
  2,138
  2,238
  2,343
  2,454
  2,571
  2,694
  2,824
  2,960
  3,103
  3,254
Adjusted assets (=assets-cash), $m
  1,012
  1,035
  1,062
  1,092
  1,125
  1,161
  1,200
  1,243
  1,289
  1,339
  1,392
  1,448
  1,508
  1,572
  1,640
  1,712
  1,788
  1,869
  1,954
  2,043
  2,138
  2,238
  2,343
  2,454
  2,571
  2,694
  2,824
  2,960
  3,103
  3,254
Revenue / Adjusted assets
  0.623
  0.623
  0.622
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
Average production assets, $m
  291
  297
  305
  313
  323
  333
  345
  357
  370
  385
  400
  416
  433
  452
  471
  492
  514
  537
  561
  587
  614
  643
  673
  705
  738
  774
  811
  850
  891
  935
Working capital, $m
  150
  153
  157
  162
  167
  172
  178
  184
  191
  199
  206
  215
  224
  233
  243
  254
  265
  277
  290
  303
  317
  332
  347
  364
  381
  399
  419
  439
  460
  482
Total debt, $m
  304
  316
  329
  344
  360
  378
  398
  419
  442
  466
  492
  520
  550
  582
  615
  651
  689
  728
  770
  815
  862
  911
  963
  1,018
  1,076
  1,137
  1,201
  1,269
  1,339
  1,414
Total liabilities, $m
  501
  512
  526
  540
  557
  575
  594
  615
  638
  663
  689
  717
  747
  778
  812
  847
  885
  925
  967
  1,011
  1,058
  1,108
  1,160
  1,215
  1,273
  1,334
  1,398
  1,465
  1,536
  1,611
Total equity, $m
  511
  523
  536
  551
  568
  586
  606
  628
  651
  676
  703
  731
  762
  794
  828
  865
  903
  944
  987
  1,032
  1,080
  1,130
  1,183
  1,239
  1,298
  1,361
  1,426
  1,495
  1,567
  1,643
Total liabilities and equity, $m
  1,012
  1,035
  1,062
  1,091
  1,125
  1,161
  1,200
  1,243
  1,289
  1,339
  1,392
  1,448
  1,509
  1,572
  1,640
  1,712
  1,788
  1,869
  1,954
  2,043
  2,138
  2,238
  2,343
  2,454
  2,571
  2,695
  2,824
  2,960
  3,103
  3,254
Debt-to-equity ratio
  0.600
  0.600
  0.610
  0.620
  0.630
  0.640
  0.660
  0.670
  0.680
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.830
  0.840
  0.840
  0.850
  0.850
  0.860
Adjusted equity ratio
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  -32
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  9
  8
  8
  8
Depreciation, amort., depletion, $m
  54
  55
  55
  55
  56
  56
  56
  57
  57
  58
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
Funds from operations, $m
  22
  23
  23
  23
  24
  24
  25
  25
  26
  26
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  34
  35
  36
  37
  38
  40
  41
Change in working capital, $m
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  20
  19
  19
  19
  19
  19
  19
  19
  19
  19
  15
  15
  15
  16
  16
  16
  16
  16
  16
  16
  16
  17
  17
  17
  17
  18
  18
  18
  19
  19
Maintenance CAPEX, $m
  -10
  -10
  -11
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
New CAPEX, $m
  -6
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
Cash from investing activities, $m
  -16
  -17
  -19
  -20
  -21
  -21
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -38
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -61
  -64
  -68
  -71
  -74
Free cash flow, $m
  4
  2
  1
  0
  -2
  -3
  -4
  -6
  -7
  -9
  -13
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -34
  -36
  -38
  -41
  -44
  -47
  -50
  -53
  -56
Issuance/(repayment) of debt, $m
  10
  12
  13
  15
  16
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  75
Issuance/(repurchase) of shares, $m
  42
  44
  45
  47
  49
  50
  52
  53
  55
  57
  18
  19
  21
  23
  25
  27
  29
  32
  34
  36
  39
  42
  44
  47
  50
  54
  57
  60
  64
  68
Cash from financing (excl. dividends), $m  
  52
  56
  58
  62
  65
  68
  72
  74
  78
  81
  44
  47
  51
  55
  59
  63
  67
  72
  76
  80
  86
  91
  96
  102
  108
  115
  121
  127
  135
  143
Total cash flow (excl. dividends), $m
  56
  58
  59
  61
  63
  65
  67
  69
  71
  73
  30
  32
  35
  37
  39
  41
  44
  46
  49
  52
  54
  57
  61
  64
  67
  71
  74
  78
  82
  87
Retained Cash Flow (-), $m
  -42
  -44
  -45
  -47
  -49
  -50
  -52
  -53
  -55
  -57
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
Prev. year cash balance distribution, $m
  18
  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
  32
  14
  14
  14
  15
  15
  15
  15
  16
  16
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  11
Discount rate, %
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
  30
  12
  12
  11
  10
  10
  9
  8
  7
  7
  1
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  98.3
  96.6
  94.9
  93.3
  91.6
  90.0
  88.4
  86.8
  85.3
  83.8
  83.4
  82.9
  82.4
  81.9
  81.4
  80.8
  80.3
  79.7
  79.1
  78.5
  77.9
  77.3
  76.7
  76.1
  75.4
  74.8
  74.2
  73.5
  72.9
  72.3

Kratos Defense & Security Solutions, Inc. is a technology, intellectual property and proprietary product and solution company focused on the United States and its allies' national security. The Kratos Government Solutions segment includes the operations of Defense Rocket Support Services, Microwave Electronics Division, Technical and Training Solutions, and Modular Systems, which provide technology-based defense solutions, involving products and services, with the focus relating to the nation's Command, Control, Communications, Computing, Combat Systems, Intelligence, Surveillance and Reconnaissance requirements. The Unmanned Systems segment includes its unmanned aerial, ground, seaborne and command, control and communications system business. The Public Safety & Security segment provides integrated solutions for homeland security, public safety, critical infrastructure, and security and surveillance systems for government and commercial applications.

FINANCIAL RATIOS  of  Kratos Defense & Security Solutions, Inc (KTOS)

Valuation Ratios
P/E Ratio -29.2
Price to Sales 2.7
Price to Book 6.4
Price to Tangible Book
Price to Cash Flow -222.5
Price to Free Cash Flow -104.7
Growth Rates
Sales Growth Rate 1.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.2%
Cap. Spend. - 3 Yr. Gr. Rate -7.1%
Financial Strength
Quick Ratio 69
Current Ratio 0
LT Debt to Equity 156.2%
Total Debt to Equity 156.5%
Interest Coverage -1
Management Effectiveness
Return On Assets -2.6%
Ret/ On Assets - 3 Yr. Avg. 0.3%
Return On Total Capital -8.7%
Ret/ On T. Cap. - 3 Yr. Avg. -4.9%
Return On Equity -23%
Return On Equity - 3 Yr. Avg. -14.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 23%
Gross Margin - 3 Yr. Avg. 23.7%
EBITDA Margin 0.4%
EBITDA Margin - 3 Yr. Avg. 2.2%
Operating Margin -2.7%
Oper. Margin - 3 Yr. Avg. -2.8%
Pre-Tax Margin -7.8%
Pre-Tax Margin - 3 Yr. Avg. -8%
Net Profit Margin -9.1%
Net Profit Margin - 3 Yr. Avg. -5.4%
Effective Tax Rate -15.4%
Eff/ Tax Rate - 3 Yr. Avg. 1.9%
Payout Ratio 0%

KTOS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KTOS stock intrinsic value calculation we used $618 million for the last fiscal year's total revenue generated by Kratos Defense & Security Solutions, Inc. The default revenue input number comes from 0001 income statement of Kratos Defense & Security Solutions, 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 KTOS 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 5.8%, whose default value for KTOS is calculated based on our internal credit rating of Kratos Defense & Security Solutions, 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 Kratos Defense & Security Solutions, 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 KTOS stock the variable cost ratio is equal to 101.9%.

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 KTOS 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 7.1% for Kratos Defense & Security Solutions, Inc.

Corporate tax rate of 27% is the nominal tax rate for Kratos Defense & Security Solutions, 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 KTOS 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 KTOS are equal to 46.1%.

Life of production assets of 28.3 years is the average useful life of capital assets used in Kratos Defense & Security Solutions, 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 KTOS is equal to 23.8%. 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 - $519.3 million for Kratos Defense & Security Solutions, 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 105.433 million for Kratos Defense & Security Solutions, 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 Kratos Defense & Security Solutions, Inc at the current share price and the inputted number of shares is $2.5 billion.

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