Intrinsic value of KVH Industries - KVHI

Previous Close

$11.10

  Intrinsic Value

$9.35

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  Rating & Target

hold

-16%

Previous close

$11.10

 
Intrinsic value

$9.35

 
Up/down potential

-16%

 
Rating

hold

We calculate the intrinsic value of KVHI 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 0.2

 

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, %
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
Revenue, $m
  172
  184
  197
  210
  223
  238
  252
  268
  284
  300
  318
  336
  355
  375
  396
  417
  440
  464
  488
  514
  541
  570
  600
  631
  664
  698
  734
  771
  811
  852
Variable operating expenses, $m
  91
  97
  103
  110
  117
  124
  131
  139
  147
  155
  159
  168
  178
  188
  198
  209
  220
  232
  244
  257
  271
  285
  300
  316
  332
  349
  367
  386
  406
  426
Fixed operating expenses, $m
  87
  89
  91
  93
  95
  97
  99
  101
  103
  106
  108
  110
  113
  115
  118
  120
  123
  126
  129
  131
  134
  137
  140
  143
  146
  150
  153
  156
  160
  163
Total operating expenses, $m
  178
  186
  194
  203
  212
  221
  230
  240
  250
  261
  267
  278
  291
  303
  316
  329
  343
  358
  373
  388
  405
  422
  440
  459
  478
  499
  520
  542
  566
  589
Operating income, $m
  -6
  -2
  3
  7
  12
  17
  22
  28
  33
  40
  51
  58
  65
  72
  80
  88
  97
  106
  115
  126
  136
  147
  159
  172
  185
  199
  214
  229
  245
  263
EBITDA, $m
  8
  12
  17
  22
  28
  34
  40
  46
  53
  59
  67
  74
  82
  91
  100
  109
  119
  129
  140
  151
  163
  176
  189
  203
  218
  234
  250
  268
  286
  305
Interest expense (income), $m
  1
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
Earnings before tax, $m
  -8
  -5
  -1
  3
  8
  12
  17
  22
  28
  33
  44
  50
  57
  64
  71
  78
  86
  95
  104
  113
  123
  134
  145
  156
  168
  181
  195
  209
  225
  241
Tax expense, $m
  0
  0
  0
  1
  2
  3
  5
  6
  7
  9
  12
  14
  15
  17
  19
  21
  23
  26
  28
  31
  33
  36
  39
  42
  45
  49
  53
  57
  61
  65
Net income, $m
  -8
  -5
  -1
  3
  6
  9
  13
  16
  20
  24
  32
  37
  41
  46
  52
  57
  63
  69
  76
  83
  90
  97
  106
  114
  123
  132
  142
  153
  164
  176

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
  208
  223
  239
  254
  271
  288
  306
  325
  344
  365
  386
  408
  431
  455
  480
  506
  534
  563
  593
  624
  657
  692
  728
  766
  805
  847
  890
  936
  984
  1,034
Adjusted assets (=assets-cash), $m
  208
  223
  239
  254
  271
  288
  306
  325
  344
  365
  386
  408
  431
  455
  480
  506
  534
  563
  593
  624
  657
  692
  728
  766
  805
  847
  890
  936
  984
  1,034
Revenue / Adjusted assets
  0.827
  0.825
  0.824
  0.827
  0.823
  0.826
  0.824
  0.825
  0.826
  0.822
  0.824
  0.824
  0.824
  0.824
  0.825
  0.824
  0.824
  0.824
  0.823
  0.824
  0.823
  0.824
  0.824
  0.824
  0.825
  0.824
  0.825
  0.824
  0.824
  0.824
Average production assets, $m
  69
  74
  79
  85
  90
  96
  102
  108
  115
  121
  128
  136
  143
  151
  160
  169
  178
  187
  197
  208
  219
  230
  242
  255
  268
  282
  296
  312
  328
  344
Working capital, $m
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  67
  71
  74
Total debt, $m
  54
  60
  67
  75
  82
  90
  98
  107
  116
  125
  134
  144
  155
  166
  177
  189
  202
  215
  229
  243
  258
  274
  290
  308
  326
  345
  365
  385
  407
  430
Total liabilities, $m
  95
  102
  109
  116
  124
  131
  140
  148
  157
  166
  176
  186
  196
  207
  219
  231
  243
  257
  270
  285
  300
  315
  332
  349
  367
  386
  406
  427
  449
  472
Total equity, $m
  113
  121
  130
  138
  147
  157
  167
  177
  187
  198
  210
  222
  234
  247
  261
  275
  290
  306
  322
  340
  357
  376
  396
  416
  438
  461
  484
  509
  535
  563
Total liabilities and equity, $m
  208
  223
  239
  254
  271
  288
  307
  325
  344
  364
  386
  408
  430
  454
  480
  506
  533
  563
  592
  625
  657
  691
  728
  765
  805
  847
  890
  936
  984
  1,035
Debt-to-equity ratio
  0.470
  0.500
  0.520
  0.540
  0.560
  0.570
  0.590
  0.600
  0.620
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.700
  0.710
  0.720
  0.720
  0.730
  0.730
  0.740
  0.740
  0.750
  0.750
  0.760
  0.760
  0.760
Adjusted equity ratio
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8
  -5
  -1
  3
  6
  9
  13
  16
  20
  24
  32
  37
  41
  46
  52
  57
  63
  69
  76
  83
  90
  97
  106
  114
  123
  132
  142
  153
  164
  176
Depreciation, amort., depletion, $m
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  38
  40
  43
Funds from operations, $m
  5
  9
  14
  18
  22
  26
  30
  35
  39
  44
  48
  53
  59
  65
  71
  78
  85
  92
  100
  108
  117
  126
  135
  145
  156
  167
  179
  191
  204
  218
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
Cash from operations, $m
  4
  8
  13
  17
  21
  25
  29
  33
  38
  43
  47
  52
  58
  63
  70
  76
  83
  90
  98
  106
  115
  123
  133
  143
  153
  164
  176
  188
  201
  214
Maintenance CAPEX, $m
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
New CAPEX, $m
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
Cash from investing activities, $m
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -34
  -37
  -38
  -40
  -43
  -44
  -47
  -50
  -52
  -54
  -57
Free cash flow, $m
  -9
  -5
  -1
  2
  5
  8
  11
  14
  18
  22
  24
  29
  33
  38
  43
  48
  53
  59
  65
  71
  78
  85
  92
  100
  109
  117
  126
  136
  146
  157
Issuance/(repayment) of debt, $m
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
Issuance/(repurchase) of shares, $m
  16
  13
  9
  6
  3
  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  
  23
  20
  16
  13
  11
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
Total cash flow (excl. dividends), $m
  14
  14
  15
  15
  15
  16
  19
  23
  27
  31
  34
  39
  44
  49
  54
  60
  66
  72
  79
  86
  93
  101
  109
  118
  127
  136
  146
  157
  168
  180
Retained Cash Flow (-), $m
  -16
  -13
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
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
  -2
  2
  6
  6
  6
  6
  9
  13
  16
  20
  23
  27
  31
  36
  40
  45
  51
  56
  62
  68
  75
  82
  89
  97
  105
  114
  123
  132
  142
  153
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
  -2
  1
  5
  5
  5
  5
  6
  8
  9
  11
  11
  11
  12
  12
  12
  12
  11
  10
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
Current shareholders' claim on cash, %
  92.4
  87.1
  83.7
  81.7
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6

KVH Industries, Inc. is a manufacturer of solutions that provide high-speed Internet, television and voice services through satellite to mobile users at sea and on land. The Company also provides commercially licensed entertainment, including news, sports, music and movies, to commercial and leisure customers in the maritime, hotel and retail markets. It operates in two geographic segments, in the mobile communications, navigation and guidance and stabilization equipment industry. The Company develops and distributes training films and e-learning computer-based training courses to commercial maritime customers. It is also a manufacturer of navigational sensors and integrated inertial systems for defense and commercial guidance and stabilization applications. It designs, develops, manufactures and markets mobile communications products and services for the marine and land mobile markets, and navigation, guidance and stabilization products for both the commercial and defense markets.

FINANCIAL RATIOS  of  KVH Industries (KVHI)

Valuation Ratios
P/E Ratio -23.3
Price to Sales 1.1
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow 14.3
Growth Rates
Sales Growth Rate -4.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 46.7%
Total Debt to Equity 54.2%
Interest Coverage -1
Management Effectiveness
Return On Assets -1.9%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -4.6%
Ret/ On T. Cap. - 3 Yr. Avg. -1.2%
Return On Equity -7.1%
Return On Equity - 3 Yr. Avg. -1.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 43.8%
Gross Margin - 3 Yr. Avg. 44.4%
EBITDA Margin 6.8%
EBITDA Margin - 3 Yr. Avg. 7.6%
Operating Margin -0.6%
Oper. Margin - 3 Yr. Avg. 0.9%
Pre-Tax Margin -1.1%
Pre-Tax Margin - 3 Yr. Avg. 0.4%
Net Profit Margin -4.5%
Net Profit Margin - 3 Yr. Avg. -1.2%
Effective Tax Rate -300%
Eff/ Tax Rate - 3 Yr. Avg. -55.6%
Payout Ratio 0%

KVHI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KVHI stock intrinsic value calculation we used $160.088 million for the last fiscal year's total revenue generated by KVH Industries. The default revenue input number comes from 0001 income statement of KVH Industries. 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 KVHI stock valuation model: a) initial revenue growth rate of 7.3% 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 KVHI is calculated based on our internal credit rating of KVH Industries, 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 KVH Industries.
    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 KVHI stock the variable cost ratio is equal to 53.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $85 million in the base year in the intrinsic value calculation for KVHI 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 KVH Industries.

Corporate tax rate of 27% is the nominal tax rate for KVH Industries. 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 KVHI 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 KVHI are equal to 40.4%.

Life of production assets of 8.1 years is the average useful life of capital assets used in KVH Industries 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 KVHI is equal to 8.7%. 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 - $105.665 million for KVH Industries - 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 17.664 million for KVH Industries 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 KVH Industries at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ KVH: 3Q Earnings Snapshot   [08:01AM  Associated Press]
▶ Who Are KVH Industries Incs (NASDAQ:KVHI) Major Shareholders?   [Sep-18-18 01:26PM  Simply Wall St.]
▶ KVH: 2Q Earnings Snapshot   [11:15AM  Associated Press]
▶ KVH: 1Q Earnings Snapshot   [May-04-18 07:22AM  Associated Press]
▶ KVH Industries, Inc. to Host Earnings Call   [Mar-02-18 08:30AM  ACCESSWIRE]
▶ KVH reports 4Q loss   [07:24AM  Associated Press]
▶ KVH reports 3Q loss   [Nov-02-17 10:11AM  Associated Press]
▶ Hello Nautilus Crew, Youre Connected   [05:00AM  GlobeNewswire]
▶ KVH reports 2Q loss   [Aug-02-17 09:49PM  Associated Press]
▶ KVH reports 1Q loss   [09:51AM  Associated Press]
▶ New Strong Sell Stocks for April 24th   [Apr-24-17 10:26AM  Zacks]
▶ New Strong Sell Stocks for April 18th   [Apr-18-17 10:30AM  Zacks]
▶ KVH Announces New Connectivity as a Service (CaaS) Offering   [Apr-12-17 02:00AM  GlobeNewswire]
▶ New Strong Sell Stocks for March 31st   [Mar-31-17 10:37AM  Zacks]

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