Intrinsic value of Marcus & Millichap, Inc. - MMI

Previous Close

$39.01

  Intrinsic Value

$67.45

stock screener

  Rating & Target

str. buy

+73%

Previous close

$39.01

 
Intrinsic value

$67.45

 
Up/down potential

+73%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as MMI.

We calculate the intrinsic value of MMI 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 1.5

 

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, %
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
Revenue, $m
  926
  1,044
  1,169
  1,300
  1,439
  1,584
  1,735
  1,894
  2,058
  2,230
  2,408
  2,594
  2,786
  2,986
  3,195
  3,411
  3,636
  3,870
  4,113
  4,366
  4,630
  4,906
  5,192
  5,492
  5,804
  6,130
  6,470
  6,826
  7,198
  7,587
Variable operating expenses, $m
  766
  864
  967
  1,076
  1,190
  1,310
  1,435
  1,566
  1,702
  1,844
  1,990
  2,143
  2,302
  2,467
  2,639
  2,818
  3,004
  3,197
  3,398
  3,607
  3,825
  4,053
  4,290
  4,537
  4,795
  5,064
  5,346
  5,640
  5,947
  6,268
Fixed operating expenses, $m
  30
  30
  31
  32
  32
  33
  34
  35
  35
  36
  37
  38
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  56
Total operating expenses, $m
  796
  894
  998
  1,108
  1,222
  1,343
  1,469
  1,601
  1,737
  1,880
  2,027
  2,181
  2,340
  2,506
  2,679
  2,859
  3,046
  3,240
  3,442
  3,652
  3,871
  4,100
  4,338
  4,586
  4,845
  5,115
  5,398
  5,693
  6,002
  6,324
Operating income, $m
  130
  150
  171
  193
  216
  241
  266
  293
  321
  350
  382
  413
  446
  480
  515
  552
  590
  630
  671
  714
  759
  806
  855
  906
  959
  1,015
  1,073
  1,133
  1,197
  1,263
EBITDA, $m
  136
  157
  179
  201
  226
  251
  277
  305
  334
  364
  395
  427
  461
  496
  532
  570
  610
  651
  693
  738
  784
  832
  883
  935
  990
  1,048
  1,108
  1,170
  1,236
  1,304
Interest expense (income), $m
  1
  1
  5
  9
  13
  17
  22
  26
  31
  37
  42
  48
  53
  59
  66
  72
  79
  86
  94
  101
  109
  117
  126
  135
  144
  154
  164
  175
  186
  198
  210
Earnings before tax, $m
  129
  145
  162
  180
  199
  219
  240
  262
  284
  308
  334
  360
  386
  414
  443
  473
  504
  536
  570
  605
  642
  680
  720
  761
  805
  850
  898
  947
  999
  1,053
Tax expense, $m
  35
  39
  44
  49
  54
  59
  65
  71
  77
  83
  90
  97
  104
  112
  120
  128
  136
  145
  154
  163
  173
  184
  194
  206
  217
  230
  242
  256
  270
  284
Net income, $m
  94
  106
  118
  131
  145
  160
  175
  191
  208
  225
  244
  263
  282
  302
  323
  345
  368
  391
  416
  442
  468
  496
  525
  556
  588
  621
  655
  691
  729
  769

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
  348
  392
  439
  488
  540
  595
  652
  711
  773
  837
  904
  974
  1,046
  1,121
  1,200
  1,281
  1,365
  1,453
  1,545
  1,640
  1,739
  1,842
  1,950
  2,062
  2,179
  2,302
  2,430
  2,563
  2,703
  2,849
Adjusted assets (=assets-cash), $m
  348
  392
  439
  488
  540
  595
  652
  711
  773
  837
  904
  974
  1,046
  1,121
  1,200
  1,281
  1,365
  1,453
  1,545
  1,640
  1,739
  1,842
  1,950
  2,062
  2,179
  2,302
  2,430
  2,563
  2,703
  2,849
Revenue / Adjusted assets
  2.661
  2.663
  2.663
  2.664
  2.665
  2.662
  2.661
  2.664
  2.662
  2.664
  2.664
  2.663
  2.663
  2.664
  2.663
  2.663
  2.664
  2.663
  2.662
  2.662
  2.662
  2.663
  2.663
  2.663
  2.664
  2.663
  2.663
  2.663
  2.663
  2.663
Average production assets, $m
  25
  28
  32
  35
  39
  43
  47
  51
  56
  60
  65
  70
  75
  81
  86
  92
  98
  104
  111
  118
  125
  132
  140
  148
  157
  166
  175
  184
  194
  205
Working capital, $m
  -82
  -93
  -104
  -116
  -128
  -141
  -154
  -169
  -183
  -198
  -214
  -231
  -248
  -266
  -284
  -304
  -324
  -344
  -366
  -389
  -412
  -437
  -462
  -489
  -517
  -546
  -576
  -608
  -641
  -675
Total debt, $m
  29
  51
  75
  100
  127
  155
  184
  214
  245
  278
  312
  348
  384
  423
  463
  504
  547
  592
  638
  687
  737
  790
  844
  902
  961
  1,024
  1,089
  1,157
  1,228
  1,302
Total liabilities, $m
  177
  200
  223
  249
  275
  303
  332
  362
  393
  426
  460
  496
  533
  571
  611
  652
  695
  740
  786
  835
  885
  938
  992
  1,050
  1,109
  1,172
  1,237
  1,305
  1,376
  1,450
Total equity, $m
  171
  192
  215
  240
  265
  292
  320
  349
  380
  411
  444
  478
  514
  551
  589
  629
  670
  713
  758
  805
  854
  904
  957
  1,013
  1,070
  1,130
  1,193
  1,259
  1,327
  1,399
Total liabilities and equity, $m
  348
  392
  438
  489
  540
  595
  652
  711
  773
  837
  904
  974
  1,047
  1,122
  1,200
  1,281
  1,365
  1,453
  1,544
  1,640
  1,739
  1,842
  1,949
  2,063
  2,179
  2,302
  2,430
  2,564
  2,703
  2,849
Debt-to-equity ratio
  0.170
  0.270
  0.350
  0.420
  0.480
  0.530
  0.570
  0.610
  0.650
  0.680
  0.700
  0.730
  0.750
  0.770
  0.790
  0.800
  0.820
  0.830
  0.840
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.910
  0.920
  0.930
  0.930
Adjusted equity ratio
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  94
  106
  118
  131
  145
  160
  175
  191
  208
  225
  244
  263
  282
  302
  323
  345
  368
  391
  416
  442
  468
  496
  525
  556
  588
  621
  655
  691
  729
  769
Depreciation, amort., depletion, $m
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
Funds from operations, $m
  100
  113
  126
  140
  155
  170
  186
  203
  220
  238
  257
  277
  297
  318
  341
  364
  387
  412
  438
  465
  493
  523
  553
  585
  619
  654
  690
  728
  768
  810
Change in working capital, $m
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
Cash from operations, $m
  110
  123
  137
  152
  167
  183
  200
  217
  235
  254
  273
  293
  314
  336
  359
  383
  407
  433
  460
  488
  517
  547
  579
  612
  647
  683
  720
  760
  801
  845
Maintenance CAPEX, $m
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
New CAPEX, $m
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Cash from investing activities, $m
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
Free cash flow, $m
  103
  115
  128
  142
  156
  171
  187
  203
  220
  238
  256
  275
  295
  316
  337
  360
  383
  407
  433
  459
  486
  515
  545
  576
  609
  643
  678
  715
  754
  795
Issuance/(repayment) of debt, $m
  21
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  48
  50
  53
  55
  57
  60
  62
  65
  68
  71
  74
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  
  21
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  48
  50
  53
  55
  57
  60
  62
  65
  68
  71
  74
Total cash flow (excl. dividends), $m
  124
  138
  152
  167
  183
  199
  216
  233
  252
  271
  290
  311
  332
  354
  377
  401
  426
  452
  479
  507
  537
  567
  600
  633
  668
  705
  743
  783
  825
  870
Retained Cash Flow (-), $m
  -20
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
Prev. year cash balance distribution, $m
  259
  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
  363
  116
  129
  143
  157
  172
  188
  204
  221
  239
  257
  276
  296
  317
  339
  361
  385
  409
  434
  461
  488
  517
  547
  578
  611
  645
  681
  718
  757
  798
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
  348
  106
  112
  117
  122
  125
  127
  128
  127
  125
  122
  118
  113
  106
  99
  92
  84
  75
  67
  59
  50
  43
  36
  29
  24
  19
  15
  11
  8
  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

Marcus & Millichap, Inc. is a brokerage company specializing in commercial real estate investment sales, financing, research and advisory services. The Company offers three primary services to its clients: commercial real estate investment brokerage, financing, and ancillary services, including other research, advisory and consulting services. It provides its financing services through Marcus & Millichap Capital Corporation, which is a broker of debt financing for commercial properties. Its research, advisory and consulting services are designed to assist clients in forming their investment strategy and making transaction decisions. Its advisory services include opinions of value, operating and financial performance benchmarking analysis, and specific asset buy-sell strategies. As of December 31, 2016, the Company had over 1,700 investment sales and financing professionals in 82 offices in the United States and Canada that provide investment brokerage and financing services.

FINANCIAL RATIOS  of  Marcus & Millichap, Inc. (MMI)

Valuation Ratios
P/E Ratio 22.7
Price to Sales 2.1
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 22.7
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.6%
Cap. Spend. - 3 Yr. Gr. Rate 12.5%
Financial Strength
Quick Ratio 215
Current Ratio 0.1
LT Debt to Equity 3.5%
Total Debt to Equity 3.9%
Interest Coverage 108
Management Effectiveness
Return On Assets 18.4%
Ret/ On Assets - 3 Yr. Avg. 22.5%
Return On Total Capital 27.7%
Ret/ On T. Cap. - 3 Yr. Avg. 39%
Return On Equity 29%
Return On Equity - 3 Yr. Avg. 42.6%
Asset Turnover 2
Profitability Ratios
Gross Margin 38.1%
Gross Margin - 3 Yr. Avg. 38.5%
EBITDA Margin 15.6%
EBITDA Margin - 3 Yr. Avg. 15.9%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 15.4%
Pre-Tax Margin 14.9%
Pre-Tax Margin - 3 Yr. Avg. 15.3%
Net Profit Margin 9.1%
Net Profit Margin - 3 Yr. Avg. 9.1%
Effective Tax Rate 39.3%
Eff/ Tax Rate - 3 Yr. Avg. 40.2%
Payout Ratio 0%

MMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MMI stock intrinsic value calculation we used $815 million for the last fiscal year's total revenue generated by Marcus & Millichap, Inc.. The default revenue input number comes from 0001 income statement of Marcus & Millichap, 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 MMI stock valuation model: a) initial revenue growth rate of 13.6% 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 4.3%, whose default value for MMI is calculated based on our internal credit rating of Marcus & Millichap, 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 Marcus & Millichap, 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 MMI stock the variable cost ratio is equal to 82.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $29 million in the base year in the intrinsic value calculation for MMI 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 17.1% for Marcus & Millichap, Inc..

Corporate tax rate of 27% is the nominal tax rate for Marcus & Millichap, 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 MMI 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 MMI are equal to 2.7%.

Life of production assets of 4.1 years is the average useful life of capital assets used in Marcus & Millichap, 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 MMI is equal to -8.9%. 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 - $409.574 million for Marcus & Millichap, 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 38.938 million for Marcus & Millichap, 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 Marcus & Millichap, Inc. at the current share price and the inputted number of shares is $1.5 billion.

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