Intrinsic value of Mercury Systems Inc - MRCY

Previous Close

$62.69

  Intrinsic Value

$0.50

stock screener

  Rating & Target

str. sell

-99%

Previous close

$62.69

 
Intrinsic value

$0.50

 
Up/down potential

-99%

 
Rating

str. sell

We calculate the intrinsic value of MRCY 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 3.0

 

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, %
  34.90
  31.91
  29.22
  26.80
  24.62
  22.66
  20.89
  19.30
  17.87
  16.58
  15.43
  14.38
  13.44
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.64
  8.27
  7.94
  7.65
  7.39
  7.15
  6.93
  6.74
  6.56
  6.41
Revenue, $m
  665
  877
  1,134
  1,437
  1,791
  2,197
  2,656
  3,169
  3,735
  4,354
  5,026
  5,749
  6,522
  7,344
  8,213
  9,129
  10,092
  11,099
  12,152
  13,251
  14,395
  15,586
  16,824
  18,111
  19,449
  20,838
  22,283
  23,785
  25,346
  26,970
Variable operating expenses, $m
  567
  726
  919
  1,147
  1,413
  1,718
  2,062
  2,447
  2,873
  3,338
  3,775
  4,318
  4,898
  5,516
  6,169
  6,857
  7,580
  8,337
  9,127
  9,953
  10,812
  11,706
  12,636
  13,603
  14,608
  15,651
  16,736
  17,864
  19,037
  20,257
Fixed operating expenses, $m
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  13
  14
  14
  14
  15
  15
  15
Total operating expenses, $m
  575
  734
  928
  1,156
  1,422
  1,727
  2,071
  2,457
  2,883
  3,348
  3,785
  4,328
  4,909
  5,527
  6,180
  6,868
  7,592
  8,349
  9,139
  9,965
  10,825
  11,719
  12,649
  13,616
  14,622
  15,665
  16,750
  17,879
  19,052
  20,272
Operating income, $m
  90
  143
  206
  282
  369
  470
  584
  712
  852
  1,006
  1,241
  1,421
  1,613
  1,817
  2,033
  2,261
  2,500
  2,751
  3,013
  3,286
  3,571
  3,867
  4,175
  4,495
  4,827
  5,173
  5,532
  5,906
  6,294
  6,698
EBITDA, $m
  188
  251
  326
  416
  520
  640
  775
  926
  1,093
  1,276
  1,474
  1,687
  1,915
  2,158
  2,414
  2,685
  2,968
  3,266
  3,576
  3,901
  4,238
  4,590
  4,955
  5,335
  5,729
  6,139
  6,566
  7,009
  7,470
  7,949
Interest expense (income), $m
  6
  11
  16
  23
  31
  41
  52
  65
  80
  96
  115
  134
  156
  179
  204
  230
  258
  288
  318
  351
  385
  420
  456
  495
  534
  576
  619
  663
  709
  758
  808
Earnings before tax, $m
  79
  126
  183
  250
  329
  418
  519
  632
  756
  892
  1,106
  1,265
  1,434
  1,613
  1,803
  2,003
  2,213
  2,433
  2,662
  2,902
  3,151
  3,410
  3,680
  3,960
  4,252
  4,554
  4,869
  5,196
  5,536
  5,890
Tax expense, $m
  21
  34
  49
  68
  89
  113
  140
  171
  204
  241
  299
  341
  387
  436
  487
  541
  597
  657
  719
  783
  851
  921
  994
  1,069
  1,148
  1,230
  1,315
  1,403
  1,495
  1,590
Net income, $m
  58
  92
  134
  183
  240
  305
  379
  461
  552
  651
  808
  923
  1,047
  1,178
  1,316
  1,462
  1,615
  1,776
  1,943
  2,118
  2,300
  2,489
  2,686
  2,891
  3,104
  3,325
  3,554
  3,793
  4,042
  4,300

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
  1,436
  1,895
  2,448
  3,104
  3,869
  4,745
  5,737
  6,844
  8,067
  9,405
  10,855
  12,417
  14,086
  15,861
  17,739
  19,718
  21,796
  23,973
  26,247
  28,620
  31,091
  33,663
  36,337
  39,117
  42,006
  45,008
  48,127
  51,371
  54,743
  58,251
Adjusted assets (=assets-cash), $m
  1,436
  1,895
  2,448
  3,104
  3,869
  4,745
  5,737
  6,844
  8,067
  9,405
  10,855
  12,417
  14,086
  15,861
  17,739
  19,718
  21,796
  23,973
  26,247
  28,620
  31,091
  33,663
  36,337
  39,117
  42,006
  45,008
  48,127
  51,371
  54,743
  58,251
Revenue / Adjusted assets
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
Average production assets, $m
  469
  618
  799
  1,013
  1,263
  1,549
  1,872
  2,234
  2,633
  3,070
  3,543
  4,053
  4,598
  5,177
  5,790
  6,436
  7,115
  7,825
  8,567
  9,342
  10,149
  10,988
  11,861
  12,768
  13,711
  14,691
  15,710
  16,768
  17,869
  19,014
Working capital, $m
  261
  345
  446
  565
  704
  863
  1,044
  1,245
  1,468
  1,711
  1,975
  2,259
  2,563
  2,886
  3,228
  3,588
  3,966
  4,362
  4,776
  5,208
  5,657
  6,125
  6,612
  7,118
  7,643
  8,190
  8,757
  9,347
  9,961
  10,599
Total debt, $m
  297
  423
  576
  756
  966
  1,207
  1,480
  1,784
  2,121
  2,489
  2,888
  3,317
  3,776
  4,264
  4,781
  5,325
  5,896
  6,495
  7,120
  7,773
  8,452
  9,160
  9,895
  10,660
  11,454
  12,279
  13,137
  14,029
  14,957
  15,921
Total liabilities, $m
  395
  521
  673
  854
  1,064
  1,305
  1,578
  1,882
  2,218
  2,586
  2,985
  3,415
  3,874
  4,362
  4,878
  5,422
  5,994
  6,592
  7,218
  7,870
  8,550
  9,257
  9,993
  10,757
  11,552
  12,377
  13,235
  14,127
  15,054
  16,019
Total equity, $m
  1,041
  1,374
  1,775
  2,251
  2,805
  3,440
  4,159
  4,962
  5,848
  6,818
  7,870
  9,002
  10,212
  11,499
  12,861
  14,295
  15,802
  17,380
  19,029
  20,749
  22,541
  24,405
  26,344
  28,360
  30,454
  32,630
  34,892
  37,244
  39,689
  42,232
Total liabilities and equity, $m
  1,436
  1,895
  2,448
  3,105
  3,869
  4,745
  5,737
  6,844
  8,066
  9,404
  10,855
  12,417
  14,086
  15,861
  17,739
  19,717
  21,796
  23,972
  26,247
  28,619
  31,091
  33,662
  36,337
  39,117
  42,006
  45,007
  48,127
  51,371
  54,743
  58,251
Debt-to-equity ratio
  0.290
  0.310
  0.320
  0.340
  0.340
  0.350
  0.360
  0.360
  0.360
  0.360
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
Adjusted equity ratio
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725
  0.725

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  58
  92
  134
  183
  240
  305
  379
  461
  552
  651
  808
  923
  1,047
  1,178
  1,316
  1,462
  1,615
  1,776
  1,943
  2,118
  2,300
  2,489
  2,686
  2,891
  3,104
  3,325
  3,554
  3,793
  4,042
  4,300
Depreciation, amort., depletion, $m
  98
  108
  120
  134
  151
  169
  191
  214
  241
  269
  233
  267
  302
  341
  381
  423
  468
  515
  564
  615
  668
  723
  780
  840
  902
  967
  1,034
  1,103
  1,176
  1,251
Funds from operations, $m
  156
  200
  254
  317
  390
  475
  570
  676
  793
  921
  1,041
  1,190
  1,349
  1,518
  1,697
  1,886
  2,083
  2,291
  2,507
  2,733
  2,968
  3,212
  3,467
  3,731
  4,006
  4,291
  4,588
  4,896
  5,217
  5,551
Change in working capital, $m
  68
  83
  101
  119
  139
  159
  180
  201
  223
  243
  264
  284
  304
  323
  342
  360
  378
  396
  414
  432
  450
  468
  487
  506
  526
  546
  568
  590
  614
  638
Cash from operations, $m
  89
  117
  153
  198
  251
  315
  389
  474
  570
  677
  777
  906
  1,045
  1,195
  1,355
  1,525
  1,705
  1,895
  2,093
  2,301
  2,518
  2,744
  2,980
  3,225
  3,480
  3,745
  4,020
  4,306
  4,604
  4,913
Maintenance CAPEX, $m
  -23
  -31
  -41
  -53
  -67
  -83
  -102
  -123
  -147
  -173
  -202
  -233
  -267
  -302
  -341
  -381
  -423
  -468
  -515
  -564
  -615
  -668
  -723
  -780
  -840
  -902
  -967
  -1,034
  -1,103
  -1,176
New CAPEX, $m
  -121
  -150
  -181
  -214
  -249
  -286
  -324
  -361
  -399
  -437
  -474
  -510
  -545
  -579
  -613
  -646
  -678
  -710
  -742
  -774
  -807
  -839
  -873
  -907
  -943
  -980
  -1,018
  -1,059
  -1,101
  -1,145
Cash from investing activities, $m
  -144
  -181
  -222
  -267
  -316
  -369
  -426
  -484
  -546
  -610
  -676
  -743
  -812
  -881
  -954
  -1,027
  -1,101
  -1,178
  -1,257
  -1,338
  -1,422
  -1,507
  -1,596
  -1,687
  -1,783
  -1,882
  -1,985
  -2,093
  -2,204
  -2,321
Free cash flow, $m
  -55
  -63
  -68
  -69
  -65
  -54
  -36
  -10
  24
  67
  101
  163
  234
  313
  402
  499
  603
  716
  836
  963
  1,097
  1,237
  1,384
  1,538
  1,697
  1,863
  2,035
  2,214
  2,400
  2,592
Issuance/(repayment) of debt, $m
  102
  126
  152
  180
  210
  241
  273
  304
  336
  368
  399
  429
  459
  488
  516
  544
  572
  599
  625
  652
  680
  707
  735
  764
  794
  826
  858
  892
  927
  965
Issuance/(repurchase) of shares, $m
  212
  240
  268
  293
  314
  330
  340
  342
  335
  319
  244
  209
  164
  109
  45
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  314
  366
  420
  473
  524
  571
  613
  646
  671
  687
  643
  638
  623
  597
  561
  544
  572
  599
  625
  652
  680
  707
  735
  764
  794
  826
  858
  892
  927
  965
Total cash flow (excl. dividends), $m
  259
  303
  352
  404
  460
  517
  576
  636
  695
  754
  744
  801
  857
  911
  964
  1,043
  1,175
  1,315
  1,461
  1,615
  1,776
  1,945
  2,120
  2,302
  2,492
  2,689
  2,893
  3,106
  3,327
  3,557
Retained Cash Flow (-), $m
  -270
  -332
  -401
  -476
  -554
  -635
  -719
  -803
  -887
  -970
  -1,052
  -1,132
  -1,210
  -1,287
  -1,362
  -1,435
  -1,507
  -1,578
  -1,649
  -1,720
  -1,792
  -1,865
  -1,939
  -2,015
  -2,094
  -2,176
  -2,262
  -2,351
  -2,445
  -2,543
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
  -11
  -30
  -50
  -72
  -94
  -118
  -143
  -167
  -192
  -216
  -307
  -331
  -354
  -376
  -398
  -392
  -332
  -264
  -188
  -105
  -15
  80
  181
  287
  397
  512
  631
  755
  882
  1,013
Discount rate, %
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
  -10
  -27
  -43
  -58
  -72
  -84
  -94
  -101
  -106
  -108
  -139
  -133
  -126
  -117
  -108
  -91
  -65
  -43
  -26
  -12
  -1
  6
  10
  12
  13
  12
  11
  9
  7
  6
Current shareholders' claim on cash, %
  93.5
  88.3
  84.1
  80.7
  78.0
  75.7
  73.8
  72.3
  71.1
  70.1
  69.5
  69.0
  68.7
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5

Mercury Systems, Inc. is a commercial provider of secure processing subsystems designed and made in the United States. The Company's solutions support a range of defense and intelligence programs. Its technologies include embedded processing modules and subsystems, radio frequency (RF) and microwave multi-function assemblies, as well as subsystems, and RF and microwave components. It designs and builds RF and microwave components and subsystems for the electronic warfare (EW), signals intelligence (SIGINT) and other communications requirements and applications. It offers analyst services and systems engineering support, consulting, maintenance and other support, testing and installation. It designs, markets and sells software and middleware environments for the development and execution of signal and image processing applications on a range of heterogeneous and multi-computing platforms. It also offers solutions in mission computing, safety-critical avionics and platform management.

FINANCIAL RATIOS  of  Mercury Systems Inc (MRCY)

Valuation Ratios
P/E Ratio 116.1
Price to Sales 7.1
Price to Book 4
Price to Tangible Book
Price to Cash Flow 49.2
Price to Free Cash Flow 111.6
Growth Rates
Sales Growth Rate 51.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 312.5%
Cap. Spend. - 3 Yr. Gr. Rate 36.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 6
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 3.6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 4.2%
Return On Equity - 3 Yr. Avg. 4%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 46.9%
Gross Margin - 3 Yr. Avg. 47.6%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 15.5%
Operating Margin 9.3%
Oper. Margin - 3 Yr. Avg. 8.8%
Pre-Tax Margin 7.6%
Pre-Tax Margin - 3 Yr. Avg. 8.3%
Net Profit Margin 6.1%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 19.4%
Eff/ Tax Rate - 3 Yr. Avg. 21.9%
Payout Ratio 0%

MRCY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MRCY stock intrinsic value calculation we used $493 million for the last fiscal year's total revenue generated by Mercury Systems Inc. The default revenue input number comes from 0001 income statement of Mercury Systems 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 MRCY stock valuation model: a) initial revenue growth rate of 34.9% 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 4.6%, whose default value for MRCY is calculated based on our internal credit rating of Mercury Systems 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 Mercury Systems 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 MRCY stock the variable cost ratio is equal to 88.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8 million in the base year in the intrinsic value calculation for MRCY 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 Mercury Systems Inc.

Corporate tax rate of 27% is the nominal tax rate for Mercury Systems 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 MRCY 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 MRCY are equal to 70.5%.

Life of production assets of 15.2 years is the average useful life of capital assets used in Mercury Systems 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 MRCY is equal to 39.3%. 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 - $771.891 million for Mercury Systems 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 48.385 million for Mercury Systems 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 Mercury Systems Inc at the current share price and the inputted number of shares is $3.0 billion.

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