Intrinsic value of Mercury Systems - MRCY

Previous Close

$55.41

  Intrinsic Value

$4.49

stock screener

  Rating & Target

str. sell

-92%

Previous close

$55.41

 
Intrinsic value

$4.49

 
Up/down potential

-92%

 
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 2.7

 

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, %
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
Revenue, $m
  443
  479
  516
  554
  594
  636
  679
  724
  771
  820
  871
  923
  978
  1,036
  1,096
  1,158
  1,223
  1,291
  1,363
  1,437
  1,515
  1,596
  1,681
  1,770
  1,864
  1,961
  2,064
  2,171
  2,284
  2,401
Variable operating expenses, $m
  394
  422
  451
  481
  512
  544
  578
  612
  649
  687
  675
  716
  758
  803
  849
  898
  948
  1,001
  1,056
  1,114
  1,174
  1,237
  1,303
  1,372
  1,445
  1,521
  1,600
  1,683
  1,770
  1,862
Fixed operating expenses, $m
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
Total operating expenses, $m
  397
  425
  454
  484
  515
  547
  581
  616
  653
  691
  679
  720
  762
  807
  853
  902
  952
  1,005
  1,061
  1,119
  1,179
  1,242
  1,308
  1,377
  1,450
  1,526
  1,605
  1,689
  1,776
  1,868
Operating income, $m
  46
  53
  62
  70
  79
  89
  98
  108
  119
  130
  192
  204
  216
  229
  242
  256
  271
  286
  302
  318
  336
  354
  373
  393
  414
  436
  459
  483
  508
  534
EBITDA, $m
  115
  125
  135
  145
  155
  167
  178
  190
  202
  215
  229
  243
  257
  273
  289
  305
  323
  341
  360
  379
  400
  422
  444
  468
  493
  519
  546
  575
  604
  636
Interest expense (income), $m
  6
  0
  1
  1
  2
  3
  3
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
Earnings before tax, $m
  46
  53
  60
  68
  77
  85
  94
  104
  113
  123
  185
  196
  207
  219
  231
  244
  258
  272
  286
  302
  318
  335
  352
  371
  390
  410
  431
  454
  477
  501
Tax expense, $m
  12
  14
  16
  18
  21
  23
  25
  28
  31
  33
  50
  53
  56
  59
  62
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  111
  116
  122
  129
  135
Net income, $m
  33
  39
  44
  50
  56
  62
  69
  76
  83
  90
  135
  143
  151
  160
  169
  178
  188
  198
  209
  220
  232
  244
  257
  271
  285
  299
  315
  331
  348
  366

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
  884
  955
  1,029
  1,106
  1,186
  1,269
  1,356
  1,446
  1,539
  1,636
  1,738
  1,843
  1,953
  2,067
  2,187
  2,312
  2,442
  2,578
  2,720
  2,868
  3,023
  3,186
  3,356
  3,534
  3,720
  3,915
  4,119
  4,334
  4,558
  4,793
Adjusted assets (=assets-cash), $m
  884
  955
  1,029
  1,106
  1,186
  1,269
  1,356
  1,446
  1,539
  1,636
  1,738
  1,843
  1,953
  2,067
  2,187
  2,312
  2,442
  2,578
  2,720
  2,868
  3,023
  3,186
  3,356
  3,534
  3,720
  3,915
  4,119
  4,334
  4,558
  4,793
Revenue / Adjusted assets
  0.501
  0.502
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
Average production assets, $m
  306
  331
  356
  383
  411
  439
  469
  501
  533
  567
  602
  638
  676
  716
  757
  800
  845
  892
  942
  993
  1,047
  1,103
  1,162
  1,223
  1,288
  1,355
  1,426
  1,500
  1,578
  1,659
Working capital, $m
  143
  154
  166
  178
  191
  205
  219
  233
  248
  264
  280
  297
  315
  334
  353
  373
  394
  416
  439
  463
  488
  514
  541
  570
  600
  632
  665
  699
  735
  773
Total debt, $m
  8
  16
  24
  32
  41
  51
  60
  70
  81
  91
  103
  114
  126
  139
  152
  166
  181
  196
  212
  228
  245
  263
  282
  302
  323
  344
  367
  391
  416
  442
Total liabilities, $m
  98
  106
  114
  123
  132
  141
  151
  160
  171
  182
  193
  205
  217
  229
  243
  257
  271
  286
  302
  318
  336
  354
  372
  392
  413
  435
  457
  481
  506
  532
Total equity, $m
  786
  849
  915
  984
  1,055
  1,129
  1,205
  1,285
  1,368
  1,455
  1,545
  1,639
  1,736
  1,838
  1,944
  2,055
  2,171
  2,292
  2,418
  2,550
  2,688
  2,832
  2,983
  3,141
  3,307
  3,480
  3,662
  3,852
  4,052
  4,261
Total liabilities and equity, $m
  884
  955
  1,029
  1,107
  1,187
  1,270
  1,356
  1,445
  1,539
  1,637
  1,738
  1,844
  1,953
  2,067
  2,187
  2,312
  2,442
  2,578
  2,720
  2,868
  3,024
  3,186
  3,355
  3,533
  3,720
  3,915
  4,119
  4,333
  4,558
  4,793
Debt-to-equity ratio
  0.010
  0.020
  0.030
  0.030
  0.040
  0.040
  0.050
  0.050
  0.060
  0.060
  0.070
  0.070
  0.070
  0.080
  0.080
  0.080
  0.080
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
Adjusted equity ratio
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  33
  39
  44
  50
  56
  62
  69
  76
  83
  90
  135
  143
  151
  160
  169
  178
  188
  198
  209
  220
  232
  244
  257
  271
  285
  299
  315
  331
  348
  366
Depreciation, amort., depletion, $m
  70
  71
  73
  74
  76
  78
  80
  82
  84
  86
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  97
  102
Funds from operations, $m
  103
  110
  117
  124
  132
  140
  149
  157
  166
  176
  172
  182
  193
  204
  215
  227
  240
  253
  267
  281
  296
  312
  328
  346
  364
  383
  402
  423
  445
  468
Change in working capital, $m
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  35
  36
  38
Cash from operations, $m
  92
  98
  105
  112
  119
  127
  135
  143
  151
  160
  155
  165
  175
  185
  196
  207
  219
  231
  244
  257
  271
  286
  301
  317
  334
  351
  369
  389
  409
  430
Maintenance CAPEX, $m
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -87
  -92
  -97
New CAPEX, $m
  -23
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -64
  -68
  -71
  -74
  -78
  -81
Cash from investing activities, $m
  -40
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -73
  -77
  -81
  -85
  -89
  -94
  -99
  -104
  -109
  -115
  -120
  -127
  -133
  -139
  -147
  -154
  -161
  -170
  -178
Free cash flow, $m
  51
  55
  59
  64
  68
  73
  78
  83
  88
  94
  86
  92
  98
  104
  111
  118
  125
  132
  140
  148
  156
  165
  174
  184
  194
  205
  216
  227
  239
  252
Issuance/(repayment) of debt, $m
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Issuance/(repurchase) of shares, $m
  27
  25
  22
  18
  15
  12
  8
  4
  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  
  35
  33
  30
  27
  24
  21
  18
  14
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  86
  88
  89
  91
  92
  94
  95
  97
  99
  104
  97
  103
  110
  117
  124
  131
  139
  147
  156
  164
  174
  183
  193
  204
  215
  226
  238
  251
  264
  278
Retained Cash Flow (-), $m
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -86
  -90
  -94
  -98
  -102
  -106
  -111
  -116
  -121
  -126
  -132
  -138
  -144
  -151
  -158
  -166
  -173
  -182
  -190
  -199
  -209
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
  26
  24
  23
  22
  21
  20
  19
  17
  16
  18
  7
  9
  12
  15
  18
  21
  23
  26
  29
  33
  36
  39
  42
  46
  49
  53
  57
  60
  64
  69
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
  25
  22
  20
  18
  16
  14
  13
  11
  9
  9
  3
  4
  5
  5
  5
  5
  5
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  99.0
  98.1
  97.5
  96.9
  96.5
  96.2
  96.1
  96.0
  96.0
  96.0
  96.0
  96.0
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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 (MRCY)

Valuation Ratios
P/E Ratio 102.6
Price to Sales 6.3
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 43.5
Price to Free Cash Flow 98.7
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 $408.588 million for the last fiscal year's total revenue generated by Mercury Systems. The default revenue input number comes from 0001 income statement of Mercury 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 MRCY stock valuation model: a) initial revenue growth rate of 8.4% 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 MRCY is calculated based on our internal credit rating of Mercury 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 Mercury 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 MRCY stock the variable cost ratio is equal to 90%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3 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 7.9% for Mercury Systems.

Corporate tax rate of 27% is the nominal tax rate for Mercury 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 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 69.1%.

Life of production assets of 16.3 years is the average useful life of capital assets used in Mercury 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 MRCY is equal to 32.2%. 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 - $725.417 million for Mercury 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 48.19 million for Mercury 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 Mercury Systems at the current share price and the inputted number of shares is $2.7 billion.

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