Intrinsic value of Mercury Systems - MRCY

Previous Close

$50.55

  Intrinsic Value

$1.77

stock screener

  Rating & Target

str. sell

-96%

Previous close

$50.55

 
Intrinsic value

$1.77

 
Up/down potential

-96%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  51.48
  20.50
  18.95
  17.56
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.58
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
Revenue, $m
  409
  493
  586
  689
  801
  923
  1,054
  1,193
  1,341
  1,498
  1,663
  1,836
  2,017
  2,206
  2,403
  2,608
  2,822
  3,044
  3,275
  3,515
  3,765
  4,024
  4,293
  4,573
  4,865
  5,168
  5,484
  5,813
  6,156
  6,514
  6,887
Variable operating expenses, $m
 
  436
  511
  594
  685
  783
  888
  1,001
  1,120
  1,247
  1,380
  1,481
  1,627
  1,780
  1,939
  2,105
  2,277
  2,456
  2,643
  2,836
  3,037
  3,246
  3,464
  3,690
  3,925
  4,170
  4,425
  4,690
  4,967
  5,256
  5,557
Fixed operating expenses, $m
 
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
Total operating expenses, $m
  371
  439
  514
  597
  688
  786
  891
  1,005
  1,124
  1,251
  1,384
  1,485
  1,631
  1,784
  1,943
  2,109
  2,281
  2,461
  2,648
  2,841
  3,042
  3,251
  3,469
  3,695
  3,930
  4,176
  4,431
  4,696
  4,973
  5,262
  5,563
Operating income, $m
  37
  54
  72
  92
  113
  137
  162
  189
  217
  247
  279
  351
  386
  422
  460
  499
  541
  583
  628
  674
  722
  772
  824
  878
  934
  993
  1,054
  1,117
  1,183
  1,252
  1,324
EBITDA, $m
  69
  104
  124
  147
  171
  197
  226
  256
  288
  322
  358
  395
  435
  476
  518
  563
  609
  658
  708
  760
  814
  870
  929
  989
  1,053
  1,118
  1,187
  1,258
  1,333
  1,411
  1,492
Interest expense (income), $m
  6
  0
  1
  3
  4
  6
  7
  9
  11
  13
  15
  18
  20
  23
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  59
  63
  67
  71
  76
  81
  86
Earnings before tax, $m
  31
  54
  71
  89
  109
  131
  155
  180
  206
  234
  264
  333
  365
  399
  435
  471
  510
  549
  591
  634
  678
  725
  773
  823
  876
  930
  987
  1,046
  1,107
  1,171
  1,238
Tax expense, $m
  6
  15
  19
  24
  30
  35
  42
  49
  56
  63
  71
  90
  99
  108
  117
  127
  138
  148
  160
  171
  183
  196
  209
  222
  236
  251
  266
  282
  299
  316
  334
Net income, $m
  25
  39
  52
  65
  80
  96
  113
  131
  151
  171
  193
  243
  267
  291
  317
  344
  372
  401
  431
  463
  495
  529
  564
  601
  639
  679
  720
  763
  808
  855
  904

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  42
  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
  816
  933
  1,110
  1,305
  1,518
  1,748
  1,996
  2,260
  2,540
  2,837
  3,149
  3,477
  3,820
  4,178
  4,551
  4,940
  5,345
  5,766
  6,203
  6,658
  7,130
  7,621
  8,131
  8,662
  9,214
  9,788
  10,387
  11,010
  11,660
  12,337
  13,044
Adjusted assets (=assets-cash), $m
  774
  933
  1,110
  1,305
  1,518
  1,748
  1,996
  2,260
  2,540
  2,837
  3,149
  3,477
  3,820
  4,178
  4,551
  4,940
  5,345
  5,766
  6,203
  6,658
  7,130
  7,621
  8,131
  8,662
  9,214
  9,788
  10,387
  11,010
  11,660
  12,337
  13,044
Revenue / Adjusted assets
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
  0.528
Average production assets, $m
  163
  197
  234
  275
  320
  368
  420
  476
  535
  598
  663
  732
  805
  880
  959
  1,041
  1,126
  1,215
  1,307
  1,403
  1,502
  1,605
  1,713
  1,825
  1,941
  2,062
  2,188
  2,319
  2,456
  2,599
  2,748
Working capital, $m
  173
  158
  188
  221
  256
  295
  337
  382
  429
  479
  532
  587
  645
  706
  769
  835
  903
  974
  1,048
  1,125
  1,205
  1,288
  1,374
  1,463
  1,557
  1,654
  1,755
  1,860
  1,970
  2,084
  2,204
Total debt, $m
  0
  19
  40
  63
  88
  115
  144
  176
  209
  244
  281
  319
  360
  402
  446
  492
  540
  589
  641
  695
  750
  808
  868
  931
  996
  1,064
  1,135
  1,208
  1,285
  1,365
  1,448
Total liabilities, $m
  90
  110
  131
  154
  179
  206
  235
  267
  300
  335
  372
  410
  451
  493
  537
  583
  631
  680
  732
  786
  841
  899
  959
  1,022
  1,087
  1,155
  1,226
  1,299
  1,376
  1,456
  1,539
Total equity, $m
  725
  823
  979
  1,151
  1,339
  1,542
  1,760
  1,993
  2,241
  2,502
  2,777
  3,066
  3,369
  3,685
  4,014
  4,357
  4,714
  5,085
  5,471
  5,872
  6,288
  6,721
  7,171
  7,639
  8,126
  8,633
  9,161
  9,711
  10,284
  10,881
  11,505
Total liabilities and equity, $m
  815
  933
  1,110
  1,305
  1,518
  1,748
  1,995
  2,260
  2,541
  2,837
  3,149
  3,476
  3,820
  4,178
  4,551
  4,940
  5,345
  5,765
  6,203
  6,658
  7,129
  7,620
  8,130
  8,661
  9,213
  9,788
  10,387
  11,010
  11,660
  12,337
  13,044
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.070
  0.070
  0.080
  0.090
  0.090
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.130
  0.130
Adjusted equity ratio
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882
  0.882

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  39
  52
  65
  80
  96
  113
  131
  151
  171
  193
  243
  267
  291
  317
  344
  372
  401
  431
  463
  495
  529
  564
  601
  639
  679
  720
  763
  808
  855
  904
Depreciation, amort., depletion, $m
  32
  50
  52
  55
  58
  61
  64
  67
  71
  75
  79
  45
  49
  54
  58
  63
  69
  74
  80
  86
  92
  98
  104
  111
  118
  126
  133
  141
  150
  158
  168
Funds from operations, $m
  52
  90
  104
  120
  137
  156
  177
  198
  221
  246
  271
  288
  316
  345
  376
  408
  441
  475
  511
  548
  587
  627
  669
  712
  758
  805
  854
  905
  958
  1,013
  1,071
Change in working capital, $m
  -7
  27
  30
  33
  36
  39
  42
  45
  47
  50
  53
  55
  58
  61
  63
  66
  68
  71
  74
  77
  80
  83
  86
  90
  93
  97
  101
  105
  110
  114
  119
Cash from operations, $m
  59
  63
  74
  87
  102
  117
  135
  154
  174
  195
  218
  232
  258
  285
  313
  342
  372
  404
  437
  471
  507
  544
  583
  623
  664
  708
  753
  799
  848
  899
  952
Maintenance CAPEX, $m
  0
  -10
  -12
  -14
  -17
  -19
  -22
  -26
  -29
  -33
  -36
  -40
  -45
  -49
  -54
  -58
  -63
  -69
  -74
  -80
  -86
  -92
  -98
  -104
  -111
  -118
  -126
  -133
  -141
  -150
  -158
New CAPEX, $m
  -33
  -34
  -37
  -41
  -45
  -49
  -52
  -56
  -59
  -62
  -66
  -69
  -72
  -75
  -79
  -82
  -85
  -89
  -92
  -96
  -99
  -103
  -108
  -112
  -116
  -121
  -126
  -131
  -137
  -143
  -149
Cash from investing activities, $m
  -111
  -44
  -49
  -55
  -62
  -68
  -74
  -82
  -88
  -95
  -102
  -109
  -117
  -124
  -133
  -140
  -148
  -158
  -166
  -176
  -185
  -195
  -206
  -216
  -227
  -239
  -252
  -264
  -278
  -293
  -307
Free cash flow, $m
  -52
  19
  25
  32
  40
  49
  60
  72
  86
  100
  116
  123
  141
  160
  180
  201
  224
  247
  271
  296
  322
  349
  377
  406
  437
  468
  501
  535
  570
  606
  644
Issuance/(repayment) of debt, $m
  16
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  80
  83
Issuance/(repurchase) of shares, $m
  -4
  101
  104
  107
  108
  107
  105
  102
  97
  90
  83
  46
  36
  24
  12
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  11
  120
  125
  130
  133
  134
  134
  133
  130
  125
  120
  85
  76
  66
  56
  46
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  80
  83
Total cash flow (excl. dividends), $m
  -40
  139
  150
  162
  173
  184
  195
  205
  216
  226
  236
  207
  217
  227
  237
  247
  271
  296
  322
  350
  378
  407
  437
  469
  502
  536
  571
  608
  646
  686
  728
Retained Cash Flow (-), $m
  -252
  -140
  -156
  -172
  -188
  -203
  -218
  -233
  -247
  -262
  -275
  -289
  -302
  -316
  -329
  -343
  -357
  -371
  -386
  -401
  -417
  -433
  -450
  -468
  -487
  -507
  -528
  -550
  -573
  -598
  -624
Prev. year cash balance distribution, $m
 
  42
  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
 
  41
  -6
  -10
  -15
  -19
  -23
  -28
  -32
  -36
  -40
  -82
  -85
  -89
  -93
  -96
  -86
  -75
  -63
  -51
  -39
  -26
  -13
  1
  15
  29
  44
  58
  73
  89
  104
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
 
  39
  -5
  -9
  -12
  -15
  -17
  -19
  -20
  -20
  -21
  -39
  -36
  -34
  -31
  -28
  -22
  -16
  -12
  -8
  -5
  -3
  -1
  0
  1
  1
  1
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  95.8
  92.4
  89.5
  87.1
  85.0
  83.4
  82.0
  80.8
  79.8
  79.1
  78.7
  78.4
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2
  78.2

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 93.6
Price to Sales 5.7
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 39.7
Price to Free Cash Flow 90
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 $409 million for the last fiscal year's total revenue generated by Mercury Systems. The default revenue input number comes from 2017 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 20.5% 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 6.3% 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 39.9%.

Life of production assets of 16.4 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%. 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 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 48.491 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 $2.5 billion.

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COMPANY NEWS

▶ Earnings Season Watch List: Mercury Systems   [03:00AM  Investor's Business Daily]
▶ Stocks To Watch With Earnings Approaching: Mercury Systems   [Jan-08-18 03:00AM  Investor's Business Daily]
▶ Defense-focused Mercury Systems pays $180M for 'rugged' computer maker   [Dec-21-17 02:25PM  American City Business Journals]
▶ Mercury Systems To Acquire Themis Computer   [09:00AM  GlobeNewswire]
▶ Mercury Systems Earns Relative Strength Rating Upgrade   [03:00AM  Investor's Business Daily]
▶ Mercury Systems tops Street 1Q forecasts   [Oct-24-17 05:39PM  Associated Press]
▶ Gabelli & Companys Aerospace & Defense Conference   [Aug-24-17 07:00AM  Business Wire]
▶ Gabelli & Companys Aerospace & Defense Conference   [Aug-16-17 09:08AM  Business Wire]
▶ Mercury Systems tops Street 4Q forecasts   [12:50AM  Associated Press]
Financial statements of MRCY
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