Intrinsic value of Orbital ATK - OA

Previous Close

$134.50

  Intrinsic Value

$152.48

stock screener

  Rating & Target

hold

+13%

Previous close

$134.50

 
Intrinsic value

$152.48

 
Up/down potential

+13%

 
Rating

hold

We calculate the intrinsic value of OA 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 2017), $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 7.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
Revenue, $m
  5,093
  5,434
  5,790
  6,159
  6,544
  6,945
  7,362
  7,797
  8,251
  8,724
  9,218
  9,734
  10,273
  10,836
  11,425
  12,041
  12,686
  13,360
  14,066
  14,806
  15,580
  16,391
  17,242
  18,133
  19,067
  20,046
  21,073
  22,150
  23,280
  24,464
Variable operating expenses, $m
  4,138
  4,402
  4,678
  4,965
  5,263
  5,573
  5,897
  6,234
  6,586
  6,953
  7,147
  7,546
  7,964
  8,401
  8,858
  9,335
  9,835
  10,358
  10,905
  11,478
  12,079
  12,708
  13,367
  14,058
  14,782
  15,541
  16,337
  17,172
  18,048
  18,966
Fixed operating expenses, $m
  368
  376
  384
  393
  401
  410
  419
  428
  438
  448
  457
  467
  478
  488
  499
  510
  521
  533
  544
  556
  569
  581
  594
  607
  620
  634
  648
  662
  677
  692
Total operating expenses, $m
  4,506
  4,778
  5,062
  5,358
  5,664
  5,983
  6,316
  6,662
  7,024
  7,401
  7,604
  8,013
  8,442
  8,889
  9,357
  9,845
  10,356
  10,891
  11,449
  12,034
  12,648
  13,289
  13,961
  14,665
  15,402
  16,175
  16,985
  17,834
  18,725
  19,658
Operating income, $m
  587
  656
  728
  802
  880
  961
  1,046
  1,135
  1,227
  1,324
  1,614
  1,720
  1,831
  1,947
  2,069
  2,196
  2,330
  2,470
  2,617
  2,771
  2,933
  3,103
  3,281
  3,468
  3,665
  3,871
  4,088
  4,316
  4,555
  4,806
EBITDA, $m
  1,075
  1,163
  1,256
  1,352
  1,452
  1,557
  1,666
  1,780
  1,899
  2,023
  2,154
  2,290
  2,432
  2,581
  2,737
  2,901
  3,072
  3,251
  3,440
  3,637
  3,844
  4,062
  4,290
  4,529
  4,780
  5,044
  5,321
  5,612
  5,917
  6,238
Interest expense (income), $m
  62
  76
  89
  103
  118
  133
  149
  165
  183
  200
  219
  239
  259
  280
  302
  326
  350
  375
  402
  429
  458
  489
  521
  554
  589
  626
  664
  705
  747
  791
  838
Earnings before tax, $m
  512
  567
  624
  684
  747
  812
  881
  952
  1,027
  1,105
  1,376
  1,461
  1,551
  1,645
  1,743
  1,846
  1,955
  2,068
  2,187
  2,313
  2,444
  2,582
  2,727
  2,879
  3,039
  3,207
  3,383
  3,569
  3,764
  3,969
Tax expense, $m
  138
  153
  169
  185
  202
  219
  238
  257
  277
  298
  371
  395
  419
  444
  471
  499
  528
  558
  591
  624
  660
  697
  736
  777
  821
  866
  914
  964
  1,016
  1,072
Net income, $m
  373
  414
  456
  500
  545
  593
  643
  695
  749
  806
  1,004
  1,067
  1,132
  1,201
  1,273
  1,348
  1,427
  1,510
  1,597
  1,688
  1,784
  1,885
  1,991
  2,102
  2,218
  2,341
  2,470
  2,605
  2,748
  2,897

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
  6,056
  6,462
  6,884
  7,324
  7,781
  8,258
  8,754
  9,271
  9,811
  10,374
  10,961
  11,574
  12,215
  12,885
  13,585
  14,318
  15,084
  15,886
  16,725
  17,605
  18,526
  19,490
  20,501
  21,561
  22,672
  23,836
  25,057
  26,338
  27,681
  29,090
Adjusted assets (=assets-cash), $m
  6,056
  6,462
  6,884
  7,324
  7,781
  8,258
  8,754
  9,271
  9,811
  10,374
  10,961
  11,574
  12,215
  12,885
  13,585
  14,318
  15,084
  15,886
  16,725
  17,605
  18,526
  19,490
  20,501
  21,561
  22,672
  23,836
  25,057
  26,338
  27,681
  29,090
Revenue / Adjusted assets
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
  0.841
Average production assets, $m
  2,979
  3,179
  3,387
  3,603
  3,828
  4,063
  4,307
  4,561
  4,827
  5,104
  5,393
  5,694
  6,010
  6,339
  6,684
  7,044
  7,421
  7,816
  8,229
  8,661
  9,114
  9,589
  10,086
  10,608
  11,154
  11,727
  12,328
  12,958
  13,619
  14,312
Working capital, $m
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
Total debt, $m
  1,651
  1,911
  2,182
  2,464
  2,757
  3,062
  3,380
  3,712
  4,058
  4,418
  4,795
  5,188
  5,599
  6,028
  6,477
  6,947
  7,438
  7,952
  8,490
  9,054
  9,644
  10,262
  10,910
  11,590
  12,302
  13,048
  13,831
  14,652
  15,512
  16,416
Total liabilities, $m
  3,882
  4,142
  4,413
  4,695
  4,988
  5,293
  5,611
  5,943
  6,289
  6,649
  7,026
  7,419
  7,830
  8,259
  8,708
  9,178
  9,669
  10,183
  10,721
  11,285
  11,875
  12,493
  13,141
  13,821
  14,533
  15,279
  16,062
  16,883
  17,743
  18,647
Total equity, $m
  2,174
  2,320
  2,472
  2,629
  2,794
  2,965
  3,143
  3,328
  3,522
  3,724
  3,935
  4,155
  4,385
  4,626
  4,877
  5,140
  5,415
  5,703
  6,004
  6,320
  6,651
  6,997
  7,360
  7,740
  8,139
  8,557
  8,996
  9,455
  9,937
  10,443
Total liabilities and equity, $m
  6,056
  6,462
  6,885
  7,324
  7,782
  8,258
  8,754
  9,271
  9,811
  10,373
  10,961
  11,574
  12,215
  12,885
  13,585
  14,318
  15,084
  15,886
  16,725
  17,605
  18,526
  19,490
  20,501
  21,561
  22,672
  23,836
  25,058
  26,338
  27,680
  29,090
Debt-to-equity ratio
  0.760
  0.820
  0.880
  0.940
  0.990
  1.030
  1.080
  1.120
  1.150
  1.190
  1.220
  1.250
  1.280
  1.300
  1.330
  1.350
  1.370
  1.390
  1.410
  1.430
  1.450
  1.470
  1.480
  1.500
  1.510
  1.520
  1.540
  1.550
  1.560
  1.570
Adjusted equity ratio
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  373
  414
  456
  500
  545
  593
  643
  695
  749
  806
  1,004
  1,067
  1,132
  1,201
  1,273
  1,348
  1,427
  1,510
  1,597
  1,688
  1,784
  1,885
  1,991
  2,102
  2,218
  2,341
  2,470
  2,605
  2,748
  2,897
Depreciation, amort., depletion, $m
  487
  507
  528
  550
  572
  596
  620
  645
  672
  700
  539
  569
  601
  634
  668
  704
  742
  782
  823
  866
  911
  959
  1,009
  1,061
  1,115
  1,173
  1,233
  1,296
  1,362
  1,431
Funds from operations, $m
  861
  921
  984
  1,049
  1,117
  1,189
  1,263
  1,340
  1,421
  1,506
  1,544
  1,636
  1,733
  1,835
  1,941
  2,052
  2,169
  2,291
  2,420
  2,554
  2,696
  2,844
  2,999
  3,162
  3,334
  3,514
  3,703
  3,901
  4,110
  4,328
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  860
  921
  983
  1,049
  1,117
  1,188
  1,262
  1,340
  1,421
  1,506
  1,543
  1,636
  1,733
  1,834
  1,940
  2,052
  2,168
  2,291
  2,419
  2,554
  2,695
  2,843
  2,998
  3,162
  3,333
  3,513
  3,702
  3,900
  4,108
  4,327
Maintenance CAPEX, $m
  -279
  -298
  -318
  -339
  -360
  -383
  -406
  -431
  -456
  -483
  -510
  -539
  -569
  -601
  -634
  -668
  -704
  -742
  -782
  -823
  -866
  -911
  -959
  -1,009
  -1,061
  -1,115
  -1,173
  -1,233
  -1,296
  -1,362
New CAPEX, $m
  -193
  -200
  -208
  -216
  -225
  -234
  -244
  -254
  -265
  -277
  -289
  -302
  -315
  -330
  -345
  -360
  -377
  -395
  -413
  -433
  -453
  -475
  -497
  -521
  -546
  -573
  -601
  -630
  -661
  -693
Cash from investing activities, $m
  -472
  -498
  -526
  -555
  -585
  -617
  -650
  -685
  -721
  -760
  -799
  -841
  -884
  -931
  -979
  -1,028
  -1,081
  -1,137
  -1,195
  -1,256
  -1,319
  -1,386
  -1,456
  -1,530
  -1,607
  -1,688
  -1,774
  -1,863
  -1,957
  -2,055
Free cash flow, $m
  389
  423
  458
  494
  532
  571
  612
  655
  699
  746
  744
  795
  848
  904
  962
  1,023
  1,087
  1,154
  1,224
  1,298
  1,376
  1,457
  1,542
  1,632
  1,726
  1,824
  1,928
  2,037
  2,152
  2,272
Issuance/(repayment) of debt, $m
  250
  260
  271
  282
  293
  305
  318
  332
  346
  361
  377
  393
  411
  429
  449
  469
  491
  514
  538
  564
  590
  618
  648
  679
  712
  746
  783
  821
  861
  903
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  
  250
  260
  271
  282
  293
  305
  318
  332
  346
  361
  377
  393
  411
  429
  449
  469
  491
  514
  538
  564
  590
  618
  648
  679
  712
  746
  783
  821
  861
  903
Total cash flow (excl. dividends), $m
  639
  683
  729
  776
  825
  876
  930
  986
  1,045
  1,107
  1,120
  1,188
  1,259
  1,333
  1,411
  1,492
  1,578
  1,668
  1,763
  1,862
  1,966
  2,075
  2,190
  2,311
  2,438
  2,571
  2,711
  2,858
  3,013
  3,175
Retained Cash Flow (-), $m
  -140
  -146
  -152
  -158
  -164
  -171
  -178
  -186
  -194
  -202
  -211
  -220
  -230
  -240
  -251
  -263
  -275
  -288
  -301
  -316
  -331
  -346
  -363
  -380
  -399
  -418
  -438
  -460
  -482
  -506
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
  24
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  95
  100
  105
  111
  116
Cash available for distribution, $m
  499
  537
  577
  618
  661
  705
  752
  801
  852
  905
  909
  968
  1,029
  1,092
  1,159
  1,229
  1,303
  1,380
  1,461
  1,546
  1,635
  1,729
  1,827
  1,930
  2,039
  2,153
  2,273
  2,398
  2,531
  2,670
Discount rate, %
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
  477
  490
  499
  504
  506
  505
  499
  490
  477
  461
  418
  397
  375
  349
  322
  294
  265
  236
  207
  179
  153
  129
  106
  86
  69
  54
  41
  31
  23
  16
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

Orbital ATK, Inc. is an aerospace and defense systems company and supplier of related products to the United States Government, allied nations, prime contractors and other customers. The Company's segments include Flight Systems Group, Defense Systems Group, Space Systems Group and Corporate. Its products include launch vehicles and related propulsion systems; satellites and associated components and services; tactical missiles, subsystems and defense electronics, and precision weapons, armament systems and ammunition. The Flight Systems Group segment consists of Launch Vehicles Division, Propulsion Systems Division and Aerospace Structures Division. The Defense Systems Group segment consists of Armament Systems Division, Defense Electronic Division, Missile Products Division and Small Caliber Systems Division. The Space Systems Group consists of Commercial Satellites Division, Government Satellites Division, Space Components Division and Technical Services Division.

FINANCIAL RATIOS  of  Orbital ATK (OA)

Valuation Ratios
P/E Ratio 26.4
Price to Sales 1.7
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 23.3
Growth Rates
Sales Growth Rate 31.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 78.1%
Cap. Spend. - 3 Yr. Gr. Rate 12%
Financial Strength
Quick Ratio 5
Current Ratio 0.1
LT Debt to Equity 77.4%
Total Debt to Equity 79.6%
Interest Coverage 8
Management Effectiveness
Return On Assets 6.3%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 9.2%
Ret/ On T. Cap. - 3 Yr. Avg. 6.8%
Return On Equity 16.8%
Return On Equity - 3 Yr. Avg. 12.9%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 22.1%
Gross Margin - 3 Yr. Avg. 21.4%
EBITDA Margin 14%
EBITDA Margin - 3 Yr. Avg. 11.9%
Operating Margin 10.6%
Oper. Margin - 3 Yr. Avg. 8.9%
Pre-Tax Margin 9.1%
Pre-Tax Margin - 3 Yr. Avg. 6.9%
Net Profit Margin 6.6%
Net Profit Margin - 3 Yr. Avg. 6.1%
Effective Tax Rate 27.5%
Eff/ Tax Rate - 3 Yr. Avg. 30.9%
Payout Ratio 23.9%

OA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OA stock intrinsic value calculation we used $4764 million for the last fiscal year's total revenue generated by Orbital ATK. The default revenue input number comes from 2017 income statement of Orbital ATK. 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 OA stock valuation model: a) initial revenue growth rate of 6.9% 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 4.5%, whose default value for OA is calculated based on our internal credit rating of Orbital ATK, 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 Orbital ATK.
    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 OA stock the variable cost ratio is equal to 81.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $360 million in the base year in the intrinsic value calculation for OA 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 Orbital ATK.

Corporate tax rate of 27% is the nominal tax rate for Orbital ATK. 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 OA stock is equal to 0.5%.

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 OA are equal to 58.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Orbital ATK 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 OA is equal to 0.1%. 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 - $2034 million for Orbital ATK - 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 57 million for Orbital ATK 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 Orbital ATK at the current share price and the inputted number of shares is $7.7 billion.

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