Intrinsic value of Pegasystems - PEGA

Previous Close

$53.51

  Intrinsic Value

$2.68

stock screener

  Rating & Target

str. sell

-95%

Previous close

$53.51

 
Intrinsic value

$2.68

 
Up/down potential

-95%

 
Rating

str. sell

We calculate the intrinsic value of PEGA 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 4.1

 

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, %
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
Revenue, $m
  887
  935
  986
  1,039
  1,094
  1,152
  1,212
  1,276
  1,343
  1,412
  1,485
  1,562
  1,642
  1,726
  1,815
  1,907
  2,004
  2,106
  2,213
  2,325
  2,443
  2,567
  2,696
  2,832
  2,975
  3,125
  3,282
  3,447
  3,620
  3,802
Variable operating expenses, $m
  842
  888
  935
  985
  1,037
  1,092
  1,149
  1,208
  1,271
  1,337
  1,398
  1,470
  1,546
  1,625
  1,708
  1,795
  1,887
  1,983
  2,083
  2,189
  2,300
  2,416
  2,538
  2,666
  2,800
  2,941
  3,089
  3,245
  3,408
  3,579
Fixed operating expenses, $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 operating expenses, $m
  842
  888
  935
  985
  1,037
  1,092
  1,149
  1,208
  1,271
  1,337
  1,398
  1,470
  1,546
  1,625
  1,708
  1,795
  1,887
  1,983
  2,083
  2,189
  2,300
  2,416
  2,538
  2,666
  2,800
  2,941
  3,089
  3,245
  3,408
  3,579
Operating income, $m
  45
  48
  51
  54
  57
  60
  64
  68
  71
  76
  87
  92
  96
  101
  106
  112
  118
  124
  130
  136
  143
  151
  158
  166
  175
  183
  193
  202
  212
  223
EBITDA, $m
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  111
  116
  122
  129
  135
  142
  149
  157
  165
  173
  182
  191
  201
  211
  222
  233
  244
  257
  270
  283
Interest expense (income), $m
  0
  0
  1
  2
  3
  5
  6
  7
  9
  10
  12
  13
  15
  17
  18
  20
  22
  24
  27
  29
  31
  34
  37
  40
  43
  46
  49
  52
  56
  60
  64
Earnings before tax, $m
  45
  47
  48
  50
  52
  54
  57
  59
  62
  64
  74
  77
  80
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  129
  134
  140
  146
  153
  159
Tax expense, $m
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
Net income, $m
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  54
  56
  58
  61
  63
  65
  68
  71
  74
  77
  80
  83
  87
  90
  94
  98
  102
  107
  111
  116

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
  1,067
  1,125
  1,186
  1,250
  1,316
  1,386
  1,459
  1,536
  1,616
  1,699
  1,787
  1,880
  1,976
  2,078
  2,184
  2,295
  2,412
  2,535
  2,663
  2,798
  2,940
  3,089
  3,245
  3,408
  3,580
  3,760
  3,950
  4,148
  4,357
  4,575
Adjusted assets (=assets-cash), $m
  1,067
  1,125
  1,186
  1,250
  1,316
  1,386
  1,459
  1,536
  1,616
  1,699
  1,787
  1,880
  1,976
  2,078
  2,184
  2,295
  2,412
  2,535
  2,663
  2,798
  2,940
  3,089
  3,245
  3,408
  3,580
  3,760
  3,950
  4,148
  4,357
  4,575
Revenue / Adjusted assets
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
Average production assets, $m
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  117
  123
  130
  136
  143
  151
  158
  166
  175
  184
  193
  203
  213
  224
  235
  247
  259
  272
  286
  300
Working capital, $m
  135
  142
  150
  158
  166
  175
  184
  194
  204
  215
  226
  237
  250
  262
  276
  290
  305
  320
  336
  353
  371
  390
  410
  430
  452
  475
  499
  524
  550
  578
Total debt, $m
  19
  40
  61
  84
  107
  132
  158
  185
  213
  243
  274
  306
  340
  376
  414
  453
  494
  537
  583
  630
  680
  733
  788
  846
  906
  970
  1,037
  1,107
  1,181
  1,258
Total liabilities, $m
  377
  397
  419
  441
  465
  489
  515
  542
  570
  600
  631
  664
  698
  733
  771
  810
  851
  895
  940
  988
  1,038
  1,090
  1,145
  1,203
  1,264
  1,327
  1,394
  1,464
  1,538
  1,615
Total equity, $m
  690
  728
  767
  809
  852
  897
  944
  993
  1,045
  1,100
  1,156
  1,216
  1,279
  1,344
  1,413
  1,485
  1,561
  1,640
  1,723
  1,811
  1,902
  1,998
  2,099
  2,205
  2,316
  2,433
  2,555
  2,684
  2,819
  2,960
Total liabilities and equity, $m
  1,067
  1,125
  1,186
  1,250
  1,317
  1,386
  1,459
  1,535
  1,615
  1,700
  1,787
  1,880
  1,977
  2,077
  2,184
  2,295
  2,412
  2,535
  2,663
  2,799
  2,940
  3,088
  3,244
  3,408
  3,580
  3,760
  3,949
  4,148
  4,357
  4,575
Debt-to-equity ratio
  0.030
  0.050
  0.080
  0.100
  0.130
  0.150
  0.170
  0.190
  0.200
  0.220
  0.240
  0.250
  0.270
  0.280
  0.290
  0.300
  0.320
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.380
  0.390
  0.400
  0.410
  0.410
  0.420
  0.420
Adjusted equity ratio
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  54
  56
  58
  61
  63
  65
  68
  71
  74
  77
  80
  83
  87
  90
  94
  98
  102
  107
  111
  116
Depreciation, amort., depletion, $m
  21
  22
  23
  24
  25
  25
  26
  27
  29
  30
  23
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
Funds from operations, $m
  54
  56
  58
  60
  63
  65
  68
  71
  73
  76
  78
  81
  84
  88
  92
  96
  100
  104
  109
  113
  118
  124
  129
  135
  141
  147
  154
  161
  169
  176
Change in working capital, $m
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Cash from operations, $m
  47
  49
  51
  52
  54
  56
  59
  61
  63
  66
  66
  69
  72
  75
  78
  81
  85
  89
  92
  96
  101
  105
  110
  114
  119
  125
  130
  136
  142
  149
Maintenance CAPEX, $m
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
New CAPEX, $m
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
Cash from investing activities, $m
  -16
  -18
  -19
  -20
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -41
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -61
  -65
  -68
  -71
Free cash flow, $m
  30
  31
  32
  33
  34
  35
  36
  37
  38
  39
  38
  40
  41
  42
  44
  45
  47
  49
  51
  52
  54
  57
  59
  61
  63
  66
  69
  71
  74
  77
Issuance/(repayment) of debt, $m
  19
  21
  21
  22
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  55
  58
  61
  64
  67
  70
  74
  77
Issuance/(repurchase) of shares, $m
  4
  4
  4
  4
  5
  5
  6
  6
  7
  8
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  19
  20
  22
  23
  25
Cash from financing (excl. dividends), $m  
  23
  25
  25
  26
  29
  30
  32
  33
  35
  38
  34
  37
  38
  41
  44
  46
  49
  52
  55
  59
  62
  65
  69
  74
  78
  83
  87
  92
  97
  102
Total cash flow (excl. dividends), $m
  53
  55
  57
  60
  62
  65
  67
  70
  73
  76
  72
  76
  79
  83
  87
  92
  96
  101
  106
  111
  116
  122
  128
  134
  141
  148
  155
  163
  171
  180
Retained Cash Flow (-), $m
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -117
  -122
  -129
  -135
  -142
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
  17
  17
  18
  18
  19
  19
  20
  21
  21
  22
  15
  16
  17
  18
  19
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  31
  33
  35
  36
  38
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
  16
  16
  16
  15
  15
  14
  14
  13
  12
  11
  7
  7
  6
  6
  5
  5
  4
  4
  3
  3
  3
  2
  2
  1
  1
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  99.9
  99.8
  99.7
  99.6
  99.6
  99.5
  99.3
  99.2
  99.1
  99.0
  99.0
  98.9
  98.9
  98.8
  98.7
  98.7
  98.6
  98.5
  98.4
  98.3
  98.2
  98.1
  98.0
  97.9
  97.7
  97.6
  97.5
  97.4
  97.2
  97.1

Pegasystems Inc. develops, markets, licenses and supports software applications for marketing, sales and onboarding, and customer service needs. The Company also offers software applications built on the Pega platform. Its software is designed to assist clients in building, deploying and evolving enterprise applications. Its applications and platform intersect with and encompass several traditional software markets, including Customer Relationship Management (CRM); Business Process Management (BPM); Business Rules Management Systems (BRMS); Dynamic Case Management (DCM); Decision Management, which includes Predictive and Adaptive analytics, and the Vertical Specific Software (VSS) market of industry solutions and packaged applications. It provides implementation, consulting, training, technical support and hosting services to facilitate the use of its software. The Company offers its services to financial, healthcare, insurance, manufacturing, life sciences and other markets.

FINANCIAL RATIOS  of  Pegasystems (PEGA)

Valuation Ratios
P/E Ratio 151.8
Price to Sales 5.5
Price to Book 12.2
Price to Tangible Book
Price to Cash Flow 102.5
Price to Free Cash Flow 195.2
Growth Rates
Sales Growth Rate 9.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 72.7%
Cap. Spend. - 3 Yr. Gr. Rate 25.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 10.5%
Return On Equity 8.2%
Return On Equity - 3 Yr. Avg. 10.5%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 68.1%
Gross Margin - 3 Yr. Avg. 68.5%
EBITDA Margin 7.9%
EBITDA Margin - 3 Yr. Avg. 10.7%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 7.8%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 3.6%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 22.9%
Eff/ Tax Rate - 3 Yr. Avg. 31.7%
Payout Ratio 33.3%

PEGA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PEGA stock intrinsic value calculation we used $840.582 million for the last fiscal year's total revenue generated by Pegasystems. The default revenue input number comes from 0001 income statement of Pegasystems. 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 PEGA stock valuation model: a) initial revenue growth rate of 5.5% 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 PEGA is calculated based on our internal credit rating of Pegasystems, 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 Pegasystems.
    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 PEGA stock the variable cost ratio is equal to 95%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for PEGA 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 Pegasystems.

Corporate tax rate of 27% is the nominal tax rate for Pegasystems. 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 PEGA 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 PEGA are equal to 7.9%.

Life of production assets of 4.6 years is the average useful life of capital assets used in Pegasystems 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 PEGA is equal to 15.2%. 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 - $654.237 million for Pegasystems - 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 76.328 million for Pegasystems 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 Pegasystems at the current share price and the inputted number of shares is $4.1 billion.

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COMPANY NEWS

▶ Why Pegasystems Stock Lost 15% in October   [Nov-09-18 01:57PM  Motley Fool]
▶ Pegasystems: 3Q Earnings Snapshot   [04:22PM  Associated Press]
▶ Where Dallas largest hedge funds are placing their long bets   [08:03AM  American City Business Journals]
▶ Consumers: Chatbots still too dumb to get the job done   [Oct-09-18 10:06AM  PR Newswire]
▶ Pegasystems Announces Quarterly Cash Dividend   [Sep-14-18 04:05PM  PR Newswire]
▶ Pegasystems: 2Q Earnings Snapshot   [04:24PM  Associated Press]
▶ Pegasystems Inc. to Host Earnings Call   [03:00PM  ACCESSWIRE]
▶ Pegasystems Inc (NASDAQ:PEGA): Financial Strength Analysis   [Jun-27-18 08:26AM  Simply Wall St.]
▶ Pegasystems Extends Current Share Repurchase Program   [Jun-21-18 04:05PM  PR Newswire]
▶ Pegasystems Announces Quarterly Cash Dividend   [Jun-14-18 04:05PM  PR Newswire]
▶ Pegasystems: 1Q Earnings Snapshot   [May-10-18 04:21PM  Associated Press]
▶ Pegasystems to Hold Investor Session at PegaWorld 2018   [May-07-18 04:05PM  PR Newswire]
▶ These 6 Top Stocks Are Near Buy Points With Earnings Due   [May-05-18 08:00AM  Investor's Business Daily]
▶ Is There Now An Opportunity In Pegasystems Inc (NASDAQ:PEGA)?   [Mar-20-18 02:54PM  Simply Wall St.]
▶ Pegasystems Announces Quarterly Cash Dividend   [Mar-15-18 04:05PM  PR Newswire]

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