Intrinsic value of Progress Software Corporation - PRGS

Previous Close

$44.65

  Intrinsic Value

$23.59

stock screener

  Rating & Target

sell

-47%

Previous close

$44.65

 
Intrinsic value

$23.59

 
Up/down potential

-47%

 
Rating

sell

We calculate the intrinsic value of PRGS 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 2.0

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  405
  414
  425
  437
  450
  465
  480
  498
  516
  536
  557
  580
  604
  629
  656
  685
  716
  748
  782
  818
  856
  896
  938
  982
  1,029
  1,078
  1,130
  1,185
  1,242
  1,302
Variable operating expenses, $m
  332
  338
  346
  355
  365
  375
  387
  399
  412
  427
  405
  421
  439
  457
  477
  498
  520
  544
  568
  594
  622
  651
  682
  714
  748
  784
  821
  861
  903
  946
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
  332
  338
  346
  355
  365
  375
  387
  399
  412
  427
  405
  421
  439
  457
  477
  498
  520
  544
  568
  594
  622
  651
  682
  714
  748
  784
  821
  861
  903
  946
Operating income, $m
  73
  76
  79
  82
  86
  90
  94
  99
  104
  109
  152
  158
  165
  172
  179
  187
  196
  204
  214
  223
  234
  245
  256
  268
  281
  295
  309
  324
  339
  356
EBITDA, $m
  119
  121
  124
  128
  132
  136
  141
  146
  151
  157
  163
  170
  177
  184
  192
  201
  209
  219
  229
  239
  250
  262
  275
  288
  301
  316
  331
  347
  364
  381
Interest expense (income), $m
  3
  6
  7
  7
  8
  8
  9
  9
  10
  11
  12
  13
  13
  14
  16
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
Earnings before tax, $m
  67
  69
  72
  74
  78
  81
  85
  89
  93
  97
  140
  145
  150
  156
  163
  169
  176
  184
  192
  200
  209
  218
  228
  238
  249
  260
  272
  284
  298
  312
Tax expense, $m
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
Net income, $m
  49
  50
  52
  54
  57
  59
  62
  65
  68
  71
  102
  106
  110
  114
  119
  124
  129
  134
  140
  146
  152
  159
  166
  174
  181
  190
  198
  208
  217
  227

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
  653
  668
  685
  705
  726
  749
  775
  803
  832
  864
  898
  935
  974
  1,015
  1,059
  1,105
  1,154
  1,206
  1,261
  1,319
  1,380
  1,445
  1,513
  1,584
  1,660
  1,739
  1,823
  1,911
  2,003
  2,100
Adjusted assets (=assets-cash), $m
  653
  668
  685
  705
  726
  749
  775
  803
  832
  864
  898
  935
  974
  1,015
  1,059
  1,105
  1,154
  1,206
  1,261
  1,319
  1,380
  1,445
  1,513
  1,584
  1,660
  1,739
  1,823
  1,911
  2,003
  2,100
Revenue / Adjusted assets
  0.620
  0.620
  0.620
  0.620
  0.620
  0.621
  0.619
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.619
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
Average production assets, $m
  237
  243
  249
  256
  264
  272
  282
  292
  302
  314
  326
  340
  354
  369
  385
  402
  419
  438
  458
  479
  501
  525
  550
  576
  603
  632
  662
  694
  728
  763
Working capital, $m
  -103
  -105
  -108
  -111
  -114
  -118
  -122
  -126
  -131
  -136
  -141
  -147
  -153
  -160
  -167
  -174
  -182
  -190
  -199
  -208
  -217
  -228
  -238
  -249
  -261
  -274
  -287
  -301
  -315
  -331
Total debt, $m
  123
  130
  139
  149
  160
  172
  185
  200
  215
  232
  249
  268
  288
  309
  332
  356
  381
  408
  436
  466
  498
  531
  566
  603
  642
  683
  726
  771
  819
  869
Total liabilities, $m
  337
  345
  354
  364
  375
  387
  400
  414
  429
  446
  464
  482
  502
  524
  546
  570
  596
  622
  651
  681
  712
  745
  781
  817
  856
  897
  940
  986
  1,034
  1,084
Total equity, $m
  316
  323
  332
  341
  351
  363
  375
  388
  403
  418
  435
  452
  471
  491
  512
  535
  559
  584
  610
  638
  668
  699
  732
  767
  803
  842
  882
  925
  970
  1,017
Total liabilities and equity, $m
  653
  668
  686
  705
  726
  750
  775
  802
  832
  864
  899
  934
  973
  1,015
  1,058
  1,105
  1,155
  1,206
  1,261
  1,319
  1,380
  1,444
  1,513
  1,584
  1,659
  1,739
  1,822
  1,911
  2,004
  2,101
Debt-to-equity ratio
  0.390
  0.400
  0.420
  0.440
  0.460
  0.470
  0.490
  0.510
  0.530
  0.550
  0.570
  0.590
  0.610
  0.630
  0.650
  0.670
  0.680
  0.700
  0.710
  0.730
  0.750
  0.760
  0.770
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
  0.860
Adjusted equity ratio
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  49
  50
  52
  54
  57
  59
  62
  65
  68
  71
  102
  106
  110
  114
  119
  124
  129
  134
  140
  146
  152
  159
  166
  174
  181
  190
  198
  208
  217
  227
Depreciation, amort., depletion, $m
  45
  45
  46
  46
  46
  46
  47
  47
  47
  48
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
Funds from operations, $m
  94
  96
  98
  100
  103
  106
  109
  112
  115
  119
  113
  117
  122
  126
  132
  137
  143
  149
  155
  162
  169
  177
  184
  193
  202
  211
  221
  231
  242
  253
Change in working capital, $m
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
Cash from operations, $m
  96
  98
  101
  103
  106
  109
  113
  116
  120
  124
  118
  123
  128
  133
  138
  144
  150
  157
  164
  171
  179
  187
  195
  204
  213
  223
  234
  245
  256
  268
Maintenance CAPEX, $m
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
New CAPEX, $m
  -5
  -5
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
Cash from investing activities, $m
  -13
  -13
  -14
  -15
  -17
  -18
  -18
  -19
  -21
  -22
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -59
Free cash flow, $m
  84
  85
  86
  88
  90
  92
  94
  97
  99
  102
  95
  99
  102
  106
  110
  115
  119
  124
  129
  135
  140
  147
  153
  160
  167
  174
  182
  191
  199
  209
Issuance/(repayment) of debt, $m
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  50
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  
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  50
Total cash flow (excl. dividends), $m
  90
  93
  95
  98
  101
  104
  107
  111
  115
  119
  113
  118
  122
  127
  133
  139
  145
  151
  158
  165
  172
  180
  188
  197
  206
  215
  225
  236
  247
  259
Retained Cash Flow (-), $m
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -43
  -45
  -47
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
  84
  85
  87
  89
  91
  93
  95
  98
  100
  103
  96
  100
  104
  107
  112
  116
  121
  126
  131
  137
  142
  149
  155
  162
  169
  177
  185
  193
  202
  212
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
  81
  78
  76
  73
  70
  67
  64
  61
  58
  54
  46
  43
  39
  36
  33
  29
  26
  23
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  2
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

Progress Software Corporation is engaged in application development. The Company operates through three segments: OpenEdge, Data Connectivity and Integration (DCI), and Application Development and Deployment (AppDev). The OpenEdge business segment provides the product enhancements and marketing support to its partner base. It is also focused on providing partners and direct end users with a path to develop and integrate cloud-based applications. Its solutions include Progress OpenEdge and Progress Corticon. The DCI segment is focused on its data assets, including the data integration components of its cloud offerings. Its solutions include Progress DataDirect Connect and Progress DataDirect Cloud. The AppDev business segment is focused on generating customers for its application development assets. Its solutions include Dev Tools, NativeScript, Dev Cloud, Telerik Platform, Test Studio, Sitefinity and Progress Rollbase. Its offerings span Web, mobile and data.

FINANCIAL RATIOS  of  Progress Software Corporation (PRGS)

Valuation Ratios
P/E Ratio -38.7
Price to Sales 5.4
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 21
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 7.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 17
Current Ratio 0.1
LT Debt to Equity 29.5%
Total Debt to Equity 33.2%
Interest Coverage -11
Management Effectiveness
Return On Assets -6.3%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -9.3%
Ret/ On T. Cap. - 3 Yr. Avg. -0.5%
Return On Equity -12.1%
Return On Equity - 3 Yr. Avg. -1.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 84%
Gross Margin - 3 Yr. Avg. 85.5%
EBITDA Margin 2%
EBITDA Margin - 3 Yr. Avg. 15%
Operating Margin -7.4%
Oper. Margin - 3 Yr. Avg. 7%
Pre-Tax Margin -8.6%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin -13.8%
Net Profit Margin - 3 Yr. Avg. -0.5%
Effective Tax Rate -60%
Eff/ Tax Rate - 3 Yr. Avg. 50.7%
Payout Ratio 0%

PRGS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRGS stock intrinsic value calculation we used $397 million for the last fiscal year's total revenue generated by Progress Software Corporation. The default revenue input number comes from 0001 income statement of Progress Software Corporation. 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 PRGS stock valuation model: a) initial revenue growth rate of 2% 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 PRGS is calculated based on our internal credit rating of Progress Software Corporation, 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 Progress Software Corporation.
    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 PRGS stock the variable cost ratio is equal to 82.1%.

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 PRGS 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 Progress Software Corporation.

Corporate tax rate of 27% is the nominal tax rate for Progress Software Corporation. 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 PRGS 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 PRGS are equal to 58.6%.

Life of production assets of 61.7 years is the average useful life of capital assets used in Progress Software Corporation 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 PRGS is equal to -25.4%. 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 - $310.082 million for Progress Software Corporation - 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 45.207 million for Progress Software Corporation 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 Progress Software Corporation at the current share price and the inputted number of shares is $2.0 billion.

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