Intrinsic value of Radware Ltd. - RDWR

Previous Close

$26.03

  Intrinsic Value

$9.31

stock screener

  Rating & Target

str. sell

-64%

Previous close

$26.03

 
Intrinsic value

$9.31

 
Up/down potential

-64%

 
Rating

str. sell

We calculate the intrinsic value of RDWR 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 1.2

 

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, %
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  227
  243
  260
  278
  297
  316
  336
  357
  378
  401
  424
  449
  475
  501
  529
  558
  589
  621
  654
  689
  726
  764
  804
  846
  890
  936
  984
  1,035
  1,088
  1,144
Variable operating expenses, $m
  136
  146
  156
  166
  177
  188
  200
  212
  224
  237
  247
  261
  276
  292
  308
  325
  343
  361
  380
  401
  422
  444
  468
  492
  518
  544
  573
  602
  633
  665
Fixed operating expenses, $m
  94
  96
  98
  100
  103
  105
  107
  109
  112
  114
  117
  119
  122
  125
  128
  130
  133
  136
  139
  142
  145
  148
  152
  155
  159
  162
  166
  169
  173
  177
Total operating expenses, $m
  230
  242
  254
  266
  280
  293
  307
  321
  336
  351
  364
  380
  398
  417
  436
  455
  476
  497
  519
  543
  567
  592
  620
  647
  677
  706
  739
  771
  806
  842
Operating income, $m
  -3
  1
  6
  12
  17
  23
  29
  35
  42
  49
  61
  68
  76
  85
  94
  103
  113
  124
  135
  146
  158
  171
  185
  199
  214
  230
  246
  264
  282
  302
EBITDA, $m
  9
  15
  20
  26
  32
  39
  46
  53
  60
  68
  76
  85
  94
  103
  113
  124
  135
  147
  159
  172
  185
  199
  214
  230
  247
  264
  283
  302
  323
  344
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  3
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
Earnings before tax, $m
  -3
  1
  5
  10
  15
  20
  25
  30
  36
  42
  53
  60
  67
  75
  82
  91
  100
  109
  118
  129
  140
  151
  163
  176
  189
  203
  218
  233
  250
  267
Tax expense, $m
  0
  0
  1
  3
  4
  5
  7
  8
  10
  11
  14
  16
  18
  20
  22
  25
  27
  29
  32
  35
  38
  41
  44
  47
  51
  55
  59
  63
  67
  72
Net income, $m
  -3
  1
  4
  7
  11
  14
  18
  22
  27
  31
  39
  44
  49
  54
  60
  66
  73
  79
  86
  94
  102
  110
  119
  128
  138
  148
  159
  170
  182
  195

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
  404
  433
  463
  495
  528
  562
  597
  634
  673
  713
  755
  799
  844
  892
  942
  994
  1,048
  1,105
  1,164
  1,226
  1,291
  1,359
  1,431
  1,505
  1,584
  1,666
  1,751
  1,842
  1,936
  2,035
Adjusted assets (=assets-cash), $m
  404
  433
  463
  495
  528
  562
  597
  634
  673
  713
  755
  799
  844
  892
  942
  994
  1,048
  1,105
  1,164
  1,226
  1,291
  1,359
  1,431
  1,505
  1,584
  1,666
  1,751
  1,842
  1,936
  2,035
Revenue / Adjusted assets
  0.562
  0.561
  0.562
  0.562
  0.563
  0.562
  0.563
  0.563
  0.562
  0.562
  0.562
  0.562
  0.563
  0.562
  0.562
  0.561
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
  0.562
Average production assets, $m
  47
  50
  54
  58
  61
  65
  70
  74
  78
  83
  88
  93
  98
  104
  110
  116
  122
  129
  135
  143
  150
  158
  166
  175
  184
  194
  204
  214
  225
  237
Working capital, $m
  -65
  -69
  -74
  -79
  -85
  -90
  -96
  -102
  -108
  -114
  -121
  -128
  -135
  -143
  -151
  -159
  -168
  -177
  -186
  -196
  -207
  -218
  -229
  -241
  -254
  -267
  -281
  -295
  -310
  -326
Total debt, $m
  11
  23
  36
  49
  62
  76
  91
  106
  122
  138
  155
  173
  192
  211
  231
  253
  275
  298
  322
  348
  374
  402
  431
  462
  494
  527
  563
  599
  638
  679
Total liabilities, $m
  165
  177
  189
  202
  216
  230
  244
  260
  275
  292
  309
  327
  345
  365
  385
  406
  429
  452
  476
  501
  528
  556
  585
  616
  648
  681
  716
  753
  792
  832
Total equity, $m
  239
  256
  274
  292
  312
  332
  353
  375
  398
  422
  446
  472
  499
  527
  557
  587
  619
  653
  688
  725
  763
  803
  845
  890
  936
  984
  1,035
  1,088
  1,144
  1,203
Total liabilities and equity, $m
  404
  433
  463
  494
  528
  562
  597
  635
  673
  714
  755
  799
  844
  892
  942
  993
  1,048
  1,105
  1,164
  1,226
  1,291
  1,359
  1,430
  1,506
  1,584
  1,665
  1,751
  1,841
  1,936
  2,035
Debt-to-equity ratio
  0.050
  0.090
  0.130
  0.170
  0.200
  0.230
  0.260
  0.280
  0.310
  0.330
  0.350
  0.370
  0.380
  0.400
  0.420
  0.430
  0.440
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.540
  0.550
  0.560
  0.560
Adjusted equity ratio
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3
  1
  4
  7
  11
  14
  18
  22
  27
  31
  39
  44
  49
  54
  60
  66
  73
  79
  86
  94
  102
  110
  119
  128
  138
  148
  159
  170
  182
  195
Depreciation, amort., depletion, $m
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
Funds from operations, $m
  9
  14
  18
  22
  26
  30
  35
  40
  45
  50
  55
  60
  67
  73
  80
  87
  94
  102
  111
  119
  129
  138
  149
  159
  171
  183
  195
  209
  223
  237
Change in working capital, $m
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
Cash from operations, $m
  14
  19
  23
  27
  31
  36
  41
  46
  51
  57
  61
  67
  74
  81
  88
  95
  103
  111
  120
  129
  139
  149
  160
  171
  183
  196
  209
  223
  238
  253
Maintenance CAPEX, $m
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
New CAPEX, $m
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
Cash from investing activities, $m
  -11
  -11
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
  -36
  -39
  -40
  -43
  -45
  -46
  -49
  -52
Free cash flow, $m
  3
  7
  10
  13
  17
  21
  25
  29
  33
  38
  42
  47
  52
  58
  63
  70
  76
  83
  90
  98
  106
  115
  124
  133
  143
  153
  165
  176
  189
  202
Issuance/(repayment) of debt, $m
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
Issuance/(repurchase) of shares, $m
  20
  17
  14
  12
  9
  6
  3
  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  
  31
  29
  26
  25
  22
  20
  18
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
Total cash flow (excl. dividends), $m
  34
  35
  37
  38
  39
  41
  42
  44
  49
  54
  59
  64
  71
  77
  84
  91
  98
  106
  115
  123
  133
  142
  153
  164
  175
  187
  200
  213
  227
  242
Retained Cash Flow (-), $m
  -20
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
Prev. year cash balance distribution, $m
  94
  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
  108
  18
  19
  19
  20
  20
  21
  22
  26
  31
  34
  39
  44
  49
  54
  60
  66
  73
  80
  87
  94
  102
  111
  119
  129
  139
  149
  160
  171
  184
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
  103
  17
  16
  16
  15
  15
  14
  14
  15
  16
  16
  16
  17
  16
  16
  15
  14
  13
  12
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  97.6
  95.7
  94.3
  93.2
  92.5
  92.0
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8
  91.8

Radware Ltd. is a provider of cyber security and application delivery solutions. The Company's solutions incorporate Distributed Denial of Service protection, Web application firewall (WAF) and Application Delivery Controllers (ADC) technologies to enable its customers to provide cyber-attack mitigation solutions for a range of applications. The Company's products and activities are focused on protecting against cyber-attacks and ensuring optimal application service level for enterprises' and carriers' data centers. Its solutions include application and network security, and application delivery. Its application and network Security products include DefensePro Attack Mitigation Device, AppWall Web Application Firewall, DefenseFlow Cyber Command and Control application, and DefensePipe Cloud Scrubbing Service. Its application delivery products include Alteon NG, LinkProof NG and FastView. Its management solutions include APSolute Vision, application performance monitoring and vDirect.

FINANCIAL RATIOS  of  Radware Ltd. (RDWR)

Valuation Ratios
P/E Ratio -124.9
Price to Sales 5.7
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 29.6
Price to Free Cash Flow 38.8
Growth Rates
Sales Growth Rate -9.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.7%
Cap. Spend. - 3 Yr. Gr. Rate 0%
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 -2.1%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital -2.9%
Ret/ On T. Cap. - 3 Yr. Avg. 3.6%
Return On Equity -2.9%
Return On Equity - 3 Yr. Avg. 3.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 81.7%
Gross Margin - 3 Yr. Avg. 81.9%
EBITDA Margin 1.5%
EBITDA Margin - 3 Yr. Avg. 11.4%
Operating Margin -6.1%
Oper. Margin - 3 Yr. Avg. 4.5%
Pre-Tax Margin -3.6%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin -4.6%
Net Profit Margin - 3 Yr. Avg. 5.1%
Effective Tax Rate -28.6%
Eff/ Tax Rate - 3 Yr. Avg. 3.9%
Payout Ratio 0%

RDWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RDWR stock intrinsic value calculation we used $211 million for the last fiscal year's total revenue generated by Radware Ltd.. The default revenue input number comes from 0001 income statement of Radware Ltd.. 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 RDWR stock valuation model: a) initial revenue growth rate of 7.5% 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 RDWR is calculated based on our internal credit rating of Radware Ltd., 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 Radware Ltd..
    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 RDWR stock the variable cost ratio is equal to 60.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $92 million in the base year in the intrinsic value calculation for RDWR 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 Radware Ltd..

Corporate tax rate of 27% is the nominal tax rate for Radware Ltd.. 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 RDWR 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 RDWR are equal to 20.7%.

Life of production assets of 5.6 years is the average useful life of capital assets used in Radware Ltd. 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 RDWR is equal to -28.5%. 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 - $315.356 million for Radware Ltd. - 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 44.410 million for Radware Ltd. 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 Radware Ltd. at the current share price and the inputted number of shares is $1.2 billion.

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