Intrinsic value of TESSCO Technologies Incorporated - TESS

Previous Close

$17.71

  Intrinsic Value

$7.54

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  Rating & Target

str. sell

-57%

Previous close

$17.71

 
Intrinsic value

$7.54

 
Up/down potential

-57%

 
Rating

str. sell

We calculate the intrinsic value of TESS 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 0.1

 

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, %
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  604
  629
  656
  684
  715
  747
  780
  816
  854
  893
  935
  979
  1,026
  1,075
  1,126
  1,180
  1,238
  1,298
  1,361
  1,427
  1,497
  1,570
  1,647
  1,728
  1,814
  1,903
  1,997
  2,096
  2,200
  2,309
Variable operating expenses, $m
  538
  560
  584
  610
  636
  665
  695
  727
  760
  795
  831
  871
  912
  955
  1,001
  1,049
  1,100
  1,153
  1,210
  1,269
  1,331
  1,396
  1,464
  1,536
  1,612
  1,692
  1,775
  1,863
  1,955
  2,052
Fixed operating expenses, $m
  58
  60
  61
  62
  64
  65
  66
  68
  69
  71
  72
  74
  76
  77
  79
  81
  83
  84
  86
  88
  90
  92
  94
  96
  98
  100
  103
  105
  107
  109
Total operating expenses, $m
  596
  620
  645
  672
  700
  730
  761
  795
  829
  866
  903
  945
  988
  1,032
  1,080
  1,130
  1,183
  1,237
  1,296
  1,357
  1,421
  1,488
  1,558
  1,632
  1,710
  1,792
  1,878
  1,968
  2,062
  2,161
Operating income, $m
  8
  9
  11
  13
  15
  17
  19
  22
  24
  27
  31
  35
  38
  42
  46
  50
  55
  60
  65
  70
  76
  82
  89
  96
  103
  111
  119
  128
  137
  147
EBITDA, $m
  12
  14
  15
  17
  20
  22
  24
  27
  30
  33
  36
  40
  44
  48
  52
  57
  62
  67
  72
  78
  84
  91
  98
  105
  113
  121
  130
  139
  149
  159
Interest expense (income), $m
  0
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
Earnings before tax, $m
  7
  8
  9
  11
  12
  14
  16
  18
  20
  23
  27
  29
  32
  36
  39
  43
  47
  51
  55
  60
  65
  70
  76
  82
  88
  95
  102
  109
  117
  126
Tax expense, $m
  2
  2
  3
  3
  3
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  24
  26
  28
  30
  32
  34
Net income, $m
  5
  6
  7
  8
  9
  10
  12
  13
  15
  17
  19
  22
  24
  26
  29
  31
  34
  37
  40
  44
  47
  51
  55
  60
  64
  69
  74
  80
  86
  92

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
  208
  216
  226
  235
  246
  257
  268
  281
  294
  307
  322
  337
  353
  370
  387
  406
  426
  446
  468
  491
  515
  540
  566
  594
  624
  654
  687
  721
  756
  794
Adjusted assets (=assets-cash), $m
  208
  216
  226
  235
  246
  257
  268
  281
  294
  307
  322
  337
  353
  370
  387
  406
  426
  446
  468
  491
  515
  540
  566
  594
  624
  654
  687
  721
  756
  794
Revenue / Adjusted assets
  2.904
  2.912
  2.903
  2.911
  2.907
  2.907
  2.910
  2.904
  2.905
  2.909
  2.904
  2.905
  2.907
  2.905
  2.910
  2.906
  2.906
  2.910
  2.908
  2.906
  2.907
  2.907
  2.910
  2.909
  2.907
  2.910
  2.907
  2.907
  2.910
  2.908
Average production assets, $m
  21
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
  49
  51
  53
  56
  59
  62
  65
  68
  71
  75
  78
Working capital, $m
  89
  93
  97
  101
  106
  110
  115
  121
  126
  132
  138
  145
  152
  159
  167
  175
  183
  192
  201
  211
  222
  232
  244
  256
  268
  282
  296
  310
  326
  342
Total debt, $m
  15
  19
  23
  27
  32
  37
  42
  48
  54
  60
  67
  74
  81
  89
  97
  105
  114
  124
  134
  144
  155
  167
  179
  192
  205
  219
  234
  250
  266
  283
Total liabilities, $m
  95
  99
  103
  108
  113
  118
  123
  129
  134
  141
  147
  154
  162
  169
  177
  186
  195
  204
  214
  225
  236
  247
  259
  272
  286
  300
  315
  330
  346
  364
Total equity, $m
  113
  117
  122
  128
  133
  139
  145
  152
  159
  166
  174
  183
  191
  200
  210
  220
  231
  242
  254
  266
  279
  293
  307
  322
  338
  355
  372
  391
  410
  430
Total liabilities and equity, $m
  208
  216
  225
  236
  246
  257
  268
  281
  293
  307
  321
  337
  353
  369
  387
  406
  426
  446
  468
  491
  515
  540
  566
  594
  624
  655
  687
  721
  756
  794
Debt-to-equity ratio
  0.130
  0.160
  0.190
  0.210
  0.240
  0.270
  0.290
  0.320
  0.340
  0.360
  0.380
  0.400
  0.420
  0.440
  0.460
  0.480
  0.500
  0.510
  0.530
  0.540
  0.560
  0.570
  0.580
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
Adjusted equity ratio
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  6
  7
  8
  9
  10
  12
  13
  15
  17
  19
  22
  24
  26
  29
  31
  34
  37
  40
  44
  47
  51
  55
  60
  64
  69
  74
  80
  86
  92
Depreciation, amort., depletion, $m
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
Funds from operations, $m
  9
  10
  12
  13
  14
  16
  17
  19
  21
  23
  24
  27
  29
  32
  35
  37
  41
  44
  47
  51
  55
  60
  64
  69
  74
  79
  85
  91
  97
  104
Change in working capital, $m
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
Cash from operations, $m
  6
  7
  8
  9
  10
  11
  12
  14
  15
  17
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  45
  49
  53
  57
  61
  66
  71
  76
  82
  88
Maintenance CAPEX, $m
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Cash from investing activities, $m
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
Free cash flow, $m
  2
  3
  3
  4
  5
  6
  7
  8
  10
  11
  12
  14
  15
  17
  19
  22
  24
  26
  29
  32
  35
  38
  42
  45
  49
  53
  58
  62
  67
  73
Issuance/(repayment) of debt, $m
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
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  
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
Total cash flow (excl. dividends), $m
  6
  7
  8
  9
  10
  11
  12
  14
  15
  17
  19
  21
  23
  25
  28
  30
  33
  36
  39
  42
  46
  50
  54
  58
  63
  67
  73
  78
  84
  90
Retained Cash Flow (-), $m
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
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
  1
  2
  2
  3
  4
  5
  6
  7
  8
  10
  11
  12
  14
  16
  18
  20
  22
  25
  27
  30
  33
  36
  39
  43
  47
  51
  55
  60
  64
  70
Discount rate, %
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  4
  4
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
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

TESSCO Technologies Incorporated architects and delivers the product and value chain solutions to organizations responsible for building, operating, maintaining and reselling cellular, mobile communications, wireless-fidelity (Wi-Fi), machine-to-machine, Internet of Things and wireless backhaul systems. The Company provides marketing and sales services, knowledge and supply chain management, product-solution delivery and control systems utilizing Internet and information technology. Its customers include a diversified mix of carrier and public network operators, tower owners, program managers, contractors and integrators, wireless Internet service providers, industrial and enterprise self-maintained users (including railroads, utilities, mining operators, oil and gas operators and technicians), governments, manufacturers, value-added resellers, tier 1, 2 and 3 retail carrier stores and their independent agents, dealers and consumers, as well as other local and national retailers.

FINANCIAL RATIOS  of  TESSCO Technologies Incorporated (TESS)

Valuation Ratios
P/E Ratio 147.7
Price to Sales 0.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 49.2
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate 0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate -9.7%
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 0.6%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 0.9%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 0.9%
Return On Equity - 3 Yr. Avg. 4.4%
Asset Turnover 3.1
Profitability Ratios
Gross Margin 21%
Gross Margin - 3 Yr. Avg. 21.2%
EBITDA Margin 1.1%
EBITDA Margin - 3 Yr. Avg. 2.4%
Operating Margin 0.4%
Oper. Margin - 3 Yr. Avg. 1.6%
Pre-Tax Margin 0.4%
Pre-Tax Margin - 3 Yr. Avg. 1.5%
Net Profit Margin 0.2%
Net Profit Margin - 3 Yr. Avg. 0.9%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 43.4%
Payout Ratio 700%

TESS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TESS stock intrinsic value calculation we used $580 million for the last fiscal year's total revenue generated by TESSCO Technologies Incorporated. The default revenue input number comes from 0001 income statement of TESSCO Technologies Incorporated. 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 TESS stock valuation model: a) initial revenue growth rate of 4.1% 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 6.1%, whose default value for TESS is calculated based on our internal credit rating of TESSCO Technologies Incorporated, 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 TESSCO Technologies Incorporated.
    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 TESS stock the variable cost ratio is equal to 89.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $57 million in the base year in the intrinsic value calculation for TESS 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 7.9% for TESSCO Technologies Incorporated.

Corporate tax rate of 27% is the nominal tax rate for TESSCO Technologies Incorporated. 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 TESS 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 TESS are equal to 3.4%.

Life of production assets of 6.4 years is the average useful life of capital assets used in TESSCO Technologies Incorporated 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 TESS is equal to 14.8%. 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 - $108.0516 million for TESSCO Technologies Incorporated - 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 8.463 million for TESSCO Technologies Incorporated 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 TESSCO Technologies Incorporated at the current share price and the inputted number of shares is $0.1 billion.

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