Intrinsic value of Tessco Technologies - TESS

Previous Close

$11.35

  Intrinsic Value

$14.70

stock screener

  Rating & Target

buy

+29%

Previous close

$11.35

 
Intrinsic value

$14.70

 
Up/down potential

+29%

 
Rating

buy

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, %
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
Revenue, $m
  626
  673
  721
  772
  825
  880
  937
  996
  1,058
  1,123
  1,190
  1,260
  1,333
  1,409
  1,488
  1,571
  1,658
  1,749
  1,843
  1,942
  2,046
  2,155
  2,268
  2,388
  2,512
  2,643
  2,780
  2,923
  3,074
  3,232
Variable operating expenses, $m
  557
  599
  643
  688
  735
  783
  834
  887
  942
  999
  1,058
  1,120
  1,185
  1,252
  1,323
  1,397
  1,474
  1,554
  1,639
  1,727
  1,819
  1,916
  2,017
  2,123
  2,233
  2,350
  2,471
  2,599
  2,733
  2,873
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
  615
  659
  704
  750
  799
  848
  900
  955
  1,011
  1,070
  1,130
  1,194
  1,261
  1,329
  1,402
  1,478
  1,557
  1,638
  1,725
  1,815
  1,909
  2,008
  2,111
  2,219
  2,331
  2,450
  2,574
  2,704
  2,840
  2,982
Operating income, $m
  10
  14
  18
  22
  27
  32
  36
  42
  47
  53
  60
  66
  72
  79
  86
  94
  102
  110
  118
  128
  137
  147
  158
  169
  181
  193
  206
  220
  234
  249
EBITDA, $m
  15
  19
  23
  28
  32
  37
  43
  48
  54
  60
  66
  73
  79
  87
  94
  102
  110
  119
  128
  138
  148
  159
  170
  182
  194
  207
  221
  235
  250
  266
Interest expense (income), $m
  0
  1
  1
  2
  3
  3
  4
  5
  5
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  20
  22
  23
  25
  27
  28
  30
  32
Earnings before tax, $m
  9
  13
  16
  20
  24
  28
  32
  36
  41
  46
  52
  57
  63
  69
  75
  82
  88
  96
  103
  111
  119
  128
  137
  147
  157
  168
  179
  191
  204
  217
Tax expense, $m
  2
  3
  4
  5
  6
  7
  9
  10
  11
  12
  14
  15
  17
  19
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  52
  55
  59
Net income, $m
  7
  9
  12
  14
  17
  20
  23
  27
  30
  33
  38
  42
  46
  50
  55
  60
  64
  70
  75
  81
  87
  94
  100
  107
  115
  123
  131
  140
  149
  159

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
  215
  231
  248
  266
  284
  303
  322
  343
  364
  386
  409
  433
  458
  484
  512
  540
  570
  601
  634
  668
  704
  741
  780
  821
  864
  909
  956
  1,005
  1,057
  1,111
Adjusted assets (=assets-cash), $m
  215
  231
  248
  266
  284
  303
  322
  343
  364
  386
  409
  433
  458
  484
  512
  540
  570
  601
  634
  668
  704
  741
  780
  821
  864
  909
  956
  1,005
  1,057
  1,111
Revenue / Adjusted assets
  2.912
  2.913
  2.907
  2.902
  2.905
  2.904
  2.910
  2.904
  2.907
  2.909
  2.910
  2.910
  2.910
  2.911
  2.906
  2.909
  2.909
  2.910
  2.907
  2.907
  2.906
  2.908
  2.908
  2.909
  2.907
  2.908
  2.908
  2.908
  2.908
  2.909
Average production assets, $m
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  51
  53
  56
  59
  63
  66
  70
  73
  77
  81
  85
  90
  95
  99
  105
  110
Working capital, $m
  93
  100
  107
  114
  122
  130
  139
  147
  157
  166
  176
  186
  197
  208
  220
  233
  245
  259
  273
  287
  303
  319
  336
  353
  372
  391
  411
  433
  455
  478
Total debt, $m
  18
  25
  33
  41
  49
  58
  67
  76
  86
  96
  107
  118
  129
  141
  154
  167
  181
  195
  210
  225
  242
  259
  277
  296
  315
  336
  357
  380
  404
  428
Total liabilities, $m
  99
  106
  114
  122
  130
  139
  148
  157
  167
  177
  187
  198
  210
  222
  234
  247
  261
  275
  290
  306
  322
  339
  357
  376
  396
  416
  438
  460
  484
  509
Total equity, $m
  117
  125
  134
  144
  154
  164
  175
  186
  197
  209
  222
  235
  248
  263
  277
  293
  309
  326
  344
  362
  381
  402
  423
  445
  468
  493
  518
  545
  573
  602
Total liabilities and equity, $m
  216
  231
  248
  266
  284
  303
  323
  343
  364
  386
  409
  433
  458
  485
  511
  540
  570
  601
  634
  668
  703
  741
  780
  821
  864
  909
  956
  1,005
  1,057
  1,111
Debt-to-equity ratio
  0.150
  0.200
  0.250
  0.290
  0.320
  0.350
  0.380
  0.410
  0.440
  0.460
  0.480
  0.500
  0.520
  0.540
  0.550
  0.570
  0.580
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.700
  0.710
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
  7
  9
  12
  14
  17
  20
  23
  27
  30
  33
  38
  42
  46
  50
  55
  60
  64
  70
  75
  81
  87
  94
  100
  107
  115
  123
  131
  140
  149
  159
Depreciation, amort., depletion, $m
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
Funds from operations, $m
  11
  14
  17
  20
  23
  26
  29
  33
  37
  41
  44
  49
  53
  58
  63
  68
  73
  79
  85
  91
  98
  105
  112
  120
  128
  137
  146
  155
  165
  176
Change in working capital, $m
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
Cash from operations, $m
  4
  7
  9
  12
  15
  18
  21
  24
  28
  31
  34
  38
  42
  46
  51
  56
  60
  66
  71
  77
  83
  89
  95
  102
  110
  117
  126
  134
  143
  152
Maintenance CAPEX, $m
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Cash from investing activities, $m
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -19
  -20
  -21
  -21
Free cash flow, $m
  0
  2
  4
  7
  9
  12
  14
  17
  20
  23
  26
  30
  33
  37
  41
  45
  49
  54
  58
  64
  69
  74
  80
  86
  93
  100
  107
  114
  122
  131
Issuance/(repayment) of debt, $m
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Issuance/(repurchase) of shares, $m
  2
  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  
  9
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Total cash flow (excl. dividends), $m
  9
  9
  12
  15
  17
  20
  23
  27
  30
  33
  37
  41
  45
  49
  53
  58
  63
  68
  73
  79
  85
  91
  98
  105
  112
  120
  128
  137
  146
  156
Retained Cash Flow (-), $m
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
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
  0
  1
  3
  5
  8
  10
  13
  15
  18
  21
  24
  28
  31
  35
  38
  42
  47
  51
  56
  61
  66
  71
  77
  83
  89
  96
  103
  110
  118
  126
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
  0
  1
  2
  4
  5
  6
  7
  8
  8
  9
  9
  8
  8
  8
  7
  6
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1

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 (TESS)

Valuation Ratios
P/E Ratio 94.7
Price to Sales 0.2
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 31.6
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 $580.2747 million for the last fiscal year's total revenue generated by Tessco Technologies. The default revenue input number comes from 0001 income statement of Tessco Technologies. 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 7.8% 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, 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.
    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.

Corporate tax rate of 27% is the nominal tax rate for Tessco Technologies. 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 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 - 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 8.427 million for Tessco Technologies 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 at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Tessco: Fiscal 2Q Earnings Snapshot   [Oct-25-18 06:56PM  Associated Press]
▶ TESSCO Technologies Incorporated to Host Earnings Call   [Jul-17-18 06:30AM  ACCESSWIRE]
▶ Tessco: Fiscal 1Q Earnings Snapshot   [Jul-16-18 04:23PM  Associated Press]
▶ Tessco: Fiscal 4Q Earnings Snapshot   [May-07-18 06:19PM  Associated Press]
▶ Tessco Announces Tessco One Innovation Award Winners   [Apr-10-18 09:30AM  Business Wire]
▶ Tessco posts 3Q profit   [Jan-23-18 04:27PM  Associated Press]
▶ Ventev Mobile Bringing Fast Wireless Charging to CES   [Jan-03-18 12:27PM  Business Wire]
▶ 3 Tech Stocks for Dividend Investors to Buy Now   [Dec-21-17 01:18PM  Zacks]
▶ 3 Tech Stocks for Dividend Investors to Buy Now   [Nov-21-17 04:02PM  Zacks]
▶ Tessco Technologies Inc to Host Earnings Call   [Oct-24-17 07:01AM  ACCESSWIRE]
▶ Tessco posts 2Q profit   [Oct-23-17 04:45PM  Associated Press]
▶ Tessco posts 1Q profit   [Jul-18-17 09:27PM  Associated Press]
▶ Tessco reports 4Q loss   [May-08-17 06:14PM  Associated Press]

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