Intrinsic value of The Ultimate Software Group, Inc. - ULTI

Previous Close

$331.36

  Intrinsic Value

$235.69

stock screener

  Rating & Target

sell

-29%

Previous close

$331.36

 
Intrinsic value

$235.69

 
Up/down potential

-29%

 
Rating

sell

We calculate the intrinsic value of ULTI 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 10.5

 

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, %
  21.20
  19.58
  18.12
  16.81
  15.63
  14.57
  13.61
  12.75
  11.97
  11.28
  10.65
  10.08
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
Revenue, $m
  1,383
  1,654
  1,953
  2,282
  2,638
  3,023
  3,434
  3,872
  4,335
  4,824
  5,338
  5,876
  6,439
  7,026
  7,638
  8,274
  8,936
  9,624
  10,340
  11,083
  11,855
  12,658
  13,493
  14,362
  15,265
  16,206
  17,186
  18,207
  19,272
  20,383
Variable operating expenses, $m
  1,123
  1,336
  1,572
  1,830
  2,110
  2,412
  2,736
  3,080
  3,444
  3,829
  4,196
  4,619
  5,062
  5,523
  6,004
  6,504
  7,025
  7,566
  8,128
  8,712
  9,320
  9,951
  10,607
  11,290
  12,000
  12,740
  13,510
  14,313
  15,150
  16,023
Fixed operating expenses, $m
  133
  136
  139
  142
  145
  148
  151
  155
  158
  162
  165
  169
  173
  176
  180
  184
  188
  192
  197
  201
  205
  210
  214
  219
  224
  229
  234
  239
  244
  250
Total operating expenses, $m
  1,256
  1,472
  1,711
  1,972
  2,255
  2,560
  2,887
  3,235
  3,602
  3,991
  4,361
  4,788
  5,235
  5,699
  6,184
  6,688
  7,213
  7,758
  8,325
  8,913
  9,525
  10,161
  10,821
  11,509
  12,224
  12,969
  13,744
  14,552
  15,394
  16,273
Operating income, $m
  127
  182
  243
  310
  383
  462
  547
  637
  733
  834
  977
  1,088
  1,205
  1,327
  1,453
  1,586
  1,723
  1,866
  2,015
  2,170
  2,331
  2,498
  2,672
  2,853
  3,041
  3,238
  3,442
  3,655
  3,878
  4,110
EBITDA, $m
  210
  274
  345
  424
  509
  601
  699
  805
  916
  1,034
  1,157
  1,287
  1,423
  1,565
  1,712
  1,866
  2,026
  2,192
  2,365
  2,545
  2,732
  2,927
  3,129
  3,339
  3,558
  3,787
  4,024
  4,272
  4,531
  4,801
Interest expense (income), $m
  0
  1
  15
  31
  49
  69
  90
  113
  137
  163
  190
  220
  250
  282
  315
  350
  387
  424
  464
  505
  547
  591
  637
  685
  734
  786
  840
  896
  954
  1,014
  1,078
Earnings before tax, $m
  126
  166
  211
  261
  314
  372
  434
  500
  570
  643
  757
  838
  923
  1,011
  1,103
  1,199
  1,299
  1,403
  1,510
  1,623
  1,739
  1,861
  1,987
  2,118
  2,255
  2,398
  2,547
  2,702
  2,864
  3,033
Tax expense, $m
  34
  45
  57
  70
  85
  101
  117
  135
  154
  174
  204
  226
  249
  273
  298
  324
  351
  379
  408
  438
  470
  502
  536
  572
  609
  647
  688
  729
  773
  819
Net income, $m
  92
  121
  154
  190
  230
  272
  317
  365
  416
  470
  553
  612
  674
  738
  805
  875
  948
  1,024
  1,103
  1,185
  1,270
  1,358
  1,450
  1,546
  1,646
  1,750
  1,859
  1,972
  2,090
  2,214

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
  2,328
  2,784
  3,288
  3,841
  4,442
  5,089
  5,781
  6,518
  7,298
  8,121
  8,986
  9,892
  10,840
  11,828
  12,858
  13,930
  15,044
  16,203
  17,407
  18,658
  19,959
  21,310
  22,716
  24,178
  25,699
  27,283
  28,933
  30,652
  32,444
  34,314
Adjusted assets (=assets-cash), $m
  2,328
  2,784
  3,288
  3,841
  4,442
  5,089
  5,781
  6,518
  7,298
  8,121
  8,986
  9,892
  10,840
  11,828
  12,858
  13,930
  15,044
  16,203
  17,407
  18,658
  19,959
  21,310
  22,716
  24,178
  25,699
  27,283
  28,933
  30,652
  32,444
  34,314
Revenue / Adjusted assets
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
Average production assets, $m
  459
  549
  649
  758
  876
  1,003
  1,140
  1,285
  1,439
  1,602
  1,772
  1,951
  2,138
  2,333
  2,536
  2,747
  2,967
  3,195
  3,433
  3,680
  3,936
  4,203
  4,480
  4,768
  5,068
  5,380
  5,706
  6,045
  6,398
  6,767
Working capital, $m
  -848
  -1,014
  -1,197
  -1,399
  -1,617
  -1,853
  -2,105
  -2,373
  -2,658
  -2,957
  -3,272
  -3,602
  -3,947
  -4,307
  -4,682
  -5,072
  -5,478
  -5,900
  -6,338
  -6,794
  -7,267
  -7,760
  -8,271
  -8,804
  -9,358
  -9,934
  -10,535
  -11,161
  -11,814
  -12,494
Total debt, $m
  240
  495
  778
  1,087
  1,424
  1,786
  2,174
  2,586
  3,023
  3,484
  3,969
  4,476
  5,007
  5,560
  6,137
  6,737
  7,361
  8,010
  8,684
  9,385
  10,113
  10,870
  11,657
  12,476
  13,328
  14,215
  15,139
  16,101
  17,105
  18,152
Total liabilities, $m
  1,304
  1,559
  1,842
  2,151
  2,487
  2,850
  3,237
  3,650
  4,087
  4,548
  5,032
  5,540
  6,070
  6,624
  7,200
  7,801
  8,425
  9,074
  9,748
  10,449
  11,177
  11,934
  12,721
  13,540
  14,391
  15,278
  16,202
  17,165
  18,169
  19,216
Total equity, $m
  1,024
  1,225
  1,447
  1,690
  1,954
  2,239
  2,544
  2,868
  3,211
  3,573
  3,954
  4,353
  4,769
  5,204
  5,657
  6,129
  6,619
  7,129
  7,659
  8,210
  8,782
  9,377
  9,995
  10,638
  11,308
  12,004
  12,730
  13,487
  14,275
  15,098
Total liabilities and equity, $m
  2,328
  2,784
  3,289
  3,841
  4,441
  5,089
  5,781
  6,518
  7,298
  8,121
  8,986
  9,893
  10,839
  11,828
  12,857
  13,930
  15,044
  16,203
  17,407
  18,659
  19,959
  21,311
  22,716
  24,178
  25,699
  27,282
  28,932
  30,652
  32,444
  34,314
Debt-to-equity ratio
  0.230
  0.400
  0.540
  0.640
  0.730
  0.800
  0.850
  0.900
  0.940
  0.980
  1.000
  1.030
  1.050
  1.070
  1.080
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.170
  1.170
  1.180
  1.180
  1.190
  1.190
  1.200
  1.200
Adjusted equity ratio
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  92
  121
  154
  190
  230
  272
  317
  365
  416
  470
  553
  612
  674
  738
  805
  875
  948
  1,024
  1,103
  1,185
  1,270
  1,358
  1,450
  1,546
  1,646
  1,750
  1,859
  1,972
  2,090
  2,214
Depreciation, amort., depletion, $m
  83
  92
  103
  114
  126
  139
  153
  168
  183
  200
  181
  199
  218
  238
  259
  280
  303
  326
  350
  375
  402
  429
  457
  487
  517
  549
  582
  617
  653
  691
Funds from operations, $m
  175
  214
  257
  304
  355
  411
  470
  533
  599
  670
  734
  811
  892
  976
  1,064
  1,156
  1,251
  1,350
  1,453
  1,560
  1,671
  1,787
  1,908
  2,033
  2,164
  2,300
  2,441
  2,589
  2,743
  2,904
Change in working capital, $m
  -148
  -166
  -184
  -201
  -219
  -236
  -252
  -268
  -284
  -300
  -315
  -330
  -345
  -360
  -375
  -390
  -406
  -422
  -438
  -456
  -474
  -492
  -512
  -532
  -554
  -577
  -601
  -626
  -653
  -681
Cash from operations, $m
  323
  380
  441
  505
  574
  646
  722
  801
  883
  969
  1,048
  1,141
  1,237
  1,336
  1,439
  1,546
  1,657
  1,772
  1,891
  2,016
  2,145
  2,279
  2,419
  2,565
  2,717
  2,876
  3,042
  3,215
  3,396
  3,585
Maintenance CAPEX, $m
  -39
  -47
  -56
  -66
  -77
  -89
  -102
  -116
  -131
  -147
  -163
  -181
  -199
  -218
  -238
  -259
  -280
  -303
  -326
  -350
  -375
  -402
  -429
  -457
  -487
  -517
  -549
  -582
  -617
  -653
New CAPEX, $m
  -81
  -90
  -99
  -109
  -118
  -128
  -137
  -145
  -154
  -162
  -171
  -179
  -187
  -195
  -203
  -211
  -220
  -228
  -237
  -247
  -256
  -267
  -277
  -288
  -300
  -312
  -325
  -339
  -353
  -369
Cash from investing activities, $m
  -120
  -137
  -155
  -175
  -195
  -217
  -239
  -261
  -285
  -309
  -334
  -360
  -386
  -413
  -441
  -470
  -500
  -531
  -563
  -597
  -631
  -669
  -706
  -745
  -787
  -829
  -874
  -921
  -970
  -1,022
Free cash flow, $m
  204
  243
  285
  330
  378
  429
  483
  539
  598
  660
  714
  781
  851
  923
  998
  1,076
  1,157
  1,241
  1,328
  1,419
  1,513
  1,611
  1,713
  1,820
  1,931
  2,047
  2,168
  2,294
  2,426
  2,563
Issuance/(repayment) of debt, $m
  228
  255
  283
  310
  336
  362
  388
  413
  437
  461
  484
  507
  530
  553
  577
  600
  624
  649
  674
  701
  728
  757
  787
  819
  852
  887
  924
  963
  1,004
  1,047
Issuance/(repurchase) of shares, $m
  88
  79
  68
  53
  35
  13
  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  
  316
  334
  351
  363
  371
  375
  388
  413
  437
  461
  484
  507
  530
  553
  577
  600
  624
  649
  674
  701
  728
  757
  787
  819
  852
  887
  924
  963
  1,004
  1,047
Total cash flow (excl. dividends), $m
  520
  578
  635
  693
  749
  804
  871
  952
  1,035
  1,121
  1,199
  1,289
  1,381
  1,476
  1,575
  1,676
  1,781
  1,889
  2,002
  2,119
  2,241
  2,368
  2,500
  2,639
  2,783
  2,934
  3,091
  3,257
  3,429
  3,611
Retained Cash Flow (-), $m
  -179
  -201
  -222
  -243
  -264
  -285
  -305
  -324
  -343
  -362
  -381
  -399
  -417
  -435
  -453
  -472
  -490
  -510
  -530
  -551
  -572
  -595
  -618
  -643
  -669
  -697
  -726
  -756
  -789
  -823
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
  340
  377
  413
  449
  485
  520
  566
  628
  692
  759
  818
  890
  964
  1,042
  1,122
  1,204
  1,290
  1,380
  1,472
  1,569
  1,669
  1,773
  1,882
  1,995
  2,113
  2,237
  2,366
  2,500
  2,641
  2,788
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
  326
  345
  360
  370
  376
  377
  382
  392
  398
  398
  389
  380
  367
  350
  329
  306
  281
  254
  227
  199
  173
  147
  123
  102
  82
  65
  51
  39
  29
  21
Current shareholders' claim on cash, %
  99.0
  98.2
  97.7
  97.3
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1

The Ultimate Software Group, Inc. (Ultimate) is a cloud provider of people management solutions, referred to as human capital management (HCM). The Company's UltiPro product suite (UltiPro) is an engaging solution that has human resources (HR), payroll and benefits management. As of December 31, 2016, UltiPro included global people management, available in 14 languages with more than 35 country-specific localizations. The solution is delivered through software-as-a-service (SaaS) to organizations based in the United States and Canada, including those with global workforces. The UltiPro solution includes feature sets for talent acquisition and onboarding, HR management and compliance, benefits management and online enrollment, payroll, performance management, compensation management with salary planning, budgeting, and development of incentive plans, succession management, reporting and analytical decision-making and predictive tools, and time and attendance.

FINANCIAL RATIOS  of  The Ultimate Software Group, Inc. (ULTI)

Valuation Ratios
P/E Ratio 324.2
Price to Sales 12.5
Price to Book 22.5
Price to Tangible Book
Price to Cash Flow 60.8
Price to Free Cash Flow 106.9
Growth Rates
Sales Growth Rate 26.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 35.3%
Cap. Spend. - 3 Yr. Gr. Rate 18.1%
Financial Strength
Quick Ratio 18
Current Ratio 0
LT Debt to Equity 0.9%
Total Debt to Equity 2.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital 7.7%
Ret/ On T. Cap. - 3 Yr. Avg. 11.3%
Return On Equity 7.8%
Return On Equity - 3 Yr. Avg. 11.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 61.6%
Gross Margin - 3 Yr. Avg. 60.9%
EBITDA Margin 8.7%
EBITDA Margin - 3 Yr. Avg. 11.2%
Operating Margin 5.2%
Oper. Margin - 3 Yr. Avg. 7.6%
Pre-Tax Margin 5.2%
Pre-Tax Margin - 3 Yr. Avg. 7.6%
Net Profit Margin 3.8%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 26.8%
Eff/ Tax Rate - 3 Yr. Avg. 30%
Payout Ratio 0%

ULTI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ULTI stock intrinsic value calculation we used $1141 million for the last fiscal year's total revenue generated by The Ultimate Software Group, Inc.. The default revenue input number comes from 0001 income statement of The Ultimate Software Group, Inc.. 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 ULTI stock valuation model: a) initial revenue growth rate of 21.2% 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 ULTI is calculated based on our internal credit rating of The Ultimate Software Group, Inc., 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 The Ultimate Software Group, Inc..
    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 ULTI stock the variable cost ratio is equal to 81.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $130 million in the base year in the intrinsic value calculation for ULTI 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 6.3% for The Ultimate Software Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for The Ultimate Software Group, Inc.. 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 ULTI 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 ULTI are equal to 33.2%.

Life of production assets of 9.8 years is the average useful life of capital assets used in The Ultimate Software Group, Inc. 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 ULTI is equal to -61.3%. 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 - $844.978 million for The Ultimate Software Group, Inc. - 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 31.687 million for The Ultimate Software Group, Inc. 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 The Ultimate Software Group, Inc. at the current share price and the inputted number of shares is $10.5 billion.

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