I've got 20 minutes to spare so here is how the model works..
One point, save the model as MRVCoriginal and then save another version as MRVCplay or something like that....that way you will always be able to figure out what I sent you versus other assumptions you have plugged in.....
All of the red information is numbers I entered into the computer...most of the facts were pulled from Bloomberg.....However, for those that follow the company closely, the numbers on Bloomberg suck due to the fact that they include the acquisition numbers. I knew that they were wrong so I changed '96 #'s to be correct. If I based the growth rate off of incorrect numbers, the analysis would be worthless.
The model is created to show what kind of expectations are priced into MRVC stock.
For example, on the DCF ratio sheet you can see red #'s. These are the numbers that you can manipulate to change the value of the stock price. By altering each or all of the variables, you can get different stock prices. If you believe COGS will increase, change the variable and a new stock price will appear.
Originally, the model was for '97 - '03 but I separted the growth into two segments since it would be unreasonable to assume such a phenomenal growth rate over the life of the stock. You can play with them as you want. Additionally, I would like to mention the numbers at the bottom of the sheet called DCF ratios. There are various numbers. Rf is the risk free rate, Rb is the rate of interest on MRVC debt, D/V is the total debt compared to the entire value of the company (stock + equity + warrants). The beta can be found on numerous sources....it varies about .5 from the sources I noticed so I took an average....MRVC has a high beta which causes its weighted average cost of capital to be high.....the rwacc # at the bottom..
the number next to Re is the actual number calculated for Re after you make your changes....you must insert the black number into Re to change the Re and the actual numbers.
Another point, FCF growth cannot be greater than the Rwacc...otherwise, you get a negative number for MRVC stock...This DCF valuation uses the Gordon constant growth model (modified by me into 2 segments)...so why is FCF growth the key....
With growth stocks, such as MRVC and QCOM, a tremendous amount of the value of the company is based off of future growth in revenues and earnings....this can be seen in the DCF projected sheet...as the terminal value, 6th year and on is HUGE compared to the rest of the other numbers.
Gotta go...I'll explain more later....
If you look at the 3rd sheet titled DCF projected you will find the analysis based on the historical info and the projections you make in the red numbers.
Dan Ross |
