Sun Microsystems, Inc. (JAVA)

Discount cash flow analysis

Buy Undervalued by 22.7%

5% margin of safety What's this?

close

How does this work?

This is an interactive analyst report for Sun Microsystems, Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

Spacer
Values in $ millions
2008 2009 2010 2011 2012 2013 2014 2015
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $11.72 $11.62 $11.53
Terminal Growth% 0 $11.74 $11.64 $11.54
  +1% $11.76 $11.66 $11.56

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $6.67 (overvalued by 29.72%) - over 5 years ago
  • eriktiden created a new valuation of $6.14 (overvalued by 32.9%) - 8 years ago
  • eriktiden created a new valuation of $4.16 (overvalued by 54.54%) - 8 years ago
  • laguerriere created a new valuation of $9.52 (undervalued by 2.15%) - 8 years ago
  • laguerriere created a new valuation of $11.22 (undervalued by 20.39%) - 8 years ago
  • laguerriere created a new valuation of $0.00 (overvalued by 100.0%) - 8 years ago
  • laguerriere created a new valuation of $6.43 (overvalued by 30.11%) - 8 years ago
  • GordonGekko created a new valuation of $6.44 (overvalued by 1.83%) - over 8 years ago
  • SethWellbourne created a new valuation of $7.44 (undervalued by 2.76%) - over 8 years ago
  • GordonGekko created a new valuation of $4.52 (overvalued by 3.21%) - over 8 years ago
  • GordonGekko created a new valuation of $10.23 (undervalued by 15.46%) - 9 years ago
  • KiwiEMH created a new valuation of $10.30 (undervalued by 0.29%) - 9 years ago
  • TheCrunchBlog created a new valuation of $11.64 (undervalued by 14.01%) - 9 years ago
  • GordonGekko created a new valuation of $11.32 (undervalued by 8.53%) - over 9 years ago
  • KiwiEMH created a new valuation of $13.12 (undervalued by 0.31%) - over 9 years ago

Comments

Sun Microsystems (JAVA) – all about the profits

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/07/sun-microsystems-java-all-about-the-profits/

JAVA grew revenues from US$11.19 billion in 2004 to US$13.87 billion in 2007 – a 7.4% compound annual growth rate. Our assumptions of revenues for the next three years are US$14.0 billion in 2009 growing to US$15.0 billion in 2011 – a 2.6% compound annual growth rate (2008-11). We have projected EBITDA margins to be flat at 10.0% to 2011. We have used a terminal growth rate of 2.5%. We used a terminal capital expenditure number of US$600 million. We have used a WACC (discount rate) of 12%.

Based on our analysis the current share price looks undervalued. In our view the key assumption is the EBITDA margin moving forward. If JAVA can increase their EBITDA margin to 12% in 2011 that lifts our valuation to US$13.91 (36% above the current share price). However if JAVA’s EBITDA margin dropped to 8% in 2011 that lowers our valuation to US$9.38 (8% below the current share price).

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 4,102
Net Debt (Long-term borrowings less cash): -3,317
Equity Value: 7,982
Number of Shares Outstanding: 781,000,000
Calculated value per share: $11.64

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.