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MSG Networks Stock Is Estimated To Be Modestly Undervalued

- By GF Value

The stock of MSG Networks (NYSE:MSGN, 30-year Financials) appears to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $15.56 per share and the market cap of $887.7 million, MSG Networks stock appears to be modestly undervalued. GF Value for MSG Networks is shown in the chart below.


MSG Networks Stock Is Estimated To Be Modestly Undervalued
MSG Networks Stock Is Estimated To Be Modestly Undervalued

Because MSG Networks is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 6.5% over the past five years.

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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. MSG Networks has a cash-to-debt ratio of 0.30, which is worse than 72% of the companies in the industry of Media - Diversified. GuruFocus ranks the overall financial strength of MSG Networks at 4 out of 10, which indicates that the financial strength of MSG Networks is poor. This is the debt and cash of MSG Networks over the past years:

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. MSG Networks has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $633.6 million and earnings of $3.08 a share. Its operating margin is 45.24%, which ranks better than 98% of the companies in the industry of Media - Diversified. Overall, the profitability of MSG Networks is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of MSG Networks over the past years:

MSG Networks Stock Is Estimated To Be Modestly Undervalued
MSG Networks Stock Is Estimated To Be Modestly Undervalued

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of MSG Networks is 6.5%, which ranks better than 73% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth is 3.3%, which ranks in the middle range of the companies in the industry of Media - Diversified.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, MSG Networks's ROIC is 30.40 while its WACC came in at 5.35. The historical ROIC vs WACC comparison of MSG Networks is shown below:

MSG Networks Stock Is Estimated To Be Modestly Undervalued
MSG Networks Stock Is Estimated To Be Modestly Undervalued

To conclude, the stock of MSG Networks (NYSE:MSGN, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Media - Diversified. To learn more about MSG Networks stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.