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No. of Recommendations: 10
I joined Hidden Gems to learn how to evaluate stocks on my own. Here is
my first valuation attempt at CNS using Matt Richey's technique in the
write-up but with the latest financial information. Please feel free to
comment because that is how I am going to learn. 

My process: I started by getting the SFCF (less investment income) and
looked at the y-o-y growth: it grew 4%. I then looked at the diluted
share count y-o-y: it grew 3%. I applied this 3% dilution rate to each
of the next 3 years reaching a total of 15.9M diluted shares in FY07.

Net SFCF grew 1% y-o-y from FY03 to FY04(4% SFCF - 3% dilution).I applied
this 1% growth rate to the next 3 years (which is very conservative
because the analysts are expecting the eps to grow 10% in FY05 on a
fully diluted basis). That gets us 0.761 SFCF per share by FY07. If I
apply the multiple of 12X and 15X that Matt Richey used in the write up
(is this really an accurate multiple to apply if I am assuming only a
1% SFCF growth?) then I get a price of $9.137-$11.421 per share.

If I assume the SFCF for FY05-FY07 drops to the CASH line then I get a total cash
balance of $84.377M in FY07. That equates to a $5.30 per share in cash alone in

If I add the cash to the 12X and 15X price per share I get a value of
the company at $14.44-$16.73 three years out (13%-19% annual growth)
from where the stock price is today. 

I believe this is a very conservative valuation because it simply
assumes CNS can continue the same level of growth it did last year -
while the analysts are expecting bigger things. Even at this
conservative valuation a 13%-19% annual growth will most likely beat
the market over that time.

I think this is a good time to buy. Anyone else?

	                             FY03	 FY04	Incr.	  FY05	  FY06	  FY07		
Net Income	                    6,516       8,547 	  31%					
Depreciation & Amortization	    1,251 	  958 	 -23%					
Deferred Income Taxes	            3,489 	2,468 	 -29%					
Capital Expenditures	             (60)        (478)	 697%					
Structural Free Cash Flow	   11,196 	11,495 	   3%					
Investment Income	             (839)	 (725)	 -14%					
SFCF less Investment Income	   10,357 	10,770 	   4%					
Diluted Share Count	           14,044 	14,488 	   3%	 14,946   15,419   15,906 		
Incr. Diluted Shares 				                   458      473      487 		
(assuming 3% dilution)								
SFCF per share	                    0.737 	 0.743 	   1%	  0.749    0.755    0.761	
Multiple of 12X						                            9.137 per share	
Multiple of 15X			                                                    11.421 per share	
Cash + Marketable Securities	   41,615 	 49,421    19%	 60,620   72,267   84,377 		
Incremental Cash				                 11,199   11,646   12,110 		
Cash + Mrktbl Securities per share				   4.06    4.69    5.30 per share	
Business Value at 12X 						                   14.44 13%annual returns
Business Value at 15X 		                                	           16.73 19%annual returns
(SFCF/share + Cash/share)								
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