Intrinsic value of Tahoe Resources Inc. - THO

Previous Close

$7.08

  Intrinsic Value

$2.67

stock screener

  Rating & Target

str. sell

-62%

  Value-price divergence*

0%

Previous close

$7.08

 
Intrinsic value

$2.67

 
Up/down potential

-62%

 
Rating

str. sell

 
Value-price divergence*

0%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of THO 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 2016), $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 2.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  51.00
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,060
  1,081
  1,106
  1,134
  1,166
  1,202
  1,241
  1,283
  1,329
  1,378
  1,431
  1,487
  1,548
  1,612
  1,680
  1,753
  1,829
  1,911
  1,997
  2,088
  2,184
  2,285
  2,391
  2,504
  2,623
  2,747
  2,879
  3,017
  3,163
  3,316
  3,477
Variable operating expenses, $m
 
  1,247
  1,276
  1,308
  1,345
  1,385
  1,429
  1,477
  1,529
  1,585
  1,646
  1,695
  1,764
  1,837
  1,915
  1,998
  2,085
  2,178
  2,276
  2,379
  2,489
  2,604
  2,726
  2,854
  2,989
  3,131
  3,281
  3,439
  3,605
  3,779
  3,963
Fixed operating expenses, $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 operating expenses, $m
  776
  1,247
  1,276
  1,308
  1,345
  1,385
  1,429
  1,477
  1,529
  1,585
  1,646
  1,695
  1,764
  1,837
  1,915
  1,998
  2,085
  2,178
  2,276
  2,379
  2,489
  2,604
  2,726
  2,854
  2,989
  3,131
  3,281
  3,439
  3,605
  3,779
  3,963
Operating income, $m
  284
  -166
  -170
  -174
  -178
  -183
  -188
  -194
  -201
  -208
  -215
  -208
  -216
  -225
  -235
  -245
  -256
  -267
  -279
  -292
  -305
  -319
  -334
  -350
  -367
  -384
  -402
  -422
  -442
  -463
  -486
EBITDA, $m
  457
  18
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  57
  59
Interest expense (income), $m
  4
  3
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  19
  21
  24
  26
  29
  32
  35
  38
  41
  45
  49
  53
  57
  61
  66
  71
  76
  81
  87
Earnings before tax, $m
  282
  -170
  -174
  -179
  -184
  -190
  -197
  -204
  -212
  -221
  -230
  -225
  -235
  -247
  -259
  -271
  -285
  -299
  -314
  -330
  -347
  -364
  -383
  -403
  -423
  -445
  -468
  -492
  -518
  -544
  -573
Tax expense, $m
  123
  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
Net income, $m
  159
  -170
  -174
  -179
  -184
  -190
  -197
  -204
  -212
  -221
  -230
  -225
  -235
  -247
  -259
  -271
  -285
  -299
  -314
  -330
  -347
  -364
  -383
  -403
  -423
  -445
  -468
  -492
  -518
  -544
  -573

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  221
  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
  4,150
  4,004
  4,097
  4,202
  4,320
  4,451
  4,595
  4,751
  4,921
  5,103
  5,299
  5,508
  5,732
  5,970
  6,223
  6,491
  6,776
  7,077
  7,395
  7,732
  8,087
  8,462
  8,857
  9,274
  9,713
  10,176
  10,662
  11,175
  11,714
  12,281
  12,878
Adjusted assets (=assets-cash), $m
  3,929
  4,004
  4,097
  4,202
  4,320
  4,451
  4,595
  4,751
  4,921
  5,103
  5,299
  5,508
  5,732
  5,970
  6,223
  6,491
  6,776
  7,077
  7,395
  7,732
  8,087
  8,462
  8,857
  9,274
  9,713
  10,176
  10,662
  11,175
  11,714
  12,281
  12,878
Revenue / Adjusted assets
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
Average production assets, $m
  2,859
  2,916
  2,983
  3,060
  3,146
  3,241
  3,346
  3,460
  3,583
  3,716
  3,859
  4,011
  4,174
  4,347
  4,532
  4,727
  4,934
  5,153
  5,385
  5,630
  5,889
  6,162
  6,450
  6,753
  7,073
  7,410
  7,764
  8,137
  8,530
  8,943
  9,378
Working capital, $m
  283
  76
  77
  79
  82
  84
  87
  90
  93
  96
  100
  104
  108
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  184
  192
  202
  211
  221
  232
  243
Total debt, $m
  69
  71
  86
  104
  124
  146
  171
  197
  226
  256
  290
  325
  363
  403
  446
  491
  539
  590
  644
  701
  761
  824
  891
  961
  1,036
  1,114
  1,196
  1,283
  1,374
  1,470
  1,570
Total liabilities, $m
  674
  677
  692
  710
  730
  752
  777
  803
  832
  862
  896
  931
  969
  1,009
  1,052
  1,097
  1,145
  1,196
  1,250
  1,307
  1,367
  1,430
  1,497
  1,567
  1,642
  1,720
  1,802
  1,889
  1,980
  2,076
  2,176
Total equity, $m
  3,475
  3,328
  3,404
  3,492
  3,590
  3,699
  3,818
  3,948
  4,089
  4,241
  4,403
  4,577
  4,763
  4,961
  5,171
  5,394
  5,631
  5,881
  6,146
  6,425
  6,720
  7,032
  7,360
  7,707
  8,072
  8,456
  8,860
  9,286
  9,734
  10,206
  10,702
Total liabilities and equity, $m
  4,149
  4,005
  4,096
  4,202
  4,320
  4,451
  4,595
  4,751
  4,921
  5,103
  5,299
  5,508
  5,732
  5,970
  6,223
  6,491
  6,776
  7,077
  7,396
  7,732
  8,087
  8,462
  8,857
  9,274
  9,714
  10,176
  10,662
  11,175
  11,714
  12,282
  12,878
Debt-to-equity ratio
  0.020
  0.020
  0.030
  0.030
  0.030
  0.040
  0.040
  0.050
  0.060
  0.060
  0.070
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.100
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.150
Adjusted equity ratio
  0.828
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  159
  -170
  -174
  -179
  -184
  -190
  -197
  -204
  -212
  -221
  -230
  -225
  -235
  -247
  -259
  -271
  -285
  -299
  -314
  -330
  -347
  -364
  -383
  -403
  -423
  -445
  -468
  -492
  -518
  -544
  -573
Depreciation, amort., depletion, $m
  173
  185
  189
  193
  198
  204
  210
  216
  223
  231
  239
  233
  243
  253
  263
  275
  287
  300
  313
  327
  342
  358
  375
  393
  411
  431
  451
  473
  496
  520
  545
Funds from operations, $m
  153
  15
  15
  14
  14
  13
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  2
  1
  -1
  -2
  -4
  -6
  -8
  -10
  -12
  -14
  -17
  -19
  -22
  -25
  -27
Change in working capital, $m
  -184
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  337
  14
  13
  12
  12
  11
  10
  9
  8
  7
  6
  4
  3
  2
  0
  -1
  -3
  -5
  -7
  -9
  -11
  -13
  -15
  -18
  -20
  -23
  -26
  -29
  -32
  -35
  -39
Maintenance CAPEX, $m
  0
  -166
  -170
  -173
  -178
  -183
  -188
  -195
  -201
  -208
  -216
  -224
  -233
  -243
  -253
  -263
  -275
  -287
  -300
  -313
  -327
  -342
  -358
  -375
  -393
  -411
  -431
  -451
  -473
  -496
  -520
New CAPEX, $m
  -258
  -57
  -67
  -77
  -86
  -95
  -105
  -114
  -123
  -133
  -143
  -153
  -163
  -173
  -184
  -195
  -207
  -219
  -232
  -245
  -259
  -273
  -288
  -303
  -320
  -337
  -355
  -373
  -393
  -413
  -435
Cash from investing activities, $m
  -163
  -223
  -237
  -250
  -264
  -278
  -293
  -309
  -324
  -341
  -359
  -377
  -396
  -416
  -437
  -458
  -482
  -506
  -532
  -558
  -586
  -615
  -646
  -678
  -713
  -748
  -786
  -824
  -866
  -909
  -955
Free cash flow, $m
  174
  -210
  -224
  -238
  -252
  -268
  -283
  -300
  -317
  -334
  -353
  -373
  -393
  -414
  -437
  -460
  -485
  -511
  -538
  -567
  -597
  -628
  -661
  -696
  -733
  -771
  -811
  -853
  -898
  -944
  -993
Issuance/(repayment) of debt, $m
  -30
  14
  16
  18
  20
  22
  24
  26
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
Issuance/(repurchase) of shares, $m
  27
  231
  250
  266
  282
  299
  317
  334
  353
  373
  393
  399
  421
  444
  469
  494
  521
  549
  578
  609
  642
  676
  711
  749
  788
  829
  873
  918
  966
  1,016
  1,069
Cash from financing (excl. dividends), $m  
  -8
  245
  266
  284
  302
  321
  341
  360
  382
  404
  426
  434
  459
  484
  512
  539
  569
  600
  632
  666
  702
  739
  778
  819
  862
  907
  955
  1,005
  1,057
  1,112
  1,170
Total cash flow (excl. dividends), $m
  165
  35
  42
  46
  50
  54
  58
  61
  65
  69
  73
  62
  66
  70
  75
  79
  84
  89
  94
  99
  105
  111
  117
  123
  130
  137
  144
  151
  159
  167
  176
Retained Cash Flow (-), $m
  -1,227
  -231
  -250
  -266
  -282
  -299
  -317
  -334
  -353
  -373
  -393
  -399
  -421
  -444
  -469
  -494
  -521
  -549
  -578
  -609
  -642
  -676
  -711
  -749
  -788
  -829
  -873
  -918
  -966
  -1,016
  -1,069
Prev. year cash balance distribution, $m
 
  209
  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
 
  13
  -208
  -220
  -232
  -245
  -259
  -273
  -288
  -304
  -320
  -337
  -355
  -374
  -394
  -415
  -437
  -460
  -484
  -510
  -537
  -565
  -595
  -626
  -658
  -693
  -729
  -767
  -807
  -848
  -892
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
 
  12
  -191
  -192
  -191
  -190
  -188
  -185
  -180
  -174
  -168
  -160
  -152
  -142
  -132
  -122
  -111
  -100
  -89
  -79
  -68
  -58
  -49
  -41
  -34
  -27
  -21
  -16
  -12
  -9
  -7
Current shareholders' claim on cash, %
  100
  90.8
  82.0
  73.8
  66.1
  59.1
  52.6
  46.8
  41.5
  36.7
  32.4
  28.7
  25.4
  22.4
  19.7
  17.4
  15.2
  13.4
  11.7
  10.3
  9.0
  7.9
  6.9
  6.0
  5.2
  4.6
  4.0
  3.5
  3.0
  2.6
  2.3

Tahoe Resources Inc. is a mine operations, and mineral exploration and development company. The Company's principal business activities are the exploration, development, operation and acquisition of mineral properties for the mining of precious metals in the Americas. Its business involves operating the Escobal mine, a silver mining operation located in southeastern Guatemala, the La Arena and Shahuindo mines, gold mining operations located in northwestern Peru, and the Bell Creek mine and mill and the Timmins West mine, gold mining operations located in northeastern Ontario, Canada. Its additional business objectives include the expansion of gold production at the Shahuindo and Bell Creek mines, the development of the Whitney Project and the ongoing exploration programs in Peru and Canada. It focuses on the initial evaluation of exploration/development projects with the main projects being the La Arena copper-gold sulfide project in Peru and the Fenn-Gib gold project in Canada.

FINANCIAL RATIOS  of  Tahoe Resources Inc. (THO)

Valuation Ratios
P/E Ratio 13.9
Price to Sales 2.1
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 6.5
Price to Free Cash Flow 27.9
Growth Rates
Sales Growth Rate 51%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 56.4%
Cap. Spend. - 3 Yr. Gr. Rate 5.7%
Financial Strength
Quick Ratio 18
Current Ratio 0
LT Debt to Equity 1.6%
Total Debt to Equity 2%
Interest Coverage 72
Management Effectiveness
Return On Assets 4.7%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 5.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 5.6%
Return On Equity - 3 Yr. Avg. 3.6%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 38.8%
Gross Margin - 3 Yr. Avg. 40%
EBITDA Margin 43.3%
EBITDA Margin - 3 Yr. Avg. 30%
Operating Margin 26.8%
Oper. Margin - 3 Yr. Avg. 15.5%
Pre-Tax Margin 26.6%
Pre-Tax Margin - 3 Yr. Avg. 14.2%
Net Profit Margin 15%
Net Profit Margin - 3 Yr. Avg. 9.1%
Effective Tax Rate 43.6%
Eff/ Tax Rate - 3 Yr. Avg. 27.8%
Payout Ratio 57.2%

THO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the THO stock intrinsic value calculation we used $1060 million for the last fiscal year's total revenue generated by Tahoe Resources Inc.. The default revenue input number comes from 2016 income statement of Tahoe Resources 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 THO stock valuation model: a) initial revenue growth rate of 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 THO is calculated based on our internal credit rating of Tahoe Resources 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 Tahoe Resources 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 THO stock the variable cost ratio is equal to 115.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for THO 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 5.9% for Tahoe Resources Inc..

Corporate tax rate of 27% is the nominal tax rate for Tahoe Resources 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 THO 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 THO are equal to 269.7%.

Life of production assets of 17.2 years is the average useful life of capital assets used in Tahoe Resources 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 THO is equal to 7%. 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 - $3475 million for Tahoe Resources 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 311.828 million for Tahoe Resources 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 Tahoe Resources Inc. at the current share price and the inputted number of shares is $2.2 billion.

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Financial statements of THO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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