Intrinsic value of ABM Industries - ABM

Previous Close

$43.75

  Intrinsic Value

$26.93

stock screener

  Rating & Target

sell

-38%

Previous close

$43.75

 
Intrinsic value

$26.93

 
Up/down potential

-38%

 
Rating

sell

We calculate the intrinsic value of ABM 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 2.9

 

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, %
  5.04
  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
  5,145
  5,248
  5,369
  5,507
  5,661
  5,833
  6,021
  6,227
  6,448
  6,688
  6,944
  7,219
  7,512
  7,824
  8,155
  8,507
  8,880
  9,275
  9,692
  10,133
  10,598
  11,090
  11,608
  12,154
  12,729
  13,335
  13,973
  14,645
  15,352
  16,095
  16,877
Variable operating expenses, $m
 
  5,167
  5,284
  5,418
  5,567
  5,733
  5,916
  6,114
  6,329
  6,560
  6,808
  6,982
  7,266
  7,568
  7,888
  8,229
  8,589
  8,971
  9,375
  9,801
  10,251
  10,727
  11,228
  11,756
  12,312
  12,899
  13,516
  14,165
  14,849
  15,568
  16,324
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
  5,090
  5,167
  5,284
  5,418
  5,567
  5,733
  5,916
  6,114
  6,329
  6,560
  6,808
  6,982
  7,266
  7,568
  7,888
  8,229
  8,589
  8,971
  9,375
  9,801
  10,251
  10,727
  11,228
  11,756
  12,312
  12,899
  13,516
  14,165
  14,849
  15,568
  16,324
Operating income, $m
  55
  81
  84
  89
  94
  100
  106
  113
  120
  128
  136
  236
  246
  256
  267
  279
  291
  304
  317
  332
  347
  363
  380
  398
  417
  437
  458
  480
  503
  527
  553
EBITDA, $m
  113
  182
  186
  191
  196
  202
  209
  216
  224
  232
  241
  250
  261
  271
  283
  295
  308
  322
  336
  351
  368
  385
  403
  422
  441
  462
  485
  508
  532
  558
  585
Interest expense (income), $m
  4
  9
  10
  11
  13
  14
  16
  17
  19
  21
  23
  25
  28
  30
  33
  36
  39
  43
  46
  50
  54
  58
  62
  67
  72
  77
  82
  88
  94
  100
  107
Earnings before tax, $m
  52
  71
  74
  78
  81
  86
  90
  95
  101
  107
  113
  211
  218
  226
  234
  242
  251
  261
  271
  282
  293
  305
  318
  331
  345
  360
  375
  392
  409
  427
  446
Tax expense, $m
  -10
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  89
  93
  97
  101
  106
  110
  115
  120
Net income, $m
  57
  52
  54
  57
  59
  63
  66
  70
  74
  78
  82
  154
  159
  165
  171
  177
  184
  191
  198
  206
  214
  223
  232
  242
  252
  263
  274
  286
  298
  312
  326

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  54
  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
  2,279
  2,270
  2,322
  2,382
  2,449
  2,523
  2,604
  2,693
  2,789
  2,893
  3,004
  3,122
  3,249
  3,384
  3,527
  3,680
  3,841
  4,011
  4,192
  4,383
  4,584
  4,797
  5,021
  5,257
  5,506
  5,768
  6,044
  6,334
  6,640
  6,962
  7,300
Adjusted assets (=assets-cash), $m
  2,225
  2,270
  2,322
  2,382
  2,449
  2,523
  2,604
  2,693
  2,789
  2,893
  3,004
  3,122
  3,249
  3,384
  3,527
  3,680
  3,841
  4,011
  4,192
  4,383
  4,584
  4,797
  5,021
  5,257
  5,506
  5,768
  6,044
  6,334
  6,640
  6,962
  7,300
Revenue / Adjusted assets
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
  2.312
Average production assets, $m
  186
  189
  193
  198
  204
  210
  217
  224
  232
  241
  250
  260
  270
  282
  294
  306
  320
  334
  349
  365
  382
  399
  418
  438
  458
  480
  503
  527
  553
  579
  608
Working capital, $m
  394
  346
  354
  363
  374
  385
  397
  411
  426
  441
  458
  476
  496
  516
  538
  561
  586
  612
  640
  669
  699
  732
  766
  802
  840
  880
  922
  967
  1,013
  1,062
  1,114
Total debt, $m
  268
  295
  326
  361
  400
  444
  492
  544
  600
  661
  726
  796
  870
  949
  1,034
  1,123
  1,218
  1,318
  1,424
  1,536
  1,654
  1,779
  1,910
  2,049
  2,195
  2,349
  2,511
  2,681
  2,861
  3,049
  3,248
Total liabilities, $m
  1,305
  1,332
  1,363
  1,398
  1,437
  1,481
  1,529
  1,581
  1,637
  1,698
  1,763
  1,833
  1,907
  1,986
  2,071
  2,160
  2,255
  2,355
  2,461
  2,573
  2,691
  2,816
  2,947
  3,086
  3,232
  3,386
  3,548
  3,718
  3,898
  4,086
  4,285
Total equity, $m
  974
  937
  959
  984
  1,011
  1,042
  1,076
  1,112
  1,152
  1,195
  1,240
  1,290
  1,342
  1,398
  1,457
  1,520
  1,586
  1,657
  1,731
  1,810
  1,893
  1,981
  2,074
  2,171
  2,274
  2,382
  2,496
  2,616
  2,742
  2,875
  3,015
Total liabilities and equity, $m
  2,279
  2,269
  2,322
  2,382
  2,448
  2,523
  2,605
  2,693
  2,789
  2,893
  3,003
  3,123
  3,249
  3,384
  3,528
  3,680
  3,841
  4,012
  4,192
  4,383
  4,584
  4,797
  5,021
  5,257
  5,506
  5,768
  6,044
  6,334
  6,640
  6,961
  7,300
Debt-to-equity ratio
  0.275
  0.320
  0.340
  0.370
  0.400
  0.430
  0.460
  0.490
  0.520
  0.550
  0.590
  0.620
  0.650
  0.680
  0.710
  0.740
  0.770
  0.800
  0.820
  0.850
  0.870
  0.900
  0.920
  0.940
  0.970
  0.990
  1.010
  1.020
  1.040
  1.060
  1.080
Adjusted equity ratio
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  57
  52
  54
  57
  59
  63
  66
  70
  74
  78
  82
  154
  159
  165
  171
  177
  184
  191
  198
  206
  214
  223
  232
  242
  252
  263
  274
  286
  298
  312
  326
Depreciation, amort., depletion, $m
  58
  101
  102
  102
  102
  103
  103
  103
  104
  104
  105
  14
  15
  15
  16
  16
  17
  18
  19
  20
  21
  21
  22
  24
  25
  26
  27
  28
  30
  31
  33
Funds from operations, $m
  28
  153
  156
  159
  162
  165
  169
  173
  177
  182
  187
  168
  174
  180
  186
  193
  201
  209
  217
  225
  235
  244
  254
  265
  277
  288
  301
  314
  328
  343
  358
Change in working capital, $m
  -56
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
Cash from operations, $m
  84
  147
  148
  150
  151
  154
  156
  159
  163
  166
  170
  150
  154
  159
  165
  170
  176
  182
  189
  196
  204
  212
  220
  229
  239
  249
  259
  270
  282
  294
  307
Maintenance CAPEX, $m
  0
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -24
  -25
  -26
  -27
  -28
  -30
  -31
New CAPEX, $m
  -44
  -3
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
Cash from investing activities, $m
  -135
  -13
  -14
  -15
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -29
  -31
  -33
  -35
  -37
  -39
  -40
  -42
  -45
  -47
  -49
  -51
  -53
  -57
  -59
Free cash flow, $m
  -51
  133
  133
  134
  135
  137
  138
  140
  143
  145
  148
  127
  130
  134
  138
  142
  146
  151
  156
  162
  168
  174
  180
  187
  194
  202
  210
  219
  228
  237
  247
Issuance/(repayment) of debt, $m
  110
  27
  31
  35
  39
  44
  48
  52
  56
  61
  65
  70
  74
  79
  84
  89
  95
  100
  106
  112
  118
  125
  132
  139
  146
  154
  162
  171
  179
  189
  199
Issuance/(repurchase) of shares, $m
  -41
  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 from financing (excl. dividends), $m  
  90
  27
  31
  35
  39
  44
  48
  52
  56
  61
  65
  70
  74
  79
  84
  89
  95
  100
  106
  112
  118
  125
  132
  139
  146
  154
  162
  171
  179
  189
  199
Total cash flow (excl. dividends), $m
  35
  161
  164
  169
  175
  180
  186
  192
  199
  206
  213
  196
  204
  213
  222
  231
  241
  251
  262
  274
  286
  298
  312
  326
  340
  356
  372
  389
  407
  426
  446
Retained Cash Flow (-), $m
  34
  -17
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -52
  -56
  -59
  -63
  -67
  -70
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
  -133
  -140
Prev. year cash balance distribution, $m
 
  54
  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
 
  197
  142
  145
  147
  150
  153
  156
  159
  163
  167
  147
  152
  157
  162
  168
  174
  181
  188
  195
  203
  211
  219
  228
  238
  248
  258
  269
  281
  293
  306
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
 
  189
  130
  126
  121
  116
  111
  105
  100
  94
  88
  70
  65
  60
  55
  49
  44
  39
  35
  30
  26
  22
  18
  15
  12
  10
  8
  6
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

ABM Industries Incorporated is a provider of integrated facility solutions. The Company operates through five segments: Janitorial, Facility Services, Parking, Building & Energy Solutions, and other. Its Janitorial segment provides a range of cleaning services for commercial office buildings, data centers, educational institutions, government buildings, health facilities, industrial buildings, retail stores, sport event facilities and transportation hubs. Its Facility Services segment provides onsite mechanical engineering and technical services and solutions relating to a range of facilities and infrastructure systems. Its Parking segment provides parking and transportation services. Its Building & Energy Solutions segment provides energy solutions; electrical; heating, ventilation and air conditioning; lighting, and other general maintenance and repair services for clients. Its other segment provides facility solutions to airlines and airports.

FINANCIAL RATIOS  of  ABM Industries (ABM)

Valuation Ratios
P/E Ratio 42.7
Price to Sales 0.5
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 29
Price to Free Cash Flow 60.8
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 63%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 27.5%
Total Debt to Equity 27.5%
Interest Coverage 14
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 4.7%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 5.8%
Return On Equity - 3 Yr. Avg. 7.2%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 10.1%
Gross Margin - 3 Yr. Avg. 10.2%
EBITDA Margin 2.2%
EBITDA Margin - 3 Yr. Avg. 2.9%
Operating Margin 1.1%
Oper. Margin - 3 Yr. Avg. 1.7%
Pre-Tax Margin 1%
Pre-Tax Margin - 3 Yr. Avg. 1.6%
Net Profit Margin 1.1%
Net Profit Margin - 3 Yr. Avg. 1.4%
Effective Tax Rate -19.2%
Eff/ Tax Rate - 3 Yr. Avg. 15.1%
Payout Ratio 64.9%

ABM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABM stock intrinsic value calculation we used $5145 million for the last fiscal year's total revenue generated by ABM Industries. The default revenue input number comes from 2016 income statement of ABM Industries. 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 ABM 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 ABM is calculated based on our internal credit rating of ABM Industries, 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 ABM Industries.
    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 ABM stock the variable cost ratio is equal to 98.5%.

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 ABM 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 3.5% for ABM Industries.

Corporate tax rate of 27% is the nominal tax rate for ABM Industries. 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 ABM 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 ABM are equal to 3.6%.

Life of production assets of 18.6 years is the average useful life of capital assets used in ABM Industries 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 ABM is equal to 6.6%. 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 - $974 million for ABM Industries - 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 65.212 million for ABM Industries 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 ABM Industries at the current share price and the inputted number of shares is $2.9 billion.

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COMPANY NEWS

▶ ABM Industries reports 4Q loss   [Dec-13-17 04:31PM  Associated Press]
▶ New Strong Sell Stocks for October 4th   [Oct-04-17 08:21AM  Zacks]
▶ New Strong Sell Stocks for September 25th   [Sep-25-17 08:49AM  Zacks]
▶ ABM Industries misses 3Q profit forecasts   [Sep-06-17 11:56PM  Associated Press]
▶ ABM Industries Is Set for a Clean Breakout   [10:14AM  TheStreet.com]
▶ ABM Industries Completes Acquisition of GCA Services Group   [Sep-01-17 08:59AM  GlobeNewswire]
▶ ABM UK Expands Significantly With Key Contract Wins   [Aug-17-17 08:00AM  GlobeNewswire]
▶ Company News for July 13, 2017   [Jul-13-17 10:08AM  Zacks]
▶ ABM Appoints New General Counsel   [Jun-26-17 04:15PM  Business Wire]
▶ McLean contractor buys ABM Industries' government services business   [Jun-08-17 02:55PM  American City Business Journals]
▶ ABM Industries beats 2Q profit forecasts   [Jun-07-17 04:39PM  Associated Press]
▶ ABM Announces COO Succession Plan   [04:35PM  Business Wire]
Financial statements of ABM
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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