Intrinsic value of American Vanguard - AVD

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$17.40

  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of AVD 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 0.5

 

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, %
  7.96
  13.90
  13.01
  12.21
  11.49
  10.84
  10.26
  9.73
  9.26
  8.83
  8.45
  8.10
  7.79
  7.51
  7.26
  7.04
  6.83
  6.65
  6.48
  6.34
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
Revenue, $m
  312
  329
  372
  417
  465
  516
  569
  624
  682
  742
  805
  870
  938
  1,008
  1,081
  1,157
  1,237
  1,319
  1,404
  1,493
  1,586
  1,682
  1,783
  1,888
  1,997
  2,111
  2,230
  2,354
  2,484
  2,620
  2,762
Variable operating expenses, $m
 
  321
  363
  407
  454
  503
  555
  609
  665
  724
  785
  849
  915
  984
  1,055
  1,130
  1,207
  1,287
  1,371
  1,457
  1,548
  1,642
  1,740
  1,842
  1,949
  2,060
  2,176
  2,298
  2,424
  2,557
  2,696
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
  292
  321
  363
  407
  454
  503
  555
  609
  665
  724
  785
  849
  915
  984
  1,055
  1,130
  1,207
  1,287
  1,371
  1,457
  1,548
  1,642
  1,740
  1,842
  1,949
  2,060
  2,176
  2,298
  2,424
  2,557
  2,696
Operating income, $m
  21
  8
  9
  10
  11
  12
  14
  15
  16
  18
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  66
EBITDA, $m
  37
  26
  30
  33
  37
  41
  45
  50
  54
  59
  64
  69
  75
  80
  86
  92
  98
  105
  112
  119
  126
  134
  142
  150
  159
  168
  177
  187
  197
  208
  220
Interest expense (income), $m
  2
  2
  3
  4
  5
  6
  7
  9
  10
  11
  12
  14
  15
  17
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  42
  45
  48
  51
  54
Earnings before tax, $m
  19
  5
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
Tax expense, $m
  6
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
Net income, $m
  13
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  430
  499
  564
  632
  705
  782
  862
  946
  1,033
  1,124
  1,219
  1,318
  1,421
  1,528
  1,638
  1,754
  1,874
  1,998
  2,128
  2,262
  2,403
  2,549
  2,701
  2,860
  3,026
  3,198
  3,379
  3,567
  3,764
  3,970
  4,185
Adjusted assets (=assets-cash), $m
  422
  499
  564
  632
  705
  782
  862
  946
  1,033
  1,124
  1,219
  1,318
  1,421
  1,528
  1,638
  1,754
  1,874
  1,998
  2,128
  2,262
  2,403
  2,549
  2,701
  2,860
  3,026
  3,198
  3,379
  3,567
  3,764
  3,970
  4,185
Revenue / Adjusted assets
  0.739
  0.659
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
Average production assets, $m
  175
  186
  211
  236
  263
  292
  322
  353
  386
  420
  455
  492
  531
  571
  612
  655
  700
  746
  795
  845
  898
  952
  1,009
  1,068
  1,130
  1,195
  1,262
  1,332
  1,406
  1,483
  1,563
Working capital, $m
  130
  165
  186
  209
  233
  258
  284
  312
  341
  371
  402
  435
  469
  504
  541
  579
  618
  659
  702
  747
  793
  841
  891
  944
  998
  1,055
  1,115
  1,177
  1,242
  1,310
  1,381
Total debt, $m
  41
  92
  119
  146
  175
  206
  238
  272
  307
  344
  382
  422
  463
  506
  551
  597
  645
  695
  747
  802
  858
  917
  978
  1,042
  1,108
  1,178
  1,250
  1,326
  1,405
  1,488
  1,574
Total liabilities, $m
  148
  200
  227
  254
  283
  314
  346
  380
  415
  452
  490
  530
  571
  614
  659
  705
  753
  803
  855
  910
  966
  1,025
  1,086
  1,150
  1,216
  1,286
  1,358
  1,434
  1,513
  1,596
  1,682
Total equity, $m
  282
  298
  337
  378
  422
  467
  515
  565
  618
  672
  729
  788
  850
  913
  980
  1,049
  1,120
  1,195
  1,272
  1,353
  1,437
  1,524
  1,615
  1,710
  1,809
  1,913
  2,020
  2,133
  2,251
  2,374
  2,502
Total liabilities and equity, $m
  430
  498
  564
  632
  705
  781
  861
  945
  1,033
  1,124
  1,219
  1,318
  1,421
  1,527
  1,639
  1,754
  1,873
  1,998
  2,127
  2,263
  2,403
  2,549
  2,701
  2,860
  3,025
  3,199
  3,378
  3,567
  3,764
  3,970
  4,184
Debt-to-equity ratio
  0.145
  0.310
  0.350
  0.390
  0.420
  0.440
  0.460
  0.480
  0.500
  0.510
  0.520
  0.540
  0.550
  0.550
  0.560
  0.570
  0.580
  0.580
  0.590
  0.590
  0.600
  0.600
  0.610
  0.610
  0.610
  0.620
  0.620
  0.620
  0.620
  0.630
  0.630
Adjusted equity ratio
  0.649
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
Depreciation, amort., depletion, $m
  16
  18
  21
  23
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
  64
  69
  73
  78
  83
  88
  93
  99
  105
  111
  117
  124
  131
  138
  145
  153
Funds from operations, $m
  55
  22
  25
  27
  30
  33
  36
  39
  43
  46
  50
  53
  57
  61
  66
  70
  75
  79
  84
  89
  95
  100
  106
  112
  118
  125
  132
  139
  147
  154
  163
Change in working capital, $m
  9
  20
  21
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  71
Cash from operations, $m
  46
  16
  3
  5
  6
  8
  10
  12
  14
  16
  18
  21
  23
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
  64
  68
  72
  77
  82
  86
  92
Maintenance CAPEX, $m
  0
  -16
  -18
  -21
  -23
  -26
  -29
  -32
  -35
  -38
  -41
  -45
  -48
  -52
  -56
  -60
  -64
  -69
  -73
  -78
  -83
  -88
  -93
  -99
  -105
  -111
  -117
  -124
  -131
  -138
  -145
New CAPEX, $m
  -11
  -23
  -24
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -48
  -50
  -52
  -55
  -57
  -59
  -62
  -65
  -67
  -70
  -74
  -77
  -80
Cash from investing activities, $m
  -14
  -39
  -42
  -47
  -50
  -55
  -59
  -63
  -68
  -72
  -76
  -82
  -86
  -92
  -97
  -103
  -109
  -116
  -121
  -128
  -135
  -143
  -150
  -158
  -167
  -176
  -184
  -194
  -205
  -215
  -225
Free cash flow, $m
  32
  -23
  -39
  -42
  -44
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -94
  -98
  -103
  -107
  -112
  -117
  -123
  -128
  -134
Issuance/(repayment) of debt, $m
  -28
  24
  26
  28
  29
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  69
  73
  76
  79
  83
  86
Issuance/(repurchase) of shares, $m
  0
  29
  52
  55
  58
  62
  65
  68
  71
  74
  77
  80
  83
  87
  90
  94
  97
  101
  105
  110
  114
  119
  124
  130
  135
  141
  148
  154
  161
  169
  176
Cash from financing (excl. dividends), $m  
  -28
  53
  78
  83
  87
  93
  97
  102
  106
  111
  115
  120
  124
  130
  135
  140
  145
  151
  157
  164
  170
  178
  185
  194
  202
  210
  221
  230
  240
  252
  262
Total cash flow (excl. dividends), $m
  3
  1
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -43
  -46
  -48
Retained Cash Flow (-), $m
  -14
  -36
  -39
  -41
  -43
  -46
  -48
  -50
  -52
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -74
  -77
  -81
  -84
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -123
  -129
Prev. year cash balance distribution, $m
 
  6
  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
 
  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
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $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
Current shareholders' claim on cash, %
  100
  94.3
  86.1
  79.1
  72.9
  67.5
  62.8
  58.6
  54.8
  51.5
  48.4
  45.7
  43.2
  40.9
  38.8
  36.9
  35.1
  33.5
  31.9
  30.5
  29.1
  27.9
  26.7
  25.6
  24.5
  23.5
  22.6
  21.7
  20.8
  20.0
  19.2

American Vanguard Corporation, through its subsidiaries, develops, manufactures, and markets specialty chemicals for agricultural, commercial, and consumer uses in the United States and internationally. The company manufactures and formulates chemicals, including insecticides, fungicides, herbicides, molluscicides, growth regulators, and soil fumigants in liquid, powder, and granular forms for crops, turf and ornamental plants, and human and animal health protection. American Vanguard Corporation distributes its products through national distribution companies and buying groups or co-operatives in the United States; and through sales offices and sales force executives internationally. The company was founded in 1969 and is headquartered in Newport Beach, California.

FINANCIAL RATIOS  of  American Vanguard (AVD)

Valuation Ratios
P/E Ratio 39.3
Price to Sales 1.6
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 11.1
Price to Free Cash Flow 14.6
Growth Rates
Sales Growth Rate 8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -75%
Cap. Spend. - 3 Yr. Gr. Rate -6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 14.5%
Total Debt to Equity 14.5%
Interest Coverage 11
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 2.5%
Return On Equity 4.7%
Return On Equity - 3 Yr. Avg. 3.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 41%
Gross Margin - 3 Yr. Avg. 39.4%
EBITDA Margin 11.9%
EBITDA Margin - 3 Yr. Avg. 9.6%
Operating Margin 6.4%
Oper. Margin - 3 Yr. Avg. 4.2%
Pre-Tax Margin 6.1%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 4.2%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 17.9%
Payout Ratio 7.7%

AVD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVD stock intrinsic value calculation we used $289 million for the last fiscal year's total revenue generated by American Vanguard. The default revenue input number comes from 2016 income statement of American Vanguard. 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 AVD stock valuation model: a) initial revenue growth rate of 13.9% 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 4.4%, whose default value for AVD is calculated based on our internal credit rating of American Vanguard, 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 American Vanguard.
    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 AVD stock the variable cost ratio is equal to 97.6%.

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 AVD 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 3.6% for American Vanguard.

Corporate tax rate of 27% is the nominal tax rate for American Vanguard. 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 AVD 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 AVD are equal to 56.6%.

Life of production assets of 10.2 years is the average useful life of capital assets used in American Vanguard 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 AVD is equal to 50%. 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 - $268 million for American Vanguard - 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 28.196 million for American Vanguard 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 American Vanguard at the current share price and the inputted number of shares is $0.5 billion.


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COMPANY NEWS

▶ American Vanguard Declares Quarterly Dividend   [Jun-08-17 09:00AM  Business Wire]
▶ American Vanguard meets 1Q profit forecasts   [May-04-17 06:08PM  Associated Press]
▶ Who are Monsanto's main competitors?   [May-02-17 09:06AM  Investopedia]
▶ US, EU clear Chinese takeover of Syngenta   [06:00AM  Associated Press]
▶ American Vanguard Announces New Head of Regulatory Affairs   [Mar-21-17 04:05PM  Business Wire]
▶ American Vanguard meets 4Q profit forecasts   [Mar-06-17 04:33PM  Associated Press]
▶ Deere: A Bummer of an Upgrade   [Nov-28-16 11:55AM  at Barrons.com]
▶ [$$] American Vanguard Plants a Comeback   [Nov-12-16 12:01AM  at Barrons.com]
▶ American Vanguard Declares Quarterly Dividend   [Oct-11-16 04:05PM  Business Wire]
▶ Zika, Miami And Innovative Alternatives To Pesticides   [Aug-11-16 06:30AM  at Forbes]
▶ American Vanguard Declares Quarterly Dividend   [Jun-13-16 09:00AM  Business Wire]
▶ American Vanguard Reports First Quarter 2016 Results   [May-03-16 04:05PM  Business Wire]
Stock chart of AVD Financial statements of AVD Annual reports of AVD
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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