Intrinsic value of Ceco Environmental - CECE

Previous Close

$4.85

  Intrinsic Value

$6.22

stock screener

  Rating & Target

buy

+28%

Previous close

$4.85

 
Intrinsic value

$6.22

 
Up/down potential

+28%

 
Rating

buy

We calculate the intrinsic value of CECE 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 0.2

 

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, %
  13.62
  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
  417
  425
  435
  446
  459
  473
  488
  505
  523
  542
  563
  585
  609
  634
  661
  689
  720
  752
  786
  821
  859
  899
  941
  985
  1,032
  1,081
  1,133
  1,187
  1,244
  1,304
  1,368
Variable operating expenses, $m
 
  419
  428
  439
  451
  464
  478
  494
  511
  529
  549
  553
  575
  599
  625
  652
  680
  711
  743
  776
  812
  850
  889
  931
  975
  1,022
  1,071
  1,122
  1,176
  1,233
  1,293
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
  443
  419
  428
  439
  451
  464
  478
  494
  511
  529
  549
  553
  575
  599
  625
  652
  680
  711
  743
  776
  812
  850
  889
  931
  975
  1,022
  1,071
  1,122
  1,176
  1,233
  1,293
Operating income, $m
  -26
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  71
  75
EBITDA, $m
  -7
  31
  32
  33
  33
  34
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  75
  79
  83
  87
  91
  95
  100
Interest expense (income), $m
  7
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  32
  34
Earnings before tax, $m
  -33
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
Tax expense, $m
  5
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
Net income, $m
  -38
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  16
  17
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  46
  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
  499
  462
  472
  485
  498
  513
  530
  548
  567
  589
  611
  635
  661
  689
  718
  749
  781
  816
  853
  892
  933
  976
  1,022
  1,070
  1,120
  1,174
  1,230
  1,289
  1,351
  1,416
  1,485
Adjusted assets (=assets-cash), $m
  453
  462
  472
  485
  498
  513
  530
  548
  567
  589
  611
  635
  661
  689
  718
  749
  781
  816
  853
  892
  933
  976
  1,022
  1,070
  1,120
  1,174
  1,230
  1,289
  1,351
  1,416
  1,485
Revenue / Adjusted assets
  0.921
  0.920
  0.922
  0.920
  0.922
  0.922
  0.921
  0.922
  0.922
  0.920
  0.921
  0.921
  0.921
  0.920
  0.921
  0.920
  0.922
  0.922
  0.921
  0.920
  0.921
  0.921
  0.921
  0.921
  0.921
  0.921
  0.921
  0.921
  0.921
  0.921
  0.921
Average production assets, $m
  129
  131
  134
  137
  141
  146
  150
  155
  161
  167
  173
  180
  188
  195
  204
  212
  222
  232
  242
  253
  265
  277
  290
  303
  318
  333
  349
  366
  383
  402
  421
Working capital, $m
  67
  36
  37
  37
  39
  40
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
Total debt, $m
  128
  120
  127
  134
  143
  153
  164
  176
  188
  202
  217
  233
  249
  267
  286
  306
  328
  350
  374
  400
  426
  454
  484
  515
  548
  583
  620
  658
  698
  741
  786
Total liabilities, $m
  309
  301
  308
  315
  324
  334
  345
  357
  369
  383
  398
  414
  430
  448
  467
  487
  509
  531
  555
  581
  607
  635
  665
  696
  729
  764
  801
  839
  879
  922
  967
Total equity, $m
  190
  161
  165
  169
  174
  179
  185
  191
  198
  205
  213
  222
  231
  240
  250
  261
  273
  285
  298
  311
  326
  341
  357
  373
  391
  410
  429
  450
  471
  494
  518
Total liabilities and equity, $m
  499
  462
  473
  484
  498
  513
  530
  548
  567
  588
  611
  636
  661
  688
  717
  748
  782
  816
  853
  892
  933
  976
  1,022
  1,069
  1,120
  1,174
  1,230
  1,289
  1,350
  1,416
  1,485
Debt-to-equity ratio
  0.674
  0.740
  0.770
  0.800
  0.820
  0.860
  0.890
  0.920
  0.950
  0.980
  1.020
  1.050
  1.080
  1.110
  1.140
  1.170
  1.200
  1.230
  1.260
  1.280
  1.310
  1.330
  1.360
  1.380
  1.400
  1.420
  1.440
  1.460
  1.480
  1.500
  1.520
Adjusted equity ratio
  0.329
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349
  0.349

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -38
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  16
  17
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
Depreciation, amort., depletion, $m
  19
  25
  25
  25
  25
  26
  26
  26
  26
  27
  27
  11
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Funds from operations, $m
  94
  25
  26
  26
  27
  27
  28
  28
  29
  30
  31
  27
  28
  28
  29
  30
  32
  33
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  50
  52
  55
Change in working capital, $m
  24
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
Cash from operations, $m
  70
  25
  25
  25
  26
  26
  27
  27
  28
  28
  29
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  45
  47
  49
Maintenance CAPEX, $m
  0
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
New CAPEX, $m
  -1
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  0
  -11
  -11
  -11
  -12
  -12
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -21
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
Free cash flow, $m
  70
  15
  14
  14
  14
  13
  13
  13
  13
  13
  13
  8
  8
  8
  7
  7
  7
  7
  7
  7
  7
  7
  7
  7
  7
  6
  6
  6
  6
  6
  6
Issuance/(repayment) of debt, $m
  -56
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  38
  40
  43
  45
Issuance/(repurchase) of shares, $m
  2
  2
  3
  3
  3
  4
  4
  4
  4
  4
  5
  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  
  -47
  8
  10
  11
  12
  14
  15
  16
  17
  18
  20
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  38
  40
  43
  45
Total cash flow (excl. dividends), $m
  21
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  24
  24
  25
  26
  27
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
Retained Cash Flow (-), $m
  49
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
 
  32
  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
 
  52
  20
  21
  21
  22
  22
  23
  23
  23
  24
  15
  15
  16
  16
  17
  17
  18
  18
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
 
  49
  18
  18
  17
  17
  16
  15
  14
  13
  12
  7
  6
  6
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.3
  96.5
  94.5
  92.4
  90.3
  88.2
  86.0
  83.9
  81.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9
  79.9

CECO Environmental Corp. is a provider of engineered technologies to the environmental, energy, and fluid handling and filtration industrial segments. The Company is focused on engineering, designing, building and installing systems that capture, clean and destroy airborne contaminants from industrial facilities, as well as equipment that controls emissions from such facilities, and fluid handling and filtration systems. Its Environmental segment is engaged in the design and manufacture of product recovery and air pollution control technologies that enable its customers to meet compliance targets for toxic emissions, fumes, volatile organic compounds, process and industrial odors. Its Energy segment provides customized solutions for the power and petrochemical industry. Its Fluid Handling and Filtration segment provides the design and manufacture of pump, filtration and fume exhaust solutions.

FINANCIAL RATIOS  of  Ceco Environmental (CECE)

Valuation Ratios
P/E Ratio -4.4
Price to Sales 0.4
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 2.4
Price to Free Cash Flow 2.4
Growth Rates
Sales Growth Rate 13.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 60%
Total Debt to Equity 67.4%
Interest Coverage -4
Management Effectiveness
Return On Assets -5.5%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -10.4%
Ret/ On T. Cap. - 3 Yr. Avg. -2.5%
Return On Equity -17.7%
Return On Equity - 3 Yr. Avg. -4.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 32.4%
Gross Margin - 3 Yr. Avg. 31.6%
EBITDA Margin -1.7%
EBITDA Margin - 3 Yr. Avg. 5%
Operating Margin -6.2%
Oper. Margin - 3 Yr. Avg. 1%
Pre-Tax Margin -7.9%
Pre-Tax Margin - 3 Yr. Avg. -0.9%
Net Profit Margin -9.1%
Net Profit Margin - 3 Yr. Avg. -1.9%
Effective Tax Rate -15.2%
Eff/ Tax Rate - 3 Yr. Avg. -32.1%
Payout Ratio -23.7%

CECE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CECE stock intrinsic value calculation we used $417 million for the last fiscal year's total revenue generated by Ceco Environmental. The default revenue input number comes from 2016 income statement of Ceco Environmental. 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 CECE 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 4.5%, whose default value for CECE is calculated based on our internal credit rating of Ceco Environmental, 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 Ceco Environmental.
    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 CECE stock the variable cost ratio is equal to 98.6%.

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 CECE 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 4.6% for Ceco Environmental.

Corporate tax rate of 27% is the nominal tax rate for Ceco Environmental. 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 CECE 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 CECE are equal to 30.8%.

Life of production assets of 17 years is the average useful life of capital assets used in Ceco Environmental 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 CECE is equal to 8.4%. 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 - $190 million for Ceco Environmental - 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 34.641 million for Ceco Environmental 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 Ceco Environmental at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ CECO posts 3Q profit   [07:35AM  Associated Press]
▶ CECO misses Street 2Q forecasts   [Aug-09-17 10:24PM  Associated Press]
▶ New Strong Sell Stocks for June 13th   [Jun-13-17 09:57AM  Zacks]
▶ One of Greater Cincinnatis largest public companies names new CEO   [07:05AM  American City Business Journals]
▶ CECO Environmental Names Dennis Sadlowski As CEO   [Jun-12-17 08:30AM  PR Newswire]
▶ New Strong Sell Stocks for May 12th   [May-12-17 11:02AM  Zacks]
▶ CECO beats 1Q profit forecasts   [07:20AM  Associated Press]
▶ CECO reports 4Q loss   [Mar-09-17 08:14AM  Associated Press]
▶ CEO of one of Cincinnatis largest public companies steps down   [Jan-24-17 03:00PM  at bizjournals.com]
▶ CEO of one of Cincinnatis largest public companies steps down   [03:00PM  American City Business Journals]
▶ Is Baldwin & Lyons Inc (BWINB) a Good Stock to Buy?   [Dec-13-16 07:47AM  at Insider Monkey]
▶ How Hedge Funds Played the Audentes Therapeutics Inc (BOLD) IPO   [Dec-08-16 03:07PM  at Insider Monkey]
▶ CECO Environmental 2016 Third Quarter Conference Call   [Nov-01-16 07:00AM  PR Newswire]
▶ Cramer: Sell this energy stock tomorrow   [Sep-29-16 07:20PM  at CNBC]
Financial statements of CECE
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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