Intrinsic value of Carriage Services - CSV

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$26.30

  Intrinsic Value

$26.58

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  Rating & Target

hold

+1%

Previous close

$26.30

 
Intrinsic value

$26.58

 
Up/down potential

+1%

 
Rating

hold

We calculate the intrinsic value of CSV 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 0.4

 

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, %
  2.06
  2.10
  2.39
  2.65
  2.89
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
Revenue, $m
  248
  253
  259
  266
  274
  282
  292
  302
  313
  324
  337
  350
  365
  380
  396
  413
  431
  451
  471
  493
  515
  539
  564
  591
  619
  649
  680
  712
  747
  783
  821
Variable operating expenses, $m
 
  201
  206
  210
  216
  221
  228
  235
  242
  250
  259
  241
  251
  261
  272
  284
  296
  310
  324
  338
  354
  370
  388
  406
  425
  446
  467
  489
  513
  538
  564
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
  199
  201
  206
  210
  216
  221
  228
  235
  242
  250
  259
  241
  251
  261
  272
  284
  296
  310
  324
  338
  354
  370
  388
  406
  425
  446
  467
  489
  513
  538
  564
Operating income, $m
  50
  52
  54
  56
  58
  61
  64
  67
  70
  74
  78
  110
  114
  119
  124
  129
  135
  141
  147
  154
  161
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
EBITDA, $m
  65
  90
  92
  94
  97
  100
  104
  107
  111
  115
  120
  124
  129
  135
  141
  147
  153
  160
  167
  175
  183
  191
  200
  210
  220
  230
  241
  253
  265
  278
  292
Interest expense (income), $m
  10
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
Earnings before tax, $m
  32
  40
  41
  43
  45
  46
  49
  51
  53
  56
  58
  89
  92
  95
  99
  103
  107
  111
  115
  120
  125
  130
  136
  142
  148
  154
  161
  168
  176
  183
  192
Tax expense, $m
  12
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  50
  52
Net income, $m
  20
  29
  30
  31
  33
  34
  35
  37
  39
  41
  43
  65
  67
  70
  72
  75
  78
  81
  84
  88
  91
  95
  99
  103
  108
  113
  117
  123
  128
  134
  140

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  885
  901
  923
  947
  974
  1,005
  1,038
  1,074
  1,112
  1,154
  1,199
  1,247
  1,298
  1,352
  1,409
  1,471
  1,535
  1,604
  1,676
  1,753
  1,834
  1,919
  2,009
  2,103
  2,203
  2,308
  2,419
  2,535
  2,658
  2,786
  2,922
Adjusted assets (=assets-cash), $m
  882
  901
  923
  947
  974
  1,005
  1,038
  1,074
  1,112
  1,154
  1,199
  1,247
  1,298
  1,352
  1,409
  1,471
  1,535
  1,604
  1,676
  1,753
  1,834
  1,919
  2,009
  2,103
  2,203
  2,308
  2,419
  2,535
  2,658
  2,786
  2,922
Revenue / Adjusted assets
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
Average production assets, $m
  314
  320
  328
  336
  346
  357
  369
  381
  395
  410
  426
  443
  461
  480
  501
  522
  545
  570
  595
  623
  651
  682
  713
  747
  782
  820
  859
  900
  944
  990
  1,038
Working capital, $m
  -11
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Total debt, $m
  340
  352
  369
  389
  411
  435
  461
  490
  521
  554
  590
  628
  669
  712
  759
  807
  859
  914
  972
  1,033
  1,098
  1,166
  1,238
  1,314
  1,393
  1,478
  1,566
  1,659
  1,757
  1,860
  1,969
Total liabilities, $m
  709
  721
  738
  758
  780
  804
  830
  859
  890
  923
  959
  997
  1,038
  1,081
  1,128
  1,176
  1,228
  1,283
  1,341
  1,402
  1,467
  1,535
  1,607
  1,683
  1,762
  1,847
  1,935
  2,028
  2,126
  2,229
  2,338
Total equity, $m
  176
  180
  185
  189
  195
  201
  208
  215
  222
  231
  240
  249
  260
  270
  282
  294
  307
  321
  335
  351
  367
  384
  402
  421
  441
  462
  484
  507
  532
  557
  584
Total liabilities and equity, $m
  885
  901
  923
  947
  975
  1,005
  1,038
  1,074
  1,112
  1,154
  1,199
  1,246
  1,298
  1,351
  1,410
  1,470
  1,535
  1,604
  1,676
  1,753
  1,834
  1,919
  2,009
  2,104
  2,203
  2,309
  2,419
  2,535
  2,658
  2,786
  2,922
Debt-to-equity ratio
  1.932
  1.950
  2.000
  2.050
  2.110
  2.160
  2.220
  2.280
  2.340
  2.400
  2.460
  2.520
  2.580
  2.640
  2.690
  2.750
  2.800
  2.850
  2.900
  2.950
  2.990
  3.040
  3.080
  3.120
  3.160
  3.200
  3.240
  3.270
  3.310
  3.340
  3.370
Adjusted equity ratio
  0.196
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  20
  29
  30
  31
  33
  34
  35
  37
  39
  41
  43
  65
  67
  70
  72
  75
  78
  81
  84
  88
  91
  95
  99
  103
  108
  113
  117
  123
  128
  134
  140
Depreciation, amort., depletion, $m
  15
  38
  38
  39
  39
  39
  40
  40
  41
  41
  42
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  35
Funds from operations, $m
  46
  67
  69
  70
  72
  73
  75
  77
  79
  82
  84
  80
  83
  86
  89
  92
  96
  100
  104
  108
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
Change in working capital, $m
  -3
  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 operations, $m
  49
  67
  69
  70
  72
  73
  75
  77
  80
  82
  84
  80
  83
  86
  89
  92
  96
  100
  104
  109
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
Maintenance CAPEX, $m
  0
  -10
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
New CAPEX, $m
  -23
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -44
  -46
  -48
Cash from investing activities, $m
  -45
  -17
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -39
  -40
  -42
  -45
  -47
  -50
  -52
  -55
  -58
  -60
  -63
  -66
  -70
  -74
  -77
  -81
Free cash flow, $m
  4
  50
  50
  50
  51
  51
  52
  52
  53
  54
  55
  49
  50
  51
  53
  54
  56
  58
  59
  61
  64
  66
  68
  71
  74
  77
  80
  83
  86
  90
  94
Issuance/(repayment) of debt, $m
  1
  15
  17
  20
  22
  24
  26
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  88
  93
  98
  103
  108
Issuance/(repurchase) of shares, $m
  1
  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  
  1
  15
  17
  20
  22
  24
  26
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  88
  93
  98
  103
  108
Total cash flow (excl. dividends), $m
  5
  65
  68
  70
  73
  75
  78
  81
  84
  87
  91
  87
  91
  95
  99
  103
  108
  112
  117
  123
  128
  134
  140
  147
  154
  161
  168
  176
  184
  193
  202
Retained Cash Flow (-), $m
  -18
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
Prev. year cash balance 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
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
 
  61
  63
  65
  67
  69
  71
  74
  76
  79
  82
  77
  80
  84
  87
  91
  95
  99
  103
  107
  112
  117
  122
  128
  134
  140
  146
  153
  160
  167
  175
Discount rate, %
 
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
 
  56
  52
  48
  44
  39
  35
  31
  27
  23
  20
  15
  13
  10
  8
  6
  5
  4
  3
  2
  1
  1
  1
  0
  0
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  0
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

Carriage Services, Inc. is a provider of death care services and merchandise in the United States. The Company operates in two business segments: Funeral Home Operations and Cemetery Operations. The Funeral Homes segment provides funeral services (traditional burial and cremation) and sells related merchandise, such as caskets and urns. Its cemetery products and services include interment services, the rights to interment in cemetery sites and related cemetery merchandise, such as memorials and vaults. It serves suburban and rural markets. It provides funeral and cemetery services and products on both at-need (time of death) and preneed (planned prior to death) basis. It also maintains trusts in connection with funeral home and cemetery operations, including preneed funeral trusts, preneed cemetery merchandise and service trusts and cemetery perpetual care trusts. As of December 31, 2016, it operated 170 funeral homes in 28 states and 32 cemeteries in 11 states.

FINANCIAL RATIOS  of  Carriage Services (CSV)

Valuation Ratios
P/E Ratio 21.9
Price to Sales 1.8
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 8.9
Price to Free Cash Flow 16.8
Growth Rates
Sales Growth Rate 2.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -36.1%
Cap. Spend. - 3 Yr. Gr. Rate 15.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 185.8%
Total Debt to Equity 193.2%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.1%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.1%
Return On Equity 12%
Return On Equity - 3 Yr. Avg. 11.3%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 32.3%
Gross Margin - 3 Yr. Avg. 31.8%
EBITDA Margin 23%
EBITDA Margin - 3 Yr. Avg. 22.5%
Operating Margin 19.8%
Oper. Margin - 3 Yr. Avg. 18.5%
Pre-Tax Margin 12.9%
Pre-Tax Margin - 3 Yr. Avg. 12.5%
Net Profit Margin 8.1%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 37.4%
Payout Ratio 10%

CSV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSV stock intrinsic value calculation we used $248 million for the last fiscal year's total revenue generated by Carriage Services. The default revenue input number comes from 2016 income statement of Carriage Services. 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 CSV stock valuation model: a) initial revenue growth rate of 2.1% 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 9.8%, whose default value for CSV is calculated based on our internal credit rating of Carriage Services, 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 Carriage Services.
    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 CSV stock the variable cost ratio is equal to 79.8%.

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 CSV 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 Carriage Services.

Corporate tax rate of 27% is the nominal tax rate for Carriage Services. 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 CSV 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 CSV are equal to 126.4%.

Life of production assets of 38.9 years is the average useful life of capital assets used in Carriage Services 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 CSV is equal to -0.4%. 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 - $176 million for Carriage Services - 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 16.72 million for Carriage Services 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 Carriage Services at the current share price and the inputted number of shares is $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ Houston funeral home company enters Colorado market   [Nov-10-17 01:10PM  American City Business Journals]
▶ Carriage Services Inc. to Host Earnings Call   [Oct-26-17 08:10AM  ACCESSWIRE]
▶ Carriage Services posts 3Q profit   [05:03AM  Associated Press]
▶ Carriage Services Declares Quarterly Cash Dividend   [Jul-27-17 04:15PM  PR Newswire]
▶ Carriage Services posts 2Q profit   [Jul-26-17 11:39PM  Associated Press]
▶ Mortality Provides Opportunity for Investors   [May-02-17 04:50PM  GuruFocus.com]
▶ Carriage Services Declares Quarterly Cash Dividend   [Apr-27-17 04:15PM  PR Newswire]
▶ Carriage Services posts 1Q profit   [Apr-26-17 06:48PM  Associated Press]
▶ New Strong Sell Stocks for February 28th   [Feb-28-17 10:12AM  Zacks]
▶ Carriage Services posts 4Q profit   [Feb-15-17 06:44PM  Associated Press]
▶ Carriage Services Declares Quarterly Cash Dividend   [Jan-26-17 04:30PM  PR Newswire]
▶ Carriage Services Declares Quarterly Cash Dividend   [Oct-27-16 04:57PM  PR Newswire]
Financial statements of CSV
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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