Intrinsic value of CSW Industrials - CSWI

Previous Close

$39.40

  Intrinsic Value

$31.86

stock screener

  Rating & Target

hold

-19%

  Value-price divergence*

+38%

Previous close

$39.40

 
Intrinsic value

$31.86

 
Up/down potential

-19%

 
Rating

hold

 
Value-price divergence*

+38%

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

We calculate the intrinsic value of CSWI 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 0.6

 

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, %
  22.14
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
Revenue, $m
  320
  342
  366
  390
  415
  441
  469
  497
  527
  557
  590
  623
  658
  695
  733
  773
  815
  859
  905
  953
  1,003
  1,055
  1,110
  1,168
  1,229
  1,292
  1,358
  1,428
  1,501
  1,578
  1,658
Variable operating expenses, $m
 
  284
  303
  323
  343
  364
  386
  409
  433
  458
  484
  505
  533
  563
  594
  626
  660
  695
  733
  771
  812
  855
  899
  946
  995
  1,046
  1,100
  1,156
  1,216
  1,278
  1,343
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
  272
  284
  303
  323
  343
  364
  386
  409
  433
  458
  484
  505
  533
  563
  594
  626
  660
  695
  733
  771
  812
  855
  899
  946
  995
  1,046
  1,100
  1,156
  1,216
  1,278
  1,343
Operating income, $m
  47
  58
  63
  67
  72
  77
  82
  88
  93
  99
  105
  119
  125
  132
  139
  147
  155
  163
  172
  181
  191
  201
  211
  222
  234
  246
  258
  272
  286
  300
  315
EBITDA, $m
  61
  75
  80
  85
  91
  96
  102
  108
  115
  122
  129
  136
  144
  152
  160
  169
  178
  187
  197
  208
  219
  230
  242
  255
  268
  282
  297
  312
  328
  344
  362
Interest expense (income), $m
  3
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
Earnings before tax, $m
  44
  54
  58
  62
  66
  71
  75
  80
  85
  90
  96
  108
  114
  121
  127
  134
  141
  148
  156
  164
  173
  182
  191
  201
  211
  222
  233
  245
  258
  271
  284
Tax expense, $m
  19
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  29
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
Net income, $m
  25
  39
  42
  45
  48
  52
  55
  58
  62
  66
  70
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
  147
  154
  162
  170
  179
  188
  198
  208

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  26
  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
  392
  392
  418
  446
  475
  505
  536
  569
  602
  638
  675
  713
  753
  795
  839
  885
  933
  983
  1,035
  1,090
  1,147
  1,207
  1,270
  1,337
  1,406
  1,478
  1,554
  1,634
  1,718
  1,805
  1,897
Adjusted assets (=assets-cash), $m
  366
  392
  418
  446
  475
  505
  536
  569
  602
  638
  675
  713
  753
  795
  839
  885
  933
  983
  1,035
  1,090
  1,147
  1,207
  1,270
  1,337
  1,406
  1,478
  1,554
  1,634
  1,718
  1,805
  1,897
Revenue / Adjusted assets
  0.874
  0.872
  0.876
  0.874
  0.874
  0.873
  0.875
  0.873
  0.875
  0.873
  0.874
  0.874
  0.874
  0.874
  0.874
  0.873
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
Average production assets, $m
  97
  104
  111
  118
  126
  134
  142
  151
  160
  169
  179
  189
  199
  211
  222
  234
  247
  260
  274
  289
  304
  320
  336
  354
  372
  391
  412
  433
  455
  478
  502
Working capital, $m
  124
  106
  113
  120
  128
  136
  145
  154
  163
  172
  182
  193
  203
  215
  227
  239
  252
  265
  280
  294
  310
  326
  343
  361
  380
  399
  420
  441
  464
  488
  512
Total debt, $m
  90
  98
  108
  118
  128
  139
  151
  162
  175
  188
  201
  215
  229
  245
  261
  277
  295
  313
  332
  352
  372
  394
  417
  441
  466
  493
  520
  549
  579
  611
  645
Total liabilities, $m
  134
  142
  152
  162
  172
  183
  195
  206
  219
  232
  245
  259
  273
  289
  305
  321
  339
  357
  376
  396
  416
  438
  461
  485
  510
  537
  564
  593
  623
  655
  689
Total equity, $m
  258
  250
  267
  284
  303
  322
  341
  362
  384
  406
  430
  454
  480
  506
  534
  564
  594
  626
  659
  694
  731
  769
  809
  851
  895
  942
  990
  1,041
  1,094
  1,150
  1,209
Total liabilities and equity, $m
  392
  392
  419
  446
  475
  505
  536
  568
  603
  638
  675
  713
  753
  795
  839
  885
  933
  983
  1,035
  1,090
  1,147
  1,207
  1,270
  1,336
  1,405
  1,479
  1,554
  1,634
  1,717
  1,805
  1,898
Debt-to-equity ratio
  0.349
  0.390
  0.400
  0.420
  0.420
  0.430
  0.440
  0.450
  0.460
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
  0.490
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.520
  0.520
  0.520
  0.520
  0.530
  0.530
  0.530
  0.530
  0.530
Adjusted equity ratio
  0.634
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  39
  42
  45
  48
  52
  55
  58
  62
  66
  70
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
  147
  154
  162
  170
  179
  188
  198
  208
Depreciation, amort., depletion, $m
  14
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  17
  18
  19
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  47
Funds from operations, $m
  41
  56
  59
  63
  67
  71
  75
  79
  84
  88
  93
  97
  102
  107
  113
  119
  126
  132
  139
  147
  154
  162
  171
  179
  189
  198
  208
  219
  230
  242
  254
Change in working capital, $m
  -1
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Cash from operations, $m
  42
  49
  52
  55
  59
  63
  66
  70
  75
  79
  83
  86
  91
  96
  101
  107
  113
  119
  125
  132
  139
  146
  154
  162
  170
  179
  188
  198
  208
  218
  229
Maintenance CAPEX, $m
  0
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
New CAPEX, $m
  -11
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Cash from investing activities, $m
  -110
  -16
  -17
  -17
  -19
  -20
  -20
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -47
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
Free cash flow, $m
  -68
  33
  35
  38
  40
  43
  46
  49
  52
  55
  58
  59
  63
  67
  70
  74
  78
  83
  87
  92
  97
  102
  107
  113
  119
  125
  132
  138
  145
  153
  161
Issuance/(repayment) of debt, $m
  63
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  75
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
Total cash flow (excl. dividends), $m
  6
  42
  45
  48
  51
  54
  57
  60
  64
  68
  71
  73
  78
  82
  86
  91
  96
  101
  106
  112
  118
  124
  130
  137
  144
  151
  159
  167
  176
  185
  194
Retained Cash Flow (-), $m
  -53
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
Prev. year cash balance distribution, $m
 
  25
  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
 
  51
  28
  30
  32
  35
  37
  40
  42
  45
  48
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  86
  90
  95
  100
  105
  111
  116
  122
  129
  135
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
 
  49
  26
  26
  27
  27
  27
  27
  26
  26
  25
  23
  22
  21
  20
  18
  17
  15
  13
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
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CSW Industrials, Inc. operates as a diversified industrial company in the United States and internationally. The company operates through three segments: Industrial Products; Coatings, Sealants & Adhesives; and Specialty Chemicals. The Industrial Products segment provides specialty mechanical products; fire and smoke protection products; architecturally-specified building products; and storage, filtration, and application equipment for general industrial application. The Coatings, Sealants & Adhesives segment offers coatings and penetrants, pipe thread sealants, firestopping sealants and caulks, and adhesives/solvent cements. The Specialty Chemicals segment provides lubricants and greases, drilling compounds, anti-seize compounds, chemical formulations, and degreasers and cleaners. CSW Industrials, Inc. serves customers in heating, ventilation, and air conditioning; and plumbing, refrigeration, electrical, commercial construction, rail car and locomotive, oil and gas, drilling and boring, energy, water well drilling, mining, steel, power generation, cement, aviation, and general industrial markets. The company was incorporated in 2014 and is based in Dallas, Texas. CSW Industrials, Inc. is a subsidiary of Capital Southwest Corporation.

FINANCIAL RATIOS  of  CSW Industrials (CSWI)

Valuation Ratios
P/E Ratio 24.7
Price to Sales 1.9
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 14.7
Price to Free Cash Flow 19.9
Growth Rates
Sales Growth Rate 22.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 22.2%
Cap. Spend. - 3 Yr. Gr. Rate -7.2%
Financial Strength
Quick Ratio 26
Current Ratio 0.4
LT Debt to Equity 34.5%
Total Debt to Equity 34.9%
Interest Coverage 16
Management Effectiveness
Return On Assets 7.9%
Ret/ On Assets - 3 Yr. Avg. 12.4%
Return On Total Capital 8.6%
Ret/ On T. Cap. - 3 Yr. Avg. 14%
Return On Equity 10.8%
Return On Equity - 3 Yr. Avg. 17.1%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 46.3%
Gross Margin - 3 Yr. Avg. 47.5%
EBITDA Margin 19.1%
EBITDA Margin - 3 Yr. Avg. 20.5%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 16.1%
Pre-Tax Margin 13.8%
Pre-Tax Margin - 3 Yr. Avg. 15.8%
Net Profit Margin 7.8%
Net Profit Margin - 3 Yr. Avg. 10%
Effective Tax Rate 43.2%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 0%

CSWI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSWI stock intrinsic value calculation we used $320 million for the last fiscal year's total revenue generated by CSW Industrials. The default revenue input number comes from 2016 income statement of CSW Industrials. 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 CSWI stock valuation model: a) initial revenue growth rate of 7% 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 CSWI is calculated based on our internal credit rating of CSW Industrials, 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 CSW Industrials.
    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 CSWI stock the variable cost ratio is equal to 83.1%.

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 CSWI 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 5.1% for CSW Industrials.

Corporate tax rate of 27% is the nominal tax rate for CSW Industrials. 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 CSWI 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 CSWI are equal to 30.3%.

Life of production assets of 10.8 years is the average useful life of capital assets used in CSW Industrials 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 CSWI is equal to 30.9%. 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 - $258 million for CSW Industrials - 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 15.721 million for CSW Industrials 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 CSW Industrials at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ CSW Industrials posts 1Q profit   [Aug-09-17 10:24PM  Associated Press]
▶ Story Stocks from Briefing.com   [12:08PM  Briefing.com]
▶ CSW Industrials posts 4Q profit   [08:24AM  Associated Press]
▶ CSW Industrials posts 3Q profit   [08:21AM  Associated Press]
▶ [$$] CSW Industrials Is on the Right Track   [12:01AM  at Barrons.com]
▶ CSW Industrials posts 4Q profit   [Jun-08-16 04:41PM  AP]
▶ [$$] Activist Wildcat Circles Sorrento Therapeutics   [May-14-16 12:01AM  at Barrons.com]
▶ CSW Industrials Announces Annual Meeting Date   [Apr-26-16 01:52PM  GlobeNewswire]
Stock chart of CSWI Financial statements of CSWI
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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