Intrinsic value of CSW Industrials - CSWI

Previous Close

$48.35

  Intrinsic Value

$18.64

stock screener

  Rating & Target

str. sell

-61%

Previous close

$48.35

 
Intrinsic value

$18.64

 
Up/down potential

-61%

 
Rating

str. sell

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 2017), $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 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.19
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  327
  382
  441
  505
  573
  646
  722
  804
  889
  978
  1,071
  1,168
  1,270
  1,375
  1,485
  1,599
  1,717
  1,840
  1,968
  2,101
  2,239
  2,383
  2,533
  2,689
  2,851
  3,020
  3,197
  3,381
  3,573
  3,773
  3,983
Variable operating expenses, $m
 
  323
  372
  425
  481
  541
  604
  671
  741
  815
  892
  964
  1,048
  1,135
  1,225
  1,319
  1,417
  1,519
  1,624
  1,734
  1,848
  1,967
  2,090
  2,219
  2,353
  2,492
  2,638
  2,790
  2,948
  3,114
  3,287
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
  305
  323
  372
  425
  481
  541
  604
  671
  741
  815
  892
  964
  1,048
  1,135
  1,225
  1,319
  1,417
  1,519
  1,624
  1,734
  1,848
  1,967
  2,090
  2,219
  2,353
  2,492
  2,638
  2,790
  2,948
  3,114
  3,287
Operating income, $m
  22
  59
  69
  80
  92
  105
  118
  132
  147
  163
  179
  204
  222
  240
  259
  279
  300
  322
  344
  367
  391
  417
  443
  470
  498
  528
  559
  591
  624
  659
  696
EBITDA, $m
  38
  79
  92
  105
  119
  134
  150
  167
  185
  203
  222
  243
  264
  286
  308
  332
  357
  382
  409
  436
  465
  495
  526
  558
  592
  627
  664
  702
  742
  784
  827
Interest expense (income), $m
  3
  3
  3
  4
  5
  6
  7
  8
  9
  11
  12
  13
  15
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  49
  51
Earnings before tax, $m
  22
  56
  66
  76
  87
  99
  111
  124
  138
  152
  167
  191
  207
  224
  242
  260
  279
  299
  320
  341
  364
  387
  411
  436
  462
  490
  518
  548
  579
  611
  645
Tax expense, $m
  11
  15
  18
  20
  23
  27
  30
  34
  37
  41
  45
  52
  56
  61
  65
  70
  75
  81
  86
  92
  98
  104
  111
  118
  125
  132
  140
  148
  156
  165
  174
Net income, $m
  11
  41
  48
  55
  63
  72
  81
  91
  101
  111
  122
  139
  151
  164
  177
  190
  204
  219
  234
  249
  265
  282
  300
  318
  337
  357
  378
  400
  422
  446
  471

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  23
  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
  398
  438
  506
  579
  657
  740
  829
  921
  1,019
  1,121
  1,228
  1,340
  1,456
  1,577
  1,703
  1,833
  1,969
  2,110
  2,257
  2,410
  2,568
  2,733
  2,905
  3,083
  3,270
  3,464
  3,666
  3,877
  4,097
  4,327
  4,567
Adjusted assets (=assets-cash), $m
  375
  438
  506
  579
  657
  740
  829
  921
  1,019
  1,121
  1,228
  1,340
  1,456
  1,577
  1,703
  1,833
  1,969
  2,110
  2,257
  2,410
  2,568
  2,733
  2,905
  3,083
  3,270
  3,464
  3,666
  3,877
  4,097
  4,327
  4,567
Revenue / Adjusted assets
  0.872
  0.872
  0.872
  0.872
  0.872
  0.873
  0.871
  0.873
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
Average production assets, $m
  154
  180
  208
  238
  270
  304
  340
  378
  419
  461
  504
  550
  598
  648
  699
  753
  809
  867
  927
  990
  1,055
  1,123
  1,193
  1,266
  1,343
  1,423
  1,506
  1,592
  1,683
  1,777
  1,876
Working capital, $m
  108
  100
  116
  133
  151
  170
  190
  211
  234
  257
  282
  307
  334
  362
  390
  420
  452
  484
  518
  553
  589
  627
  666
  707
  750
  794
  841
  889
  940
  992
  1,047
Total debt, $m
  73
  93
  115
  140
  166
  194
  223
  254
  286
  320
  356
  393
  432
  472
  514
  558
  603
  650
  699
  749
  802
  857
  914
  974
  1,036
  1,100
  1,168
  1,238
  1,311
  1,388
  1,468
Total liabilities, $m
  125
  146
  168
  193
  219
  247
  276
  307
  339
  373
  409
  446
  485
  525
  567
  611
  656
  703
  752
  802
  855
  910
  967
  1,027
  1,089
  1,153
  1,221
  1,291
  1,364
  1,441
  1,521
Total equity, $m
  272
  292
  337
  386
  438
  494
  553
  615
  680
  748
  819
  894
  971
  1,052
  1,136
  1,223
  1,313
  1,408
  1,505
  1,607
  1,713
  1,823
  1,937
  2,057
  2,181
  2,310
  2,445
  2,586
  2,733
  2,886
  3,046
Total liabilities and equity, $m
  397
  438
  505
  579
  657
  741
  829
  922
  1,019
  1,121
  1,228
  1,340
  1,456
  1,577
  1,703
  1,834
  1,969
  2,111
  2,257
  2,409
  2,568
  2,733
  2,904
  3,084
  3,270
  3,463
  3,666
  3,877
  4,097
  4,327
  4,567
Debt-to-equity ratio
  0.268
  0.320
  0.340
  0.360
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.430
  0.440
  0.440
  0.450
  0.450
  0.460
  0.460
  0.460
  0.460
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
Adjusted equity ratio
  0.664
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  41
  48
  55
  63
  72
  81
  91
  101
  111
  122
  139
  151
  164
  177
  190
  204
  219
  234
  249
  265
  282
  300
  318
  337
  357
  378
  400
  422
  446
  471
Depreciation, amort., depletion, $m
  16
  21
  23
  25
  27
  29
  32
  35
  37
  40
  43
  38
  42
  45
  49
  53
  57
  61
  65
  69
  74
  78
  83
  89
  94
  99
  105
  111
  118
  124
  131
Funds from operations, $m
  41
  61
  70
  80
  90
  101
  113
  125
  138
  151
  165
  178
  193
  209
  226
  243
  261
  279
  298
  318
  339
  361
  383
  407
  431
  457
  483
  511
  540
  570
  602
Change in working capital, $m
  2
  14
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
Cash from operations, $m
  39
  47
  55
  63
  72
  82
  93
  104
  116
  128
  141
  152
  167
  181
  197
  213
  229
  247
  265
  283
  303
  323
  344
  366
  389
  412
  437
  463
  490
  518
  547
Maintenance CAPEX, $m
  0
  -11
  -13
  -15
  -17
  -19
  -21
  -24
  -26
  -29
  -32
  -35
  -38
  -42
  -45
  -49
  -53
  -57
  -61
  -65
  -69
  -74
  -78
  -83
  -89
  -94
  -99
  -105
  -111
  -118
  -124
New CAPEX, $m
  -9
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -70
  -73
  -76
  -80
  -83
  -87
  -90
  -94
  -99
Cash from investing activities, $m
  -26
  -37
  -41
  -45
  -49
  -53
  -57
  -62
  -66
  -71
  -76
  -81
  -86
  -92
  -97
  -103
  -109
  -115
  -121
  -128
  -134
  -142
  -148
  -156
  -165
  -174
  -182
  -192
  -201
  -212
  -223
Free cash flow, $m
  13
  11
  14
  19
  24
  29
  35
  42
  49
  57
  65
  71
  80
  90
  100
  110
  121
  132
  144
  156
  169
  182
  195
  209
  224
  239
  254
  271
  288
  305
  324
Issuance/(repayment) of debt, $m
  -16
  21
  23
  24
  26
  28
  29
  31
  33
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  67
  70
  73
  77
  80
Issuance/(repurchase) of shares, $m
  1
  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
Cash from financing (excl. dividends), $m  
  -15
  22
  23
  24
  26
  28
  29
  31
  33
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  67
  70
  73
  77
  80
Total cash flow (excl. dividends), $m
  -3
  32
  37
  43
  50
  57
  65
  73
  82
  91
  100
  108
  119
  130
  142
  154
  166
  179
  193
  207
  221
  236
  252
  269
  286
  303
  322
  341
  361
  382
  404
Retained Cash Flow (-), $m
  -14
  -42
  -45
  -49
  -52
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -110
  -114
  -119
  -124
  -129
  -135
  -141
  -147
  -153
  -160
Prev. year cash balance distribution, $m
 
  22
  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
 
  13
  -8
  -6
  -3
  1
  6
  11
  16
  23
  29
  34
  42
  49
  58
  67
  76
  85
  95
  105
  116
  126
  138
  149
  161
  174
  187
  200
  214
  229
  244
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
 
  12
  -8
  -5
  -2
  1
  4
  7
  10
  13
  15
  16
  18
  19
  19
  20
  19
  19
  17
  16
  15
  13
  11
  10
  8
  7
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8

CSW Industrials, Inc. (CSWI) is a diversified industrial growth company. The Company operates through three segments: Industrial Products; Coatings, Sealants & Adhesives, and Specialty Chemicals. The Industrial Products segment consists of specialty mechanical products; fire and smoke protection products; architecturally specified building products, and storage, filtration and application equipment. The Coatings, Sealants & Adhesives segment comprises coatings and penetrants, pipe thread sealants, firestopping sealants, and caulks and adhesives/solvent cements. The Specialty Chemicals segment manufactures and supplies specialized consumables that impart or enhance properties, such as lubricity, anti-seize qualities, friction and heat control. Markets that it serves include HVAC, industrial, rail, plumbing, architecturally specified building products, energy, mining and other general industrial markets.

FINANCIAL RATIOS  of  CSW Industrials (CSWI)

Valuation Ratios
P/E Ratio 69.7
Price to Sales 2.3
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 19.6
Price to Free Cash Flow 25.5
Growth Rates
Sales Growth Rate 2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.2%
Cap. Spend. - 3 Yr. Gr. Rate -9.7%
Financial Strength
Quick Ratio 23
Current Ratio 0.1
LT Debt to Equity 26.5%
Total Debt to Equity 26.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 7.3%
Return On Total Capital 3.2%
Ret/ On T. Cap. - 3 Yr. Avg. 8.2%
Return On Equity 4.2%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 41%
Gross Margin - 3 Yr. Avg. 45.1%
EBITDA Margin 12.5%
EBITDA Margin - 3 Yr. Avg. 17.8%
Operating Margin 6.7%
Oper. Margin - 3 Yr. Avg. 12.8%
Pre-Tax Margin 6.7%
Pre-Tax Margin - 3 Yr. Avg. 12.6%
Net Profit Margin 3.4%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 42.2%
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 $327 million for the last fiscal year's total revenue generated by CSW Industrials. The default revenue input number comes from 2017 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 16.7% 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 85%.

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 3.7% 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 47.1%.

Life of production assets of 14.3 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 26.3%. 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 - $272 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 15.888 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 $0.8 billion.

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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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