Intrinsic value of CSW Industrials - CSWI

Previous Close

$49.10

  Intrinsic Value

$22.19

stock screener

  Rating & Target

str. sell

-55%

Previous close

$49.10

 
Intrinsic value

$22.19

 
Up/down potential

-55%

 
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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  12.50
  11.75
  11.08
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.62
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.44
  5.39
  5.35
Revenue, $m
  327
  368
  411
  457
  504
  554
  607
  661
  718
  777
  839
  902
  969
  1,038
  1,109
  1,184
  1,261
  1,342
  1,426
  1,513
  1,604
  1,699
  1,798
  1,901
  2,009
  2,121
  2,239
  2,362
  2,490
  2,624
  2,765
Variable operating expenses, $m
 
  312
  347
  385
  424
  466
  509
  554
  601
  649
  700
  745
  799
  856
  916
  977
  1,041
  1,107
  1,177
  1,249
  1,324
  1,402
  1,484
  1,569
  1,658
  1,751
  1,848
  1,949
  2,055
  2,166
  2,282
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
  312
  347
  385
  424
  466
  509
  554
  601
  649
  700
  745
  799
  856
  916
  977
  1,041
  1,107
  1,177
  1,249
  1,324
  1,402
  1,484
  1,569
  1,658
  1,751
  1,848
  1,949
  2,055
  2,166
  2,282
Operating income, $m
  22
  56
  64
  72
  80
  89
  98
  107
  117
  128
  138
  158
  169
  181
  194
  207
  220
  235
  249
  264
  280
  297
  314
  332
  351
  371
  391
  413
  435
  459
  483
EBITDA, $m
  38
  76
  85
  95
  105
  115
  126
  137
  149
  161
  174
  187
  201
  216
  230
  246
  262
  279
  296
  314
  333
  353
  373
  395
  417
  441
  465
  491
  517
  545
  574
Interest expense (income), $m
  3
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
Earnings before tax, $m
  22
  54
  61
  68
  76
  84
  92
  101
  110
  120
  129
  148
  159
  170
  181
  193
  206
  219
  232
  246
  261
  276
  292
  309
  326
  344
  363
  383
  404
  425
  448
Tax expense, $m
  11
  14
  16
  18
  20
  23
  25
  27
  30
  32
  35
  40
  43
  46
  49
  52
  56
  59
  63
  66
  70
  75
  79
  83
  88
  93
  98
  103
  109
  115
  121
Net income, $m
  11
  39
  44
  50
  55
  61
  67
  74
  80
  87
  94
  108
  116
  124
  132
  141
  150
  160
  170
  180
  190
  202
  213
  225
  238
  251
  265
  280
  295
  311
  327

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
  422
  471
  524
  578
  636
  696
  758
  823
  891
  962
  1,035
  1,111
  1,190
  1,272
  1,358
  1,447
  1,539
  1,635
  1,735
  1,840
  1,948
  2,062
  2,180
  2,304
  2,433
  2,567
  2,708
  2,855
  3,009
  3,171
Adjusted assets (=assets-cash), $m
  375
  422
  471
  524
  578
  636
  696
  758
  823
  891
  962
  1,035
  1,111
  1,190
  1,272
  1,358
  1,447
  1,539
  1,635
  1,735
  1,840
  1,948
  2,062
  2,180
  2,304
  2,433
  2,567
  2,708
  2,855
  3,009
  3,171
Revenue / Adjusted assets
  0.872
  0.872
  0.873
  0.872
  0.872
  0.871
  0.872
  0.872
  0.872
  0.872
  0.872
  0.871
  0.872
  0.872
  0.872
  0.872
  0.871
  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
  173
  194
  215
  238
  261
  286
  311
  338
  366
  395
  425
  456
  489
  523
  558
  594
  632
  672
  713
  756
  800
  847
  895
  946
  999
  1,054
  1,112
  1,173
  1,236
  1,302
Working capital, $m
  108
  97
  108
  120
  133
  146
  160
  174
  189
  204
  221
  237
  255
  273
  292
  311
  332
  353
  375
  398
  422
  447
  473
  500
  528
  558
  589
  621
  655
  690
  727
Total debt, $m
  73
  87
  104
  121
  140
  159
  179
  200
  221
  244
  267
  292
  317
  343
  371
  399
  429
  459
  492
  525
  560
  596
  634
  673
  714
  757
  802
  849
  898
  949
  1,003
Total liabilities, $m
  125
  140
  157
  174
  193
  212
  232
  253
  274
  297
  320
  345
  370
  396
  424
  452
  482
  512
  545
  578
  613
  649
  687
  726
  767
  810
  855
  902
  951
  1,002
  1,056
Total equity, $m
  272
  281
  314
  349
  386
  424
  464
  506
  549
  594
  641
  690
  741
  794
  849
  906
  965
  1,027
  1,091
  1,158
  1,227
  1,300
  1,375
  1,454
  1,537
  1,623
  1,712
  1,806
  1,905
  2,007
  2,115
Total liabilities and equity, $m
  397
  421
  471
  523
  579
  636
  696
  759
  823
  891
  961
  1,035
  1,111
  1,190
  1,273
  1,358
  1,447
  1,539
  1,636
  1,736
  1,840
  1,949
  2,062
  2,180
  2,304
  2,433
  2,567
  2,708
  2,856
  3,009
  3,171
Debt-to-equity ratio
  0.268
  0.310
  0.330
  0.350
  0.360
  0.370
  0.390
  0.390
  0.400
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
  0.440
  0.440
  0.450
  0.450
  0.450
  0.460
  0.460
  0.460
  0.460
  0.460
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
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
  39
  44
  50
  55
  61
  67
  74
  80
  87
  94
  108
  116
  124
  132
  141
  150
  160
  170
  180
  190
  202
  213
  225
  238
  251
  265
  280
  295
  311
  327
Depreciation, amort., depletion, $m
  16
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
Funds from operations, $m
  41
  59
  66
  73
  80
  87
  95
  104
  112
  121
  130
  138
  148
  158
  169
  180
  192
  204
  216
  230
  243
  258
  273
  288
  304
  321
  339
  357
  377
  397
  418
Change in working capital, $m
  2
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
Cash from operations, $m
  39
  49
  54
  61
  67
  74
  82
  89
  97
  105
  114
  121
  130
  140
  150
  160
  171
  183
  194
  207
  219
  233
  247
  261
  276
  292
  308
  325
  343
  362
  381
Maintenance CAPEX, $m
  0
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -42
  -44
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -70
  -74
  -78
  -82
  -86
New CAPEX, $m
  -9
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
Cash from investing activities, $m
  -26
  -30
  -32
  -35
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -72
  -75
  -80
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -119
  -125
  -132
  -138
  -145
  -152
Free cash flow, $m
  13
  19
  22
  26
  30
  34
  39
  44
  49
  54
  60
  63
  69
  75
  82
  89
  96
  103
  111
  119
  127
  135
  144
  153
  163
  173
  183
  194
  205
  216
  229
Issuance/(repayment) of debt, $m
  -16
  15
  17
  17
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
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  
  -15
  15
  17
  17
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
Total cash flow (excl. dividends), $m
  -3
  34
  38
  43
  48
  53
  59
  64
  70
  77
  83
  88
  95
  102
  109
  117
  125
  134
  143
  152
  161
  171
  182
  193
  204
  215
  228
  240
  254
  268
  282
Retained Cash Flow (-), $m
  -14
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -107
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
 
  25
  5
  8
  11
  15
  19
  23
  27
  31
  36
  39
  44
  49
  55
  60
  66
  72
  79
  85
  92
  99
  106
  114
  121
  129
  138
  147
  156
  165
  175
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
 
  24
  5
  7
  9
  12
  14
  15
  17
  18
  19
  18
  19
  19
  18
  18
  17
  16
  14
  13
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
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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 70.7
Price to Sales 2.4
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 25.9
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 12.5% 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 16.039 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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COMPANY NEWS

▶ CSW Industrials posts 2Q profit   [09:05AM  Associated Press]
▶ Olin Shows Market Leadership With Jump To 91 RS Rating   [Oct-03-17 03:00AM  Investor's Business Daily]
▶ New Strong Buy Stocks for September 22nd   [Sep-22-17 10:25AM  Zacks]
▶ Olin Shows Rising Price Performance With Jump To 82 RS Rating   [Aug-30-17 03:00AM  Investor's Business Daily]
▶ 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]
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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