Intrinsic value of Covenant Transportation Group Cl A - CVTI

Previous Close

$26.53

  Intrinsic Value

$17.08

stock screener

  Rating & Target

sell

-36%

  Value-price divergence*

+48%

Previous close

$26.53

 
Intrinsic value

$17.08

 
Up/down potential

-36%

 
Rating

sell

 
Value-price divergence*

+48%

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

We calculate the intrinsic value of CVTI 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 0.5

 

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, %
  -7.32
  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
  4.57
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
Revenue, $m
  671
  692
  715
  739
  766
  795
  826
  859
  894
  931
  971
  1,013
  1,057
  1,105
  1,155
  1,207
  1,263
  1,322
  1,383
  1,449
  1,517
  1,590
  1,666
  1,746
  1,831
  1,919
  2,013
  2,111
  2,214
  2,322
  2,437
Variable operating expenses, $m
 
  235
  243
  251
  260
  270
  281
  292
  304
  317
  330
  344
  360
  376
  393
  410
  429
  449
  470
  493
  516
  541
  566
  594
  622
  653
  684
  718
  753
  790
  828
Fixed operating expenses, $m
 
  431
  441
  452
  464
  475
  487
  499
  512
  525
  538
  551
  565
  579
  593
  608
  623
  639
  655
  671
  688
  705
  723
  741
  760
  779
  798
  818
  839
  859
  881
Total operating expenses, $m
  638
  666
  684
  703
  724
  745
  768
  791
  816
  842
  868
  895
  925
  955
  986
  1,018
  1,052
  1,088
  1,125
  1,164
  1,204
  1,246
  1,289
  1,335
  1,382
  1,432
  1,482
  1,536
  1,592
  1,649
  1,709
Operating income, $m
  32
  26
  30
  36
  42
  49
  58
  67
  78
  90
  103
  117
  133
  150
  169
  188
  210
  233
  258
  285
  313
  344
  376
  411
  448
  488
  530
  575
  623
  673
  727
EBITDA, $m
  104
  100
  107
  115
  124
  134
  146
  159
  174
  190
  207
  226
  246
  268
  292
  318
  345
  375
  406
  440
  476
  514
  555
  598
  644
  693
  746
  801
  860
  922
  988
Interest expense (income), $m
  8
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
Earnings before tax, $m
  27
  19
  23
  28
  33
  40
  48
  57
  67
  78
  91
  104
  119
  135
  153
  172
  192
  214
  238
  263
  291
  320
  351
  384
  420
  458
  498
  541
  587
  636
  687
Tax expense, $m
  10
  5
  6
  7
  9
  11
  13
  15
  18
  21
  24
  28
  32
  37
  41
  46
  52
  58
  64
  71
  78
  86
  95
  104
  113
  124
  135
  146
  159
  172
  186
Net income, $m
  17
  14
  17
  20
  24
  29
  35
  42
  49
  57
  66
  76
  87
  99
  112
  125
  140
  156
  174
  192
  212
  234
  256
  281
  307
  334
  364
  395
  429
  464
  502

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  621
  632
  653
  675
  700
  726
  754
  784
  816
  850
  887
  925
  966
  1,009
  1,054
  1,103
  1,153
  1,207
  1,263
  1,323
  1,386
  1,452
  1,521
  1,595
  1,672
  1,753
  1,838
  1,928
  2,022
  2,121
  2,225
Adjusted assets (=assets-cash), $m
  613
  632
  653
  675
  700
  726
  754
  784
  816
  850
  887
  925
  966
  1,009
  1,054
  1,103
  1,153
  1,207
  1,263
  1,323
  1,386
  1,452
  1,521
  1,595
  1,672
  1,753
  1,838
  1,928
  2,022
  2,121
  2,225
Revenue / Adjusted assets
  1.095
  1.095
  1.095
  1.095
  1.094
  1.095
  1.095
  1.096
  1.096
  1.095
  1.095
  1.095
  1.094
  1.095
  1.096
  1.094
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
Average production assets, $m
  460
  474
  489
  506
  525
  544
  566
  588
  612
  638
  665
  694
  724
  757
  791
  827
  865
  905
  948
  992
  1,039
  1,089
  1,141
  1,196
  1,254
  1,315
  1,379
  1,446
  1,517
  1,591
  1,669
Working capital, $m
  47
  68
  70
  72
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
  118
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  207
  217
  228
  239
Total debt, $m
  216
  220
  232
  246
  261
  277
  295
  313
  333
  354
  376
  400
  425
  451
  479
  509
  540
  573
  608
  645
  683
  724
  767
  812
  859
  909
  961
  1,017
  1,074
  1,135
  1,199
Total liabilities, $m
  384
  389
  401
  415
  430
  446
  464
  482
  502
  523
  545
  569
  594
  620
  648
  678
  709
  742
  777
  814
  852
  893
  936
  981
  1,028
  1,078
  1,130
  1,186
  1,243
  1,304
  1,368
Total equity, $m
  236
  243
  251
  260
  269
  279
  290
  302
  314
  327
  341
  356
  372
  388
  406
  424
  444
  465
  486
  509
  534
  559
  586
  614
  644
  675
  708
  742
  778
  817
  857
Total liabilities and equity, $m
  620
  632
  652
  675
  699
  725
  754
  784
  816
  850
  886
  925
  966
  1,008
  1,054
  1,102
  1,153
  1,207
  1,263
  1,323
  1,386
  1,452
  1,522
  1,595
  1,672
  1,753
  1,838
  1,928
  2,021
  2,121
  2,225
Debt-to-equity ratio
  0.915
  0.900
  0.920
  0.950
  0.970
  0.990
  1.020
  1.040
  1.060
  1.080
  1.100
  1.120
  1.140
  1.160
  1.180
  1.200
  1.220
  1.230
  1.250
  1.270
  1.280
  1.300
  1.310
  1.320
  1.330
  1.350
  1.360
  1.370
  1.380
  1.390
  1.400
Adjusted equity ratio
  0.372
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  17
  14
  17
  20
  24
  29
  35
  42
  49
  57
  66
  76
  87
  99
  112
  125
  140
  156
  174
  192
  212
  234
  256
  281
  307
  334
  364
  395
  429
  464
  502
Depreciation, amort., depletion, $m
  72
  74
  76
  79
  82
  85
  88
  92
  96
  100
  104
  108
  113
  118
  124
  129
  135
  141
  148
  155
  162
  170
  178
  187
  196
  205
  215
  226
  237
  249
  261
Funds from operations, $m
  115
  88
  93
  99
  106
  114
  123
  134
  145
  157
  170
  184
  200
  217
  235
  255
  275
  298
  322
  347
  375
  404
  435
  468
  503
  540
  579
  621
  666
  713
  763
Change in working capital, $m
  13
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  102
  86
  91
  97
  104
  112
  120
  130
  141
  153
  166
  180
  196
  212
  230
  249
  270
  292
  316
  341
  368
  397
  427
  460
  494
  531
  570
  612
  655
  702
  751
Maintenance CAPEX, $m
  0
  -72
  -74
  -76
  -79
  -82
  -85
  -88
  -92
  -96
  -100
  -104
  -108
  -113
  -118
  -124
  -129
  -135
  -141
  -148
  -155
  -162
  -170
  -178
  -187
  -196
  -205
  -215
  -226
  -237
  -249
New CAPEX, $m
  -113
  -14
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
Cash from investing activities, $m
  -47
  -86
  -90
  -93
  -97
  -102
  -106
  -111
  -116
  -122
  -127
  -133
  -139
  -145
  -152
  -160
  -167
  -175
  -183
  -193
  -202
  -212
  -222
  -233
  -245
  -257
  -269
  -282
  -297
  -311
  -327
Free cash flow, $m
  55
  0
  1
  3
  6
  10
  14
  19
  25
  32
  39
  48
  57
  67
  78
  90
  103
  117
  132
  148
  166
  185
  205
  226
  250
  274
  301
  329
  359
  391
  425
Issuance/(repayment) of debt, $m
  -51
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
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  
  -52
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
Total cash flow (excl. dividends), $m
  3
  11
  14
  17
  21
  26
  32
  38
  45
  53
  62
  71
  82
  93
  106
  119
  134
  150
  167
  185
  204
  225
  248
  272
  297
  324
  353
  384
  417
  452
  489
Retained Cash Flow (-), $m
  -34
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
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
 
  4
  6
  9
  12
  16
  21
  26
  33
  40
  48
  56
  66
  77
  88
  101
  114
  129
  145
  162
  180
  200
  221
  243
  267
  293
  320
  349
  381
  414
  449
Discount rate, %
 
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
 
  4
  5
  7
  9
  11
  13
  15
  17
  18
  19
  20
  20
  20
  19
  18
  17
  15
  14
  12
  10
  9
  7
  6
  4
  3
  2
  2
  1
  1
  1
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

Covenant Transportation Group, Inc. is a provider of expedited long haul freight transportation, primarily using two-person driver teams in transcontinental lanes. The Company's services also include refrigerated, dedicated, cross-border, regional and brokerage. The Company's segments include Truckload and Other. The Truckload segment includes the operations of Covenant Transport, Inc. (Covenant Transport), its flagship operation, which provides expedited long haul, dedicated, temperature-controlled and regional solo-driver service; Southern Refrigerated Transport, Inc. (SRT), which provides primarily long haul, regional, dedicated and intermodal temperature-controlled service, and Star Transportation, Inc. (Star), which provides regional solo-driver and dedicated services, primarily in the southeastern United States. The Company provides truckload transportation services throughout the continental United States, into and out of Mexico, and into and out of portions of Canada.

FINANCIAL RATIOS  of  Covenant Transportation Group Cl A (CVTI)

Valuation Ratios
P/E Ratio 28.5
Price to Sales 0.7
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow -44
Growth Rates
Sales Growth Rate -7.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -37.9%
Cap. Spend. - 3 Yr. Gr. Rate -3.6%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 80.1%
Total Debt to Equity 91.5%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 5.4%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.3%
Return On Equity 7.8%
Return On Equity - 3 Yr. Avg. 14.6%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 56.3%
Gross Margin - 3 Yr. Avg. 56.4%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 15.8%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 6.6%
Pre-Tax Margin 4%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 2.5%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 37%
Eff/ Tax Rate - 3 Yr. Avg. 39%
Payout Ratio 0%

CVTI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CVTI stock intrinsic value calculation we used $671 million for the last fiscal year's total revenue generated by Covenant Transportation Group Cl A. The default revenue input number comes from 2016 income statement of Covenant Transportation Group Cl A. 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 CVTI stock valuation model: a) initial revenue growth rate of 3.1% 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 6.1%, whose default value for CVTI is calculated based on our internal credit rating of Covenant Transportation Group Cl A, 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 Covenant Transportation Group Cl A.
    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 CVTI stock the variable cost ratio is equal to 34%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $420 million in the base year in the intrinsic value calculation for CVTI 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 Covenant Transportation Group Cl A.

Corporate tax rate of 27% is the nominal tax rate for Covenant Transportation Group Cl A. 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 CVTI 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 CVTI are equal to 68.5%.

Life of production assets of 6.4 years is the average useful life of capital assets used in Covenant Transportation Group Cl A 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 CVTI is equal to 9.8%. 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 - $236 million for Covenant Transportation Group Cl A - 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 18.795 million for Covenant Transportation Group Cl A 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 Covenant Transportation Group Cl A at the current share price and the inputted number of shares is $0.5 billion.

RELATED COMPANIES Price Int.Val. Rating
CGI Celadon Group 5.30 11.07  str.buy
KNX Knight Transpo 38.84 13.71  str.sell
RRTS Roadrunner Tra 9.08 31.67  str.buy
ULH Universal Logi 21.25 61.77  str.buy
SWFT Swift Transpor 29.49 15.70  sell
WERN Werner Enterpr 34.20 41.54  buy
MRTN Marten Transpo 19.00 3.92  str.sell
USAK USA Truck 13.76 1.68  str.sell
PTSI P.A.M. Transpo 27.87 27.24  buy
HTLD Heartland Expr 23.04 10.46  str.sell

COMPANY NEWS

▶ Transportation Stocks Keep Trucking Higher   [Oct-13-17 01:19PM  Zacks]
▶ Covenant Transportation posts 2Q profit   [Jul-25-17 04:48PM  Associated Press]
▶ Covenant Transportation posts 1Q profit   [Apr-20-17 04:14PM  Associated Press]
▶ Orders for New Big-Rigs Jump in January   [Feb-03-17 04:38PM  at The Wall Street Journal]
▶ Covenant Transportation posts 4Q profit   [Jan-26-17 05:00AM  Associated Press]
▶ Is Trevena Inc (TRVN) A Good Stock To Buy?   [Dec-15-16 11:02AM  at Insider Monkey]
Financial statements of CVTI
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.